Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Increase Fees for the ToM Market Data Product and Establish Fees for the cToM Market Data Product, 25043-25052 [2023-08649]
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Federal Register / Vol. 88, No. 79 / Tuesday, April 25, 2023 / Notices
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5 This estimate assumed that, after the initial 6 hours that an entity would spend on the proposed fee waiver and expense reimbursement requirements, which we annualized over a 3-year period, the entity would incur 2 additional burden hours associated with ongoing compliance with
these requirements per year. The estimate of 4 hours is based on the following calculation ((6 initial hours/3) + 2 hours of additional ongoing burden hours) = 4 hours.
The table above summarizes our PRA
initial and ongoing annual burden
estimates associated with rule 482, as
amended. In the aggregate, we estimate
the total annual burden to comply with
amended rule 482 to be 577,847 hours,
at an average time cost of $213,133,255.
The information provided under rule
482 will not be kept confidential. The
provision of information under rule 482
is necessary to obtain the benefits of the
safe harbor offered by the rule.
The estimate of average burden hours
is made solely for the purposes of the
Paperwork Reduction Act and is not
derived from a comprehensive or even
a representative survey or study of the
costs of Commission rules and forms.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless it
displays a currently valid OMB control
number.
Written comments are invited on: (a)
whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimate of the burden of the collection
of information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
by June 26, 2023.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
Please direct your written comments
to: David Bottom, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o John
Pezzullo, 100 F Street NE, Washington,
DC 20549 or send an email to: PRA_
Mailbox@sec.gov.
Dated: April 19, 2023.
Sherry R. Haywood,
Assistant Secretary.
SECURITIES AND EXCHANGE
COMMISSION
the most significant aspects of such
statements.
[Release No. 34–97326; File No. SR–
EMERALD–2023–10]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Self-Regulatory Organizations; MIAX
Emerald, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Increase Fees for the
ToM Market Data Product and
Establish Fees for the cToM Market
Data Product
April 19, 2023.
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 April 11,
2023, MIAX Emerald, LLC (‘‘MIAX
Emerald’’ or ‘‘Exchange’’), filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the MIAX Emerald Fee Schedule
(the ‘‘Fee Schedule’’) to amend the fees
for two market data products by (i)
amending the fees for MIAX Emerald
Top of Market (‘‘ToM’’); and (ii)
establishing fees for 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.
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
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1. Purpose
The Exchange proposes to amend its
fees for two market data products by (i)
amending the fees for ToM; and (ii)
establishing fees for cToM. The
proposed fees will be immediately
effective. The Exchange initially filed
the proposal on December 28, 2022 (SR–
EMERALD–2022–37) (the ‘‘Initial
Proposal’’).3 On February 23, 2023, the
Exchange withdrew the Initial Proposal
and replaced it with a revised proposal
(SR–EMERALD–2023–04) (the ‘‘Second
Proposal’’).4 The Exchange recently
withdrew the Second Proposal and
replaced it with this current proposal
(SR–EMERALD–2023–10).
The Exchange previously filed several
proposals to adopt fees for cToM.5 The
Exchange notes that these prior
proposals included an analysis of the
costs underlying the compilation and
dissemination of the proposed cToM
fees. The Exchange previously included
a cost analysis in the Initial Proposal. As
described more fully below, the
Exchange provides an updated cost
analysis that includes, among other
things, additional descriptions of how
the Exchange allocated costs among it
and its affiliated exchanges (MIAX
PEARL, LLC (‘‘MIAX Pearl’’), separately
among MIAX Pearl Options and MIAX
Pearl Equities, and Miami International
Securities Exchange, LLC (‘‘MIAX,’’
together with MIAX Pearl, the
‘‘affiliated markets’’)) to ensure no cost
was allocated more than once, as well
as additional detail supporting its cost
allocation processes and explanations as
3 See Securities Exchange Act Release No. 96625
(January 10, 2023), 88 FR 2688 (January 17, 2023)
(SR–EMERALD–2022–37).
4 See Securities Exchange Act Release No. 97078
(March 8, 2023), 88 FR 15813 (March 14, 2023) (SR–
EMERALD–2023–04).
5 See Securities Exchange Act Release Nos. 92358
(July 9, 2021), 86 FR 37361 (July 15, 2021) (SR–
EMERALD–2021–21); SR–EMERALD–2021–32
(withdrawn without being noticed by the
Commission); 93427 (October 26, 2021), 86 FR
60310 (November 1, 2021) (SR–EMERALD–2021–
34); 93811 (December 17, 2021), 86 FR 73051
(December 23, 2021) (SR–EMERALD–2021–44);
94263 (February 15, 2022), 87 FR 9766 (February
22, 2022) (SR–EMERALD–2022–06); 94715 (April
14, 2022), 87 FR 23674 (April 20, 2022) (SR–
EMERALD–2022–14); 94892 (May 11, 2022), 87 FR
29963 (May 17, 2022) (SR–EMERALD–2022–18).
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to why a cost allocation in this proposal
may differ from the same cost allocation
in a similar proposal submitted by one
of its affiliated markets. Although the
baseline cost analysis used to justify the
proposed fees was made in the Initial
Proposal, the fees themselves have not
changed since the Initial Proposal and
the Exchange still proposes fees that are
intended to cover the Exchange’s cost of
providing ToM and cToM, with a
reasonable mark-up over those costs.
The proposed fees are intended to cover
the Exchange’s cost of compiling and
disseminating ToM and cToM with a
reasonable mark-up over those costs,
accounting for ongoing increases in
expenses.6 Before setting forth the
additional details regarding the proposal
as well as the updated Cost Analysis
conducted by the Exchange,
immediately below is a description of
the proposed fees.
Proposed Market Data Pricing
The Exchange offers ToM and cToM
to subscribers. The Exchange notes that
there is no requirement that any
Member 7 or market participant
subscribe to ToM or cToM or any other
data feed offered by the Exchange.
Instead, a Member may choose to
maintain subscriptions to ToM or cToM
based on their business model. The
proposed fees will not apply differently
based upon the size or type of firm, but
rather based upon the subscriptions a
firm has to ToM or cToM and their use
thereof, which are based upon factors
deemed relevant by each firm. The
proposed pricing for ToM and cToM is
set forth below.
ToM
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ToM is an Exchange-only market data
feed that contains top of book
quotations based on options orders 8 and
6 For example, the New York Stock Exchange,
Inc.’s (‘‘NYSE’’) Secure Financial Transaction
Infrastructure (‘‘SFTI’’) network, which contributes
to the Exchange’s connectivity cost, increased its
fees by approximately 9% since 2021. Similarly,
since 2021, the Exchange, and its affiliates,
experienced an increase in data center costs of
approximately 17% and an increase in hardware
and software costs of approximately 19%. These
percentages are based on the Exchange’s actual
2021 and proposed 2023 budgets.
7 The term ‘‘Member’’ means an individual or
organization approved to exercise the trading rights
associated with a Trading Permit. Members are
deemed ‘‘members’’ under the Exchange Act. See
Exchange Rule 100.
8 The term ‘‘order’’ means a firm commitment to
buy or sell option contracts. See Exchange Rule 100.
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quotes 9 entered into the System 10 and
resting on the Exchange’s Simple Order
Book 11 as well as administrative
messages.12 The Exchange currently
charges Internal Distributors 13 $1,250
per month and External Distributors
$1,750 per month for ToM. The
Exchange does not currently charge, nor
does it now propose to charge any
additional fees based on a subscriber’s
use of the ToM and cToM data feeds,
e.g., displayed versus non-displayed
use, redistribution fees, or any
individual per user fees. As discussed
more fully below, the Exchange recently
calculated its annual aggregate costs for
producing ToM to subscribers to be
$317,753, or $26,479 per month
(rounded to the nearest dollar when
dividing the annual cost by 12 months).
The Exchange proposes to amend
Section 6)a) of the Fee Schedule to now
charge Internal Distributors $2,000 per
month and External Distributors $3,000
per month for ToM in an effort to cover
the Exchange’s increasing costs with
compiling and producing ToM to
market participants as evidenced by the
Exchange’s Cost Analysis detailed
below.
cToM
The Exchange previously adopted
rules governing the trading of Complex
Orders 14 on the MIAX Emerald System
in 2018,15 ahead of the Exchange’s
planned launch, which took place on
March 1, 2019. Shortly thereafter, the
Exchange adopted the market data
9 The term ‘‘quote’’ or ‘‘quotation’’ means a bid or
offer entered by a Market Maker that is firm and
may update the Market Maker’s previous quote, if
any. The Rules of the Exchange provide for the use
of different types of quotes, including Standard
quotes and eQuotes, as more fully described in Rule
517. A Market Maker may, at times, choose to have
multiple types of quotes active in an individual
option. See Exchange Rule 100.
10 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
11 The term ‘‘Simple Order Book’’ means ‘‘the
Exchange’s regular electronic book of orders and
quotes.’’ See Exchange Rule 518(a)(15).
12 See Fee Schedule, Section 6)a).
13 A ‘‘Distributor’’ of MIAX data is any entity that
receives a feed or file of data either directly from
MIAX or indirectly through another entity and then
distributes it either internally (within that entity) or
externally (outside that entity). All Distributors are
required to execute a MIAX Distributor Agreement.
See Fee Schedule, Section 6)a).
14 See Exchange Rule 518(a)(5) for the definition
of Complex Orders.
15 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).
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product, cToM, and expressly waived
fees for cToM to incentivize market
participants to subscribe.16 cToM was
provided free of charge for four years
and the Exchange absorbed all costs
associated with compiling and
disseminating cToM during that entire
time. As discussed more fully below,
the Exchange recently calculated its
annual aggregate costs for producing
cToM to subscribers to be $347,543, or
$28,962 per month (rounded to the
nearest dollar when dividing the annual
cost by 12 months). The Exchange now
proposes to amend Section 6)a) of the
Fee Schedule to establish fees for cToM
in order to recoup its ongoing costs
going forward.
In summary, cToM provides
subscribers with the same information
as ToM as it relates to the Strategy
Book,17 i.e., the Exchange’s best bid and
offer for a complex strategy, with
aggregate size, based on displayable
orders 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 therefore a distinct
market data product from ToM in that
it includes additional information that
is not available to subscribers that
receive only ToM. ToM subscribers are
not required to subscribe to cToM, and
cToM subscribers are not required to
subscribe to ToM.
cToM Proposed Fees
The Exchange proposes to amend
Section (6)(a) of the Fee Schedule to
charge Internal Distributors $2,000 per
month and External Distributors $3,000
per month for the cToM data feed. The
proposed fees are identical to the fees
that the Exchange proposes to charge for
ToM. The Exchange does not propose to
adopt redistribution fees for the cToM
data feed. However, the recipient of
cToM data would be required to become
a data subscriber and would be subject
to the applicable data subscriber fees.
The Exchange also does not propose to
charge any additional fees based on a
subscriber’s use of the cToM data feed,
e.g., displayed versus non-displayed
16 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).
17 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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use, and does not propose to impose any
individual per user fees.
As it does today for ToM, the
Exchange proposes to assess cToM fees
to Internal and External Distributors in
each month the Distributor is
credentialed to use cToM in the
production environment. Also, as 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.
New cToM Distributors will be assessed
a pro-rata percentage of the fees listed
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 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 correction by deleting 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
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cToM is not the exclusive source for
Complex Order information from the
Exchange. It is a business decision of
market participants whether to
subscribe to cToM or not. Market
participants that choose not to subscribe
to cToM can derive much, if not all, of
the same information from other
Exchange sources, including, for
example, the MIAX Emerald Order Feed
(‘‘MOR’’).18 The following cToM
information is included in MOR: the
Exchange’s best bid and offer for a
complex strategy, with aggregate size,
based on displayable orders in the
18 See MIAX website, Market Data & Offerings,
available at https://www.miaxoptions.com/marketdata-offerings (last visited April 11, 2023). In
general, MOR provides real-time ultra-low 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.
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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 MOR, complex
strategy last sale information can be
derived from ToM. Specifically, market
participants may deduce that last sale
information for multiple trades in
related options series with the same
timestamps disseminated via ToM are
likely part of a Complex Order
transaction and last sale.
Additional Discussion—cToM
Background
In the six years since the Exchange
adopted Complex Order functionality,
the Exchange has grown its monthly
complex market share from 0% to
3.03% of the total electronic complex
non-index volume executed on
exchanges offering electronic complex
functionality for the month of November
2022.19 During that same period, the
Exchange has had a steady increase in
the number of cToM subscribers. Until
the Exchange initially filed to adopt
cToM fees in July of 2021, the Exchange
did not charge fees for cToM data
provided by the Exchange.
The objective of this approach was to
eliminate any fee-based barriers for
Members when the Exchange launched
with Complex Order functionality in
2019, which the Exchange believes has
been helpful in its ability to attract order
flow as a new exchange. As discussed
more fully below, the Exchange recently
calculated its annual aggregate costs for
providing cToM at approximately
$347,543. In order to establish fees that
are designed to recover the aggregate
costs of providing cToM plus a
reasonable mark-up, the Exchange is
proposing to modify its Fee Schedule, as
described above. In addition to the Cost
Analysis, described below, the
Exchange believes that its proposed
approach to market data fees is
reasonable based on a comparison to
competitors.
Additional Discussion—Comparison
With Other Exchanges
ToM
The proposed fees for ToM are
comparable to the fees currently in
place for the options exchanges,
particularly Nasdaq ISE, LLC (‘‘ISE’’).20
19 The Exchange notes that it receives complex
market data for all U.S. options exchanges that offer
complex functionality from direct feeds from The
Options Price Reporting Authority (‘‘OPRA’’).
20 See ISE Options 7 Pricing Schedule, Section 10,
H., available at https://listingcenter.nasdaq.com/
rulebook/ise/rules/ISE%20Options%207 (assessing
Professional internal and external distributors
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25045
In November 2022, the Exchange had
3.11% market share of equity options
volume; for that same month, ISE had
6.19% market share of equity options
volume.21 The Exchange’s proposed fees
for ToM are equal to, and for Internal
Distributors, lower than, the rates data
recipients pay for comparable data feeds
from ISE. The Exchange notes that other
competitors maintain fees applicable to
market data that are considerably higher
than those proposed by the Exchange,
including NYSE Arca, Inc. (‘‘NYSE
Arca’’).22 However, the Exchange has
focused its comparison on ISE because
it is the closest market in terms of
market share and offers market data at
prices lower than several other
incumbent exchanges. The fees for the
Nasdaq ISE Top Quote Feed, which like
ToM, includes top of book, trades, and
security status messages, consists of an
internal distributor access fee of $3,000
per month (50% higher than the
Exchange’s proposed rate), and an
external distributor access fee of $3,000
per month (equal to the Exchange’s
proposed rate).23 ISE’s overall charge to
receive the Nasdaq ISE Top Quote Feed
may be even higher than the Exchange’s
proposed rates because ISE charges
additional per controlled device fees
that can cause the distribution fee to
reach up to $5,000 per month.24 The
Exchange’s proposed rates do not
include additional fees.
cToM
The proposed fees for cToM are
comparable to the fees currently in
place for competing options exchanges,
particularly NYSE American, LLC
(‘‘NYSE American’’).25 As noted above,
for the month of November 2022, the
Exchange had 3.11% of the total equity
$3,000 per month, plus $20 per month per
controlled device for ISE’s Top Quote Feed).
21 See Market at a Glance, U.S. Options Market
Volume Summary, available at https://
www.miaxoptions.com/ (last visited April 11, 2023).
22 Fees for the NYSE Arca Options Top Feed,
which is the comparable product to ToM, are
$3,000 per month for access (internal use) and an
additional $2,000 per month for redistribution
(external distribution), compared to the Exchange’s
proposed fees of $2,000 and $3,000 for Internal and
External Distributors, respectively. In addition, for
its NYSE Arca Options Top Feed, NYSE Arca
charges for three different categories of non-display
usage, and user fees, both of which the Exchange
does not propose to charge, causing the overall cost
of NYSE Arca Options Top Feed to far exceed the
Exchange’s proposed rates. See NYSE Acra Options
Proprietary Market Data Fees, available at: https://
www.nyse.com/publicdocs/nyse/data/NYSE_Arca_
Options_Proprietary_Data_Fee_Schedule.pdf.
23 See supra note 20.
24 Id.
25 See NYSE American Options Proprietary
Market Data Fees, available at https://
www.nyse.com/publicdocs/nyse/data/NYSE_
American_Options_Market_Data_Fee_
Schedule.pdf.
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options market share and 3.03% of the
total electronic complex non-index
volume executed on exchanges offering
electronic complex functionality. For
that same month, NYSE American had
6.93% of the total equity options market
share and 6.35% of the total electronic
complex non-index volume.26 The
Exchange proposes fees for cToM that
are comparable to the rates data
recipients pay for comparable data feeds
from NYSE American. The Exchange
has focused its comparison on NYSE
American because it is the closest
market in terms of market share. The
fees for the NYSE American Options
Complex, which, like cToM, includes
top of book, trades, and security status
messages for complex orders, consists of
an internal distributor access fee of
$1,500 per month (slightly lower than
the Exchange’s proposed rate), and an
external distributor access fee of $1,000
per month (resulting in a total external
distribution fee of $2,500 per month).27
However, NYSE American’s overall
charge to receive NYSE American
Options Complex data may be even
higher than the Exchange’s proposed
rates because NYSE American charges
additional non-displayed usage fees
(each are $1,000 per month and a
subscriber may pay multiple nondisplayed usage fees), per user fees ($20
per month for professional users and
$1.00 per month for non-professional
users), and multiple data feed fees ($200
per month), all of which the Exchange
does not propose to charge. These
additional charges by NYSE American
can cause the total cost to receive NYSE
American Complex data to far exceed
the rates that the Exchange proposes to
charge.
Additional Discussion—Cost Analysis
In general, the Exchange believes that
exchanges, in setting fees of all types,
should meet high standards of
transparency to demonstrate why each
new fee or fee increase meets the
Exchange Act requirements that fees be
reasonable, equitably allocated, not
unfairly discriminatory, and not create
an undue burden on competition among
members and markets. In particular, the
Exchange believes that each exchange
should take extra care to be able to
demonstrate that these fees are based on
its costs and reasonable business needs.
Accordingly, in proposing to charge
fees for market data, the Exchange is
especially diligent in assessing those
fees in a transparent way against its own
aggregate costs of providing the related
service, and in carefully and
26 See
supra note 21.
27 Id.
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transparently assessing the impact on
Members—both generally and in
relation to other Members—to ensure
the fees will not create a financial
burden on any participant and will not
have an undue impact in particular on
smaller Members and competition
among Members in general. The
Exchange does not believe it needs to
otherwise address questions about
market competition in the context of
this filing because the proposed fees are
so clearly consistent with the Act based
on its Cost Analysis. The Exchange also
believes that this level of diligence and
transparency is called for by the
requirements of Section 19(b)(1) under
the Act,28 and Rule 19b–4 thereunder,29
with respect to the types of information
self-regulatory organizations (‘‘SROs’’)
should provide when filing fee changes,
and Section 6(b) of the Act,30 which
requires, among other things, that
exchange fees be reasonable and
equitably allocated,31 not designed to
permit unfair discrimination,32 and that
they not impose a burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act.33 This rule change
proposal addresses those requirements,
and the analysis and data in this section
are designed to clearly and
comprehensively show how they are
met.34
As noted above, the Exchange has
conducted and recently updated a study
of its aggregate costs to produce the
ToM and cToM data feeds—the Cost
Analysis.35 The Cost Analysis required
a detailed analysis of the Exchange’s
28 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
30 15 U.S.C. 78f(b).
31 15 U.S.C. 78f(b)(4).
32 15 U.S.C. 78f(b)(5).
33 15 U.S.C. 78f(b)(8).
34 In 2019, Commission staff published guidance
suggesting the types of information that SROs may
use to demonstrate that their fee filings comply
with the standards of the Exchange Act (‘‘Fee
Guidance’’). While the Exchange understands that
the Fee Guidance does not create new legal
obligations on SROs, the Fee Guidance is consistent
with the Exchange’s view about the type and level
of transparency that exchanges should meet to
demonstrate compliance with their existing
obligations when they seek to charge new fees. See
Staff Guidance on SRO Rule Filings Relating to Fees
(May 21, 2019) available at https://www.sec.gov/tm/
staff-guidancesro-rule-filings-fees.
35 The Exchange notes that its Cost Analysis is
based on that conducted by MEMX, LLC
(‘‘MEMX’’). See Securities Exchange Act Release
Nos. 95936 (September 27, 2022), 87 FR 59845
(October 3, 2022) (SR–MEMX–2022–26); and 96430
(December 1, 2022), 87 FR 75083 (December 7,
2022) (SR–MEMX–2022–32). The Exchange notes
that the percentage allocations and cost levels are
based on the Exchange’s 2023 estimated budget and
may differ from those provided by MEMX for a
number of reasons, including the Exchange’s ability
to allocate costs among multiple exchanges while
MEMX allocates cost to a single exchange.
29 17
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aggregate baseline costs, including a
determination and allocation of costs for
core services provided by the
Exchange—transactions, market data,
membership services, physical
connectivity, and ports (which provide
order entry, cancellation and
modification functionality, risk
functionality, ability to receive drop
copies, and other functionality). The
Exchange separately divided its costs
between those costs necessary to deliver
each of these core services, including
infrastructure, software, human
resources (i.e., personnel), and certain
general and administrative expenses
(collectively, ‘‘cost drivers’’).
As an initial step, the Exchange
determined the total cost for the
Exchange and the affiliated markets.
That total cost was then divided among
the Exchange and each of its affiliated
markets based on a number of factors,
including server counts, additional
hardware and software utilization,
current or anticipated functional or nonfunctional development projects,
capacity needs, end-of-life or end-ofservice intervals, number of members,
market model (e.g., price time or prorata), which may impact message traffic,
individual system architectures that
impact platform size,36 storage needs,
dedicated infrastructure versus shared
infrastructure allocated per platform
based on the resources required to
support each platform, number of
available connections, and employees
allocated time. This will result in
different allocation percentages among
the Exchange and its affiliated markets.
Meanwhile this allocation methodology
ensures that no portion of any cost was
allocated twice or double-counted
between the Exchange and its affiliated
markets.
Next, the Exchange adopted an
allocation methodology with thoughtful
and consistently principles to guide
how much of a particular cost amount
allocated to the Exchange pursuant to
the above methodology should be
allocated within the Exchange to each
core service. For instance, fixed costs
that are not driven by client activity
(e.g., message rates), such as data center
costs, were allocated more heavily to the
provision of physical connectivity
(61.9% of total expense amount
allocated), with smaller allocations to
additional Limited Service MEI Ports
(8.8%), and the remainder to the
provision of membership services,
transaction execution and market data
36 For example, the Exchange maintains 12
matching engines, MIAX Pearl Options maintains
12 matching engines, MIAX Pearl Equities
maintains 24 matching engines, and MIAX
maintains 24 matching engines.
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services (29.3%). This next level of the
allocation methodology at the
individual exchange level also took into
account a number of factors similar to
those set forth under the first allocation
methodology described above, to
determine the appropriate allocation to
connectivity or market data versus what
is to be allocated to providing other
services. The allocation methodology
was developed through an assessment of
costs with senior management
intimately familiar with each area of the
Exchange’s operations. After adopting
this allocation methodology, the
Exchange then applied an estimated
allocation of each Cost Driver to each
core service, resulting in the cost
allocations described below. Each of the
below cost allocations is unique to the
Exchange and represents a percentage of
overall cost that was allocated to the
Exchange pursuant to the initial
allocation described above.
By allocating segmented costs to each
core service, the Exchange was able to
estimate by core service the potential
margin it might earn based on different
fee models. The Exchange notes that as
a non-listing venue it has five primary
sources of revenue that it can
potentially use to fund its operations:
transaction, access, membership,
regulatory, and market data fees.
Accordingly, the Exchange generally
must cover its expenses from these four
primary sources of revenue. The
Exchange also notes that as a general
matter each of these sources of revenue
is based on services that are
interdependent. For instance, the
Exchange’s system for executing
transactions is dependent on physical
hardware and connectivity; only
Members and parties that they sponsor
to participate directly on the Exchange
may submit orders to the Exchange;
many Members (but not all) consume
market data from the Exchange in order
to trade on the Exchange; and, the
Exchange consumes market data from
external sources in order to comply with
regulatory obligations. Accordingly,
given this interdependence, the
allocation of costs to each service or
revenue source required judgment of the
Exchange and was weighted based on
estimates of the Exchange that the
Exchange believes are reasonable, as set
forth below. While there is no
standardized and generally accepted
methodology for the allocation of an
exchange’s costs, the Exchange’s
methodology is the result of an
extensive review and analysis and will
be consistently applied going forward
for any other potential fee proposals. In
the absence of the Commission
attempting to specify a methodology for
the allocation of exchanges’
interdependent costs, the Exchange will
continue to be left with its best efforts
to attempt to conduct such an allocation
in a thoughtful and reasonable manner.
Through the Exchange’s extensive
Cost Analysis, which was again recently
updated to focus solely on the provision
of ToM and cToM data feeds, the
Exchange analyzed nearly every
expense item in the Exchange’s general
expense ledger to determine whether
each such expense relates to the
provision of ToM and cToM data feeds,
and, if such expense did so relate, what
portion (or percentage) of such expense
actually supports the provision of ToM
and cToM data feeds, and thus bears a
relationship that is, ‘‘in nature and
closeness,’’ directly related to ToM and
cToM data feeds. Based on its analysis,
the Exchange calculated its aggregate
annual costs for providing the ToM and
cToM data feeds to be $665,296. This
results in an estimated monthly cost for
providing ToM and cToM data feeds of
$55,441 (rounded to the nearest dollar
when dividing the aggregate annual cost
by 12 months). In order to cover
operating costs and earn a reasonable
profit on its market data, the Exchange
has determined it necessary to charge
fees for its proprietary data products,
and, as such, the Exchange is proposing
to modify its Fee Schedule, as set forth
above. With the proposed fee changes,
the Exchange anticipates annual
revenue for ToM and cToM to be
$804,000 (or $67,000 per month
combined).
Costs Related to Offering ToM and
cToM Data Feeds
The following chart details the
individual line-item (annual) costs
considered by the Exchange to be
related to offering the ToM and cToM
data feeds to its Members and other
customers, as well as the percentage of
the Exchange’s overall costs that such
costs represent for such area (e.g., as set
forth below, the Exchange allocated
approximately 2.8% of its overall
Human Resources cost to offering ToM
and cToM data feeds).
Cost drivers
% of all
Human Resources ...................................................................................................................................................
Network Infrastructure (fiber connectivity) ...............................................................................................................
Data Center .............................................................................................................................................................
Hardware and Software Maintenance & Licenses ..................................................................................................
Depreciation .............................................................................................................................................................
Allocated Shared Expenses ....................................................................................................................................
$354,553
9,428
20,630
22,202
21,167
237,316
2.8
1.7
1.7
1.7
0.7
3.0
Total ..................................................................................................................................................................
665,296
2.5
Human Resources
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Costs
For personnel costs (Human
Resources), the Exchange calculated an
allocation of employee time for
employees whose functions include
directly providing services necessary to
offer the ToM and cToM data feeds,
including performance thereof, as well
as personnel with ancillary functions
related to establishing and providing
such services (such as information
security and finance personnel). The
Exchange notes that it and its affiliated
markets have approximately 184
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employees (excluding employees at
non-options exchange subsidiaries of
Miami International Holdings, Inc.
(‘‘MIH’’), the holding company of the
Exchange and its affiliates, MIAX Pearl
and MIAX), and each department leader
has direct knowledge of the time spent
by each employee with respect to the
various tasks necessary to operate the
Exchange. Specifically, twice a year and
as needed with additional new hires
and new project initiatives, in
consultation with employees as needed,
managers and department heads assign
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a percentage of time to every employee
and then allocate that time amongst the
Exchange and its affiliated markets to
determine that market’s individual
Human Resources expense. Then, again
managers and department heads assign
a percentage of each employee’s time
allocated to the Exchange into buckets
including network connectivity, ports,
market data, and other exchange
services. This process ensures that every
employee is 100% allocated, ensuring
there is no double counting between the
Exchange and its affiliated markets.
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The estimates of Human Resources
cost were therefore determined by
consulting with such department
leaders, determining which employees
are involved in tasks related to
providing the ToM and cToM data
feeds, and confirming that the proposed
allocations were reasonable based on an
understanding of the percentage of their
time such employees devote to tasks
related to providing the ToM and cToM
data feeds. The Exchange notes that
senior level executives were allocated
Human Resources costs to the extent the
Exchange believed they are involved in
overseeing tasks related to providing the
ToM and cToM data feeds. The
Exchange’s cost allocation for
employees who perform work in
support of generating and disseminating
the ToM and cToM data feeds on behalf
of the Exchange’s options trading
platform arrived at a full time
equivalent (‘‘FTE’’) of 1.2 FTEs. This
includes personnel from the following
Exchange departments that are
predominately involved in producing
Exchange market data: Business
Systems Development, Trading Systems
Development, Systems Operations and
Network Monitoring, Network and Data
Center Operations, Listings, Trading
Operations, and Project Management.
The Human Resources cost was
calculated using a blended rate of
compensation reflecting salary, equity
and bonus compensation, benefits,
payroll taxes, and 401(k) matching
contributions.
Data Center
The Exchange does not own the
primary data center or the secondary
data center, but instead leases space in
data centers operated by third parties
where the Exchange houses servers,
switches and related equipment. Data
Center costs include an allocation of the
costs the Exchange incurs to provide the
ToM and cToM data feeds in the thirdparty data centers where the Exchange
maintains its equipment, as well as
related costs. As the Data Center costs
are primarily for space, power, and
cooling of servers, the Exchange
allocated 1.7% to the applicable Data
Center costs for the ToM and cToM data
feeds. The Exchange believes it is
reasonable to apply the same
proportionate percentage of Data Center
costs to that of Network Infrastructure.
Hardware and Software Maintenance
and Licenses
Hardware and Software Maintenance
and Licenses includes those licenses
used to operate and monitor physical
assets necessary to offer the ToM and
cToM data feeds. Because the hardware
and software license fees are correlated
to the servers used by the Exchange, the
Exchange again applied an allocation of
1.7% of its costs for Hardware and
Software Maintenance and Licenses to
the ToM and cToM data feeds.38
Network Infrastructure
The Network Infrastructure cost
includes cabling and switches required
to generate and disseminate the ToM
and cToM data feeds. The Network
Infrastructure cost was narrowly
estimated by focusing on the servers
used at the Exchange’s primary and
back-up data centers specifically for the
ToM and cToM data feeds. Further, as
certain servers are only partially utilized
to generate and disseminate the ToM
and cToM data feeds, only the
percentage of such servers devoted to
generating and disseminating the ToM
and cToM data feeds was included (i.e.,
the capacity of such servers allocated to
the ToM and cToM data feeds).37
Monthly Depreciation
The vast majority of the hardware and
software the Exchange uses with respect
to its operations, including the software
used to generate and disseminate the
ToM and cToM data feeds has been
developed in-house and the cost of such
development is depreciated over time.
Accordingly, the Exchange included
Depreciation costs related to
depreciated hardware and software used
to generate and disseminate the ToM
and cToM data feeds. The Exchange also
included in the Depreciation costs
certain budgeted improvements that the
Exchange intends to capitalize and
depreciate with respect to the ToM and
cToM data feeds in the near-term. As
with the other allocated costs in the
Exchange’s updated Cost Analysis, the
Depreciation cost was therefore
narrowly tailored to depreciation related
37 The Exchange understands that the Investors
Exchange, Inc. (‘‘IEX’’) and MEMX both allocated a
percentage of their servers to the production and
dissemination of market data to support proposed
market data fees. See Securities Exchange Act
Release No. 94630 (April 7, 2022), 87 FR 21945, at
page 21949 (April 13, 2022) (SR–IEX–2022–02). See
also supra note 35. The Exchange does not have
insight into either MEMX’s or IEX’s technology
infrastructure or what their determinations were
based on. However, the Exchange reviewed its own
technology infrastructure and believes based on its
design, it is more appropriate for the Exchange to
allocate a portion of its network infrastructure cost
to market data based on a percentage of overall cost,
not on a per server basis.
38 This expense may be less than the Exchange’s
affiliated markets, specifically MIAX Pearl, because,
unlike the Exchange, MIAX Pearl (the options and
equities markets) maintains an additional gateway
to accommodate its member’s access and
connectivity needs. This added gateway contributes
to the difference in allocations between the
Exchange and MIAX Pearl.
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to the ToM and cToM data feeds. The
Exchange also notes that this allocation
differs from its affiliated markets due to
a number of factors, such as the age of
physical assets and software (e.g., older
physical assets and software were
previously depreciated and removed
from the allocation), or certain system
enhancements that required new
physical assets and software, thus
providing a higher contribution to the
depreciated cost.
Allocated Shared Expenses
Finally, certain general shared
expenses were allocated to the ToM and
cToM data feeds. However, contrary to
its prior cost analysis, rather than taking
the whole amount of general shared
expenses and applying an allocated
percentage, the Exchange has narrowly
selected specific general shared
expenses relevant to the cToM data
feed. The costs included in general
shared expenses allocated to the ToM
and cToM data feeds include office
space and office expenses (e.g.,
occupancy and overhead expenses),
utilities, recruiting and training,
marketing and advertising costs,
professional fees for legal, tax and
accounting services (including external
and internal audit expenses), and
telecommunications costs. The cost of
paying individuals to serve on the
Exchange’s Board of Directors or any
committee was not allocated to
providing ToM and cToM data feeds.
Cost Analysis—Additional Discussion
In conducting its Cost Analysis, the
Exchange did not allocate any of its
expenses in full to any core service and
did not double-count any expenses.
Instead, as described above, the
Exchange identified and allocated
applicable Cost Drivers across its core
services and used the same approach to
analyzing costs to form the basis of
separate proposals to amend fees for
connectivity and port services 39 and
this filing proposing fees for ToM and
cToM. Thus, the Exchange’s allocations
of cost across core services were based
on real costs of operating the Exchange
and were not double-counted across the
core services or their associated revenue
streams. The proposed fees for ToM and
cToM data feeds are designed to permit
the Exchange to cover the costs
allocated to providing cToM data with
a mark-up that the Exchange believes is
39 See MIAX Exchange Group Alert, ‘‘MIAX
Options, Pearl Options and Emerald Options
Exchanges—January 1, 2023 Non-Transaction Fee
Changes,’’ issued December 9, 2022, available at
https://www.miaxoptions.com/alerts/2022/12/09/
miax-options-pearl-options-and-emerald-optionsexchanges-january-1-2023-non-0.
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modest (approximately 17%, which
could decrease over time 40), which the
Exchange believes is fair and reasonable
after taking into account the costs
related to creating, generating, and
disseminating the ToM and cToM data
feeds and the fact that the Exchange will
need to fund future expenditures
(increased costs, improvements, etc.).
The Exchange also reiterates that prior
to July of 2021, the month in which it
first proposed to adopt fees for cToM,
the Exchange has not previously
charged any fees for cToM and its
allocation of costs to cToM was part of
a holistic allocation that also allocated
costs to other core services without
double-counting any expenses.
The Exchange is owned by a holding
company that is the parent company of
four exchange markets and, therefore,
the Exchange and its affiliated markets
must allocate shared costs across all of
those markets accordingly, pursuant to
the above-described allocation
methodology. In contrast, the Investors
Exchange LLC (‘‘IEX’’) and MEMX,
which are currently each operating only
one exchange, in their recent nontransaction fee filings can allocate the
entire amount of that same cost to a
single exchange. This can result in
lower profit margins for the nontransaction fees proposed by IEX and
MEMX because the single allocated cost
does not experience the efficiencies and
synergies associated with shared costs
across multiple platforms.41 The
Exchange and its affiliated markets must
share a single cost, which results in cost
efficiencies that cause a broader gap
between the allocated cost amount and
projected revenue, even though the fee
levels being proposed are lower or
similar to competing markets (as
described above). To the extent that the
application of a cost-based standard
results in Commission Staff making
determinations as to the appropriateness
of certain profit margins, the
40 The Exchange believes that its profit margins
could decrease if U.S. inflation continues at its
current rate. See, e.g., https://www.usinflation
calculator.com/inflation/current-inflation-rates/
(last visited April 11, 2023).
41 The Exchange acknowledges that IEX included
in its proposal to adopt market data fees after
offering market data for free an analysis of what its
projected revenue would be if all of its existing
customers continued to subscribe versus what its
projected revenue would be if a limited number of
customers subscribed due to the new fees. See
Securities Exchange Act Release No. 94630 (April
7, 2022), 87 FR 21945 (April 13, 2022) (SR–IEX–
2022–02). MEMX did not include a similar analysis
in either of its recent non-transaction fee proposals.
See, e.g., supra note 35. The Exchange does not
believe a similar analysis would be useful here
because it is amending existing fees, not proposing
to charge a new fee where existing subscribers may
terminate connections because they are no longer
enjoying the service at no cost.
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Commission Staff must consider
whether the proposed fee level is
comparable to, or on parity with, the
same fee charged by competing
exchanges and how different cost
allocation methodologies (such as across
multiple markets) may result in
different profit margins for comparable
fee levels. If it is the case that the
Commission Staff is making
determinations as to appropriate profit
margins, the Exchange believes that
Staff should be clear to all market
participants as to what they determine
is an appropriate profit margin and
should apply such determinations
consistently and, in the case of certain
legacy exchanges, retroactively, if such
standards are to avoid having a
discriminatory effect.
Further, the proposal reflects the
Exchange’s efforts to control its costs,
which the Exchange does on an ongoing
basis as a matter of good business
practice. A potential profit margin
should not be judged alone based on its
size, but is also indicative of costs
management and whether the ultimate
fee reflects the value of the services
provided. For example, a profit margin
on one exchange should not be deemed
excessive where that exchange has been
successful in controlling its costs, but
not excessive where on another
exchange where that exchange is
charging comparable fees but has a
lower profit margin due to higher costs.
Doing so could have the perverse effect
of not incentivizing cost control where
higher costs alone could be used to
justify fees increases.
Accordingly, while the Exchange
believes in transparency around costs
and potential margins, as well as
periodic review of revenues and
applicable costs (as discussed below),
the Exchange does not believe that these
estimates should form the sole basis of
whether or not a proposed fee is
reasonable or can be adopted. Instead,
the Exchange believes that the
information should be used solely to
confirm that an Exchange is not earning
supra-competitive profits, and the
Exchange believes the Cost Analysis and
related projections demonstrate this
fact.
The Exchange notes that the Cost
Analysis is based on the Exchange’s
2023 fiscal year of operations and
projections. It is possible, however, that
such costs will either decrease or
increase. To the extent the Exchange
sees growth in use of ToM and cToM
data feeds it will receive additional
revenue to offset future cost increases.
However, if use of ToM and cToM data
feeds is static or decreases, the
Exchange might not realize the revenue
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25049
that it anticipates or needs in order to
cover applicable costs. Accordingly, the
Exchange is committing to conduct a
one-year review after implementation of
these fees. The Exchange expects that it
may propose to adjust fees at that time,
to increase fees in the event that
revenues fail to cover costs and a
reasonable mark-up of such costs.
Similarly, the Exchange expects that it
would propose to decrease fees in the
event that revenue materially exceeds
current projections. In addition, the
Exchange will periodically conduct a
review to inform its decision making on
whether a fee change is appropriate
(e.g., to monitor for costs increasing/
decreasing or subscribers increasing/
decreasing, etc. in ways that suggest the
then-current fees are becoming
dislocated from the prior cost-based
analysis) and expects that it would
propose to increase fees in the event
that revenues fail to cover its costs and
a reasonable mark-up, or decrease fees
in the event that revenue or the markup materially exceeds current
projections. In the event that the
Exchange determines to propose a fee
change, the results of a timely review,
including an updated cost estimate, will
be included in the rule filing proposing
the fee change. More generally, the
Exchange believes that it is appropriate
for an exchange to refresh and update
information about its relevant costs and
revenues in seeking any future changes
to fees, and the Exchange commits to do
so.
Implementation
The proposed rule changes will be
immediately effective.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6(b) 42 of the
Act in general, and furthers the
objectives of Section 6(b)(4) 43 of the
Act, in particular, in that it is designed
to provide for the equitable allocation of
reasonable dues, fees and other charges
among its Members and other persons
using its facilities. Additionally, the
Exchange believes that the proposed
fees are consistent with the objectives of
Section 6(b)(5) 44 of the Act in that they
are designed to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, to remove impediments to
42 15
U.S.C. 78f.
U.S.C. 78f(b)(4).
44 15 U.S.C. 78f(b)(5).
43 15
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a free and open market and national
market system, and, in general, to
protect investors and the public interest,
and, particularly, are not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange notes prior to
addressing the specific reasons the
Exchange believes the proposed fees
and fee structure are reasonable,
equitably allocated and not
unreasonably discriminatory, that the
proposed fees are consistent with the fee
amounts charged by competing U.S.
securities exchanges. For this reason,
the Exchange believes that the proposed
fees are consistent with the Act
generally, and Section 6(b)(5) 45 of the
Act in particular.
As noted above, in the four years
since the Exchange launched operations
with Complex Order functionality, the
Exchange has grown its monthly
complex market share from 0% to
3.03% of the total electronic complex
non-index volume executed on U.S.
options exchanges offering complex
functionality for the month of November
2022.46 One of the primary objectives of
the Exchange is to provide competition
and to reduce fixed costs imposed upon
the industry. Consistent with this
objective, the Exchange believes that
this proposal reflects a simple,
competitive, reasonable, and equitable
pricing structure.
Reasonableness
Overall. With regard to
reasonableness, the Exchange
understands that the Commission has
traditionally taken a market-based
approach to examine whether the SRO
making the fee proposal was subject to
significant competitive forces in setting
the terms of the proposal. The Exchange
understands that in general the analysis
considers whether the SRO has
demonstrated in its filing that (i) there
are reasonable substitutes for the
product or service; (ii) ‘‘platform’’
competition constrains the ability to set
the fee; and/or (iii) revenue and cost
analysis shows the fee would not result
in the SRO taking supra-competitive
profits. If the SRO demonstrates that the
fee is subject to significant competitive
forces, the Exchange understands that in
general the analysis will next consider
whether there is any substantial
countervailing basis to suggest the fee’s
terms fail to meet one or more standards
under the Exchange Act. The Exchange
further understands that if the filing
fails to demonstrate that the fee is
constrained by competitive forces, the
45 15
U.S.C. 78f(b)(5).
supra note 21.
47 See supra notes 20, 22, and 25, and
accompanying text.
46 See
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SRO must provide a substantial basis,
other than competition, to show that it
is consistent with the Exchange Act,
which may include production of
relevant revenue and cost data
pertaining to the product or service.
The Exchange has not determined its
proposed overall market data fees based
on assumptions about market
competition, instead relying upon a
cost-plus model to determine a
reasonable fee structure that is informed
by the Exchange’s understanding of
different uses of the products by
different types of participants. In this
context, the Exchange believes the
proposed fees overall are fair and
reasonable as a form of cost recovery
plus the possibility of a reasonable
return for the Exchange’s aggregate costs
of offering the ToM and cToM data
feeds. The Exchange believes the
proposed fees are reasonable because
they are designed to generate annual
revenue to recoup some or all of
Exchange’s annual costs of providing
ToM and cToM data with a reasonable
mark-up. As discussed in the Purpose
section, the Exchange estimates this fee
filing will result in annual revenue of
approximately $804,000, representing a
potential mark-up of just 17% over the
cost of providing ToM and cToM data.
Accordingly, the Exchange believes that
this fee methodology is reasonable
because it allows the Exchange to
recoup some or all of its expenses for
providing the ToM and cToM data
products (with any additional revenue
representing no more than what the
Exchange believes to be a reasonable
rate of return). The Exchange also
believes that the proposed fees are
reasonable because they are generally
less than the fees charged by competing
options exchanges for comparable
market data products, notwithstanding
that the competing exchanges may have
different system architectures that may
result in different cost structures for the
provision of market data.
The Exchange believes the proposed
fees for the ToM and cToM data feeds
are reasonable when compared to fees
for comparable products, compared to
which the Exchange’s proposed fees are
generally lower, as well as other
comparable data feeds priced
significantly higher than the Exchange’s
proposed fees for the ToM and cToM
data feeds.47
Internal Distribution Fees. The
Exchange believes that it is reasonable
to charge fees to access the ToM and
cToM data feeds for Internal
Distribution because of the value of
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such data to subscribers in their profitgenerating activities. The Exchange also
believes that the proposed monthly
Internal Distribution fee for cToM is
reasonable as it is similar to the amount
charged by at least one other exchange
of comparable size for comparable data
products, and lower than the fees
charged by other exchange for
comparable data products.48
External Distribution Fees. The
Exchange believes that it is reasonable
to charge External Distribution fees for
the ToM and cToM data feeds because
vendors receive value from
redistributing the data in their business
products provided to their customers.
The Exchange believes that charging
External Distribution fees is reasonable
because the vendors that would be
charged such fees profit by retransmitting the Exchange’s market data
to their customers. These fees would be
charged only once per month to each
vendor account that redistributes any
ToM and cToM data feeds, regardless of
the number of customers to which that
vendor redistributes the data. For all of
the foregoing reasons, the Exchange
believes that the proposed fees for the
ToM and cToM data feeds are
reasonable.
Equitable Allocation
Overall. The Exchange believes that
its proposed fees are reasonable, fair,
and equitable, and not unfairly
discriminatory because they are
designed to align fees with services
provided. The Exchange believes the
proposed fees for the ToM and cToM
data feeds are allocated fairly and
equitably among the various categories
of users of the feeds, and any differences
among categories of users are justified
and appropriate.
The Exchange believes that the
proposed fees are equitably allocated
because they will apply uniformly to all
data recipients that choose to subscribe
to the ToM and cToM data feeds. Any
subscriber or vendor that chooses to
subscribe to the ToM and cToM data
feeds is subject to the same Fee
Schedule, regardless of what type of
business they operate, and the decision
to subscribe to one or more ToM and
cToM data feeds is based on objective
differences in usage of ToM and cToM
data feeds among different Members,
which are still ultimately in the control
of any particular Member. The Exchange
believes the proposed pricing of the
ToM and cToM data feeds is equitably
allocated because it is based, in part,
upon the amount of information
contained in each data feed and the
48 See,
E:\FR\FM\25APN1.SGM
e.g., supra notes 20, 22, and 25.
25APN1
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Federal Register / Vol. 88, No. 79 / Tuesday, April 25, 2023 / Notices
value of that information to market
participants.
Internal Distribution Fees. The
Exchange believes the proposed
monthly fees for Internal Distribution of
the ToM and cToM data feeds are
equitably allocated because they would
be charged on an equal basis to all data
recipients that receive the ToM and
cToM data feeds for internal
distribution, regardless of what type of
business they operate.
External Distribution Fees. The
Exchange believes the proposed
monthly fees for External Distribution of
the ToM and cToM data feeds are
equitably allocated because they would
be charged on an equal basis to all data
recipients that receive the ToM and
cToM data feeds that choose to
redistribute the feeds externally,
regardless of what business they
operate. The Exchange also believes that
the proposed monthly fees for External
Distribution are equitably allocated
when compared to lower proposed fees
for Internal Distribution because data
recipients that are externally
distributing ToM and cToM data feeds
are able to monetize such distribution
and spread such costs amongst multiple
third party data recipients, whereas the
Internal Distribution fee is applicable to
use by a single data recipient (and its
affiliates).
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 ToM and cToM
data feeds 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 decide 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’’).49 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.50 External Distributors may
distribute the Exchange’s market data to
persons who are not officers, employees
or affiliates of the External Distributor,51
and may charge their own fees for the
redistribution of such market data.
External Distributors may monetize
their receipt of the ToM and cToM data
feeds by charging their customers fees
for receipt of the Exchange’s cToM data.
Internal Distributors do not have the
same ability to monetize the Exchange’s
ToM and cToM data feeds. Accordingly,
the Exchange believes it is fair,
reasonable and not unfairly
discriminatory to assess External
Distributors a higher fee for the
Exchange’s ToM and cToM data feeds as
External Distributors have greater usage
rights to commercialize such market
data and can adjust their own fee
structures if necessary.
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. For example, External Distributors
have monthly reporting requirements
under the Exchange’s Market Data
Policies.52 Exchange staff must then, in
turn, process and review information
reported by External Distributors to
ensure the External Distributors are
redistributing cToM data in compliance
with the Exchange’s Market Data
Agreement and Policies.
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 subscriber 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 decide not to subscribe to
the data feed, firms can discontinue
their use of the cToM data. For all of the
foregoing reasons, the Exchange believes
that the proposed fees for the ToM and
cToM data feeds are equitably allocated.
51 See
49 See
Exchange Data Agreement, available at
https://miaxweb2.pairsite.com/sites/default/files/
page-files/MIAX_Exchange_Group_Data_
Agreement_09032020.pdf.
50 See id.
VerDate Sep<11>2014
16:47 Apr 24, 2023
Jkt 259001
id.
Section 6 of the Exchange’s Market Data
Policies, available at https://
www.miaxoptions.com/sites/default/files/pagefiles/MIAX_Exchange_Group_Market_Data_
Policies_07202021.pdf.
52 See
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
25051
The Proposed Fees Are Not Unfairly
Discriminatory
The Exchange believes the proposed
fees for the ToM and cToM data feeds
are not unfairly discriminatory because
any differences in the application of the
fees are based on meaningful
distinctions between customers, and
those meaningful distinctions are not
unfairly discriminatory between
customers.
Overall. The Exchange believes that
the proposed fees are not unfairly
discriminatory because they would
apply to all data recipients that choose
to subscribe to the same ToM and cToM
data feeds. Any vendor or subscriber
that chooses to subscribe to the ToM
and cToM data feeds is subject to the
same Fee Schedule, regardless of what
type of business they operate. In sum,
each vendor or subscriber has the ability
to choose the best business solution for
itself. The Exchange does not believe it
is unfairly discriminatory to base
pricing upon the amount of information
contained in each data feed and the
value of that information to market
participants.
Internal Distribution Fees. The
Exchange believes the proposed
monthly fees for Internal Distribution of
the ToM and cToM data feeds are not
unfairly discriminatory because they
would be charged on an equal basis to
all data recipients that receive the same
ToM and cToM data feeds for internal
distribution, regardless of what type of
business they operate.
External Distribution Fees. The
Exchange believes the proposed
monthly fees for redistributing the ToM
and cToM data feeds are not unfairly
discriminatory because they would be
charged on an equal basis to all data
recipients that receive the same ToM
and cToM data feeds that choose to
redistribute the feed(s) externally. The
Exchange also believes that having
higher monthly fees for External
Distribution than Internal Distribution is
not unfairly discriminatory because data
recipients that are externally
distributing ToM and cToM data feeds
are able to monetize such distribution
and spread such costs amongst multiple
third party data recipients, whereas the
Internal Distribution fee is applicable to
use by a single data recipient (and its
affiliates). For all of the foregoing
reasons, the Exchange believes that the
proposed fees for the Exchange Data
Feeds are not unfairly discriminatory.
E:\FR\FM\25APN1.SGM
25APN1
25052
Federal Register / Vol. 88, No. 79 / Tuesday, April 25, 2023 / Notices
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,53 the Exchange does not believe
that the proposed rule change would
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
Intra-Market Competition
The Exchange does not believe that
the proposed fees place certain market
participants at a relative disadvantage to
other market participants because, as
noted above, the proposed fees are
associated with usage of the data feed by
each market participant based on
whether the market participant
internally or externally distributes the
Exchange data, which are still
ultimately in the control of any
particular Member, and such fees do not
impose a barrier to entry to smaller
participants. Accordingly, the proposed
fees do not favor certain categories of
market participants in a manner that
would impose a burden on competition;
rather, the allocation of the proposed
fees reflects the types of data consumed
by various market participants and their
usage thereof.
Inter-Market Competition
lotter on DSK11XQN23PROD with NOTICES1
The Exchange does not believe the
proposed fees place an undue burden on
competition on other SROs that is not
necessary or appropriate. In particular,
market participants are not forced to
subscribe to either data feed, as
described above. Additionally, other
exchanges have similar market data fees
with comparable rates in place for their
participants.54 The proposed fees are
based on actual costs and are designed
to enable the Exchange to recoup its
applicable costs with the possibility of
a reasonable profit on its investment as
described in the Purpose and Statutory
Basis sections. Competing exchanges are
free to adopt comparable fee structures
subject to the Commission’s rule filing
process. Allowing the Exchange, or any
new market entrant, to waive fees (as
the Exchange did for cToM) for a period
of time to allow it to become established
encourages market entry and thereby
ultimately promotes competition.
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.
U.S.C. 78f(b)(8).
supra notes 20, 22, and 25, and
accompanying text.
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,55 and Rule
19b–4(f)(2) 56 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–2023–10 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–2023–10. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
53 15
54 See
VerDate Sep<11>2014
16:47 Apr 24, 2023
Jkt 259001
55 15
56 17
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
Frm 00085
Fmt 4703
Sfmt 4703
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. Do not include
personal identifiable information in
submissions; you should submit only
information that you wish to make
available publicly. We may redact in
part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection. All submissions should refer
to File Number SR–EMERALD–2023–10
and should be submitted on or before
May 16, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.57
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–08649 Filed 4–24–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
34891; File No. 812–15374]
Hamilton Lane Private Assets Fund, et
al.
April 19, 2023.
Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’).
ACTION: Notice.
AGENCY:
Notice of application for an order
(‘‘Order’’) under sections 17(d) and 57(i)
of the Investment Company Act of 1940
(the ‘‘Act’’) and rule 17d–1 under the
Act to permit certain joint transactions
otherwise prohibited by sections 17(d)
and 57(a)(4) of the Act and rule 17d–1
under the Act.
Summary of Application: Applicants
request an order to amend a previous
order granted by the Commission that
permits certain business development
companies (‘‘BDCs’’) and closed-end
management investment companies to
co-invest in portfolio companies with
each other and with certain affiliated
investment entities.
Applicants: Hamilton Lane Private
Assets Fund, Hamilton Lane Advisors,
L.L.C., 2020 Tactical Market Fund LP,
Astro Master Fund III, LP, Dragon HL,
L.P., DPE Investments Holdings LP,
Edgewood Partners LP, Edgewood
Partners II LP, Edgewood Partners III LP,
Fifth Stockholm CI SPV L.P., Finance
Street AIV Splitter L.P., Florida Growth
Fund II LLC, Green Core Fund, L.P.,
57 17
E:\FR\FM\25APN1.SGM
CFR 200.30–3(a)(12).
25APN1
]]>Agencies
[Federal Register Volume 88, Number 79 (Tuesday, April 25, 2023)]
[Notices]
[Pages 25043-25052]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08649]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97326; File No. SR-EMERALD-2023-10]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Increase Fees for the ToM Market Data Product and Establish Fees for
the cToM Market Data Product
April 19, 2023.
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 April 11, 2023, MIAX Emerald, LLC (``MIAX Emerald'' or
``Exchange''), filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the MIAX Emerald Fee
Schedule (the ``Fee Schedule'') to amend the fees for two market data
products by (i) amending the fees for MIAX Emerald Top of Market
(``ToM''); and (ii) establishing fees for 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 its fees for two market data
products by (i) amending the fees for ToM; and (ii) establishing fees
for cToM. The proposed fees will be immediately effective. The Exchange
initially filed the proposal on December 28, 2022 (SR-EMERALD-2022-37)
(the ``Initial Proposal'').\3\ On February 23, 2023, the Exchange
withdrew the Initial Proposal and replaced it with a revised proposal
(SR-EMERALD-2023-04) (the ``Second Proposal'').\4\ The Exchange
recently withdrew the Second Proposal and replaced it with this current
proposal (SR-EMERALD-2023-10).
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 96625 (January 10,
2023), 88 FR 2688 (January 17, 2023) (SR-EMERALD-2022-37).
\4\ See Securities Exchange Act Release No. 97078 (March 8,
2023), 88 FR 15813 (March 14, 2023) (SR-EMERALD-2023-04).
---------------------------------------------------------------------------
The Exchange previously filed several proposals to adopt fees for
cToM.\5\ The Exchange notes that these prior proposals included an
analysis of the costs underlying the compilation and dissemination of
the proposed cToM fees. The Exchange previously included a cost
analysis in the Initial Proposal. As described more fully below, the
Exchange provides an updated cost analysis that includes, among other
things, additional descriptions of how the Exchange allocated costs
among it and its affiliated exchanges (MIAX PEARL, LLC (``MIAX
Pearl''), separately among MIAX Pearl Options and MIAX Pearl Equities,
and Miami International Securities Exchange, LLC (``MIAX,'' together
with MIAX Pearl, the ``affiliated markets'')) to ensure no cost was
allocated more than once, as well as additional detail supporting its
cost allocation processes and explanations as
[[Page 25044]]
to why a cost allocation in this proposal may differ from the same cost
allocation in a similar proposal submitted by one of its affiliated
markets. Although the baseline cost analysis used to justify the
proposed fees was made in the Initial Proposal, the fees themselves
have not changed since the Initial Proposal and the Exchange still
proposes fees that are intended to cover the Exchange's cost of
providing ToM and cToM, with a reasonable mark-up over those costs. The
proposed fees are intended to cover the Exchange's cost of compiling
and disseminating ToM and cToM with a reasonable mark-up over those
costs, accounting for ongoing increases in expenses.\6\ Before setting
forth the additional details regarding the proposal as well as the
updated Cost Analysis conducted by the Exchange, immediately below is a
description of the proposed fees.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release Nos. 92358 (July 9,
2021), 86 FR 37361 (July 15, 2021) (SR-EMERALD-2021-21); SR-EMERALD-
2021-32 (withdrawn without being noticed by the Commission); 93427
(October 26, 2021), 86 FR 60310 (November 1, 2021) (SR-EMERALD-2021-
34); 93811 (December 17, 2021), 86 FR 73051 (December 23, 2021) (SR-
EMERALD-2021-44); 94263 (February 15, 2022), 87 FR 9766 (February
22, 2022) (SR-EMERALD-2022-06); 94715 (April 14, 2022), 87 FR 23674
(April 20, 2022) (SR-EMERALD-2022-14); 94892 (May 11, 2022), 87 FR
29963 (May 17, 2022) (SR-EMERALD-2022-18).
\6\ For example, the New York Stock Exchange, Inc.'s (``NYSE'')
Secure Financial Transaction Infrastructure (``SFTI'') network,
which contributes to the Exchange's connectivity cost, increased its
fees by approximately 9% since 2021. Similarly, since 2021, the
Exchange, and its affiliates, experienced an increase in data center
costs of approximately 17% and an increase in hardware and software
costs of approximately 19%. These percentages are based on the
Exchange's actual 2021 and proposed 2023 budgets.
---------------------------------------------------------------------------
Proposed Market Data Pricing
The Exchange offers ToM and cToM to subscribers. The Exchange notes
that there is no requirement that any Member \7\ or market participant
subscribe to ToM or cToM or any other data feed offered by the
Exchange. Instead, a Member may choose to maintain subscriptions to ToM
or cToM based on their business model. The proposed fees will not apply
differently based upon the size or type of firm, but rather based upon
the subscriptions a firm has to ToM or cToM and their use thereof,
which are based upon factors deemed relevant by each firm. The proposed
pricing for ToM and cToM is set forth below.
---------------------------------------------------------------------------
\7\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
---------------------------------------------------------------------------
ToM
ToM is an Exchange-only market data feed that contains top of book
quotations based on options orders \8\ and quotes \9\ entered into the
System \10\ and resting on the Exchange's Simple Order Book \11\ as
well as administrative messages.\12\ The Exchange currently charges
Internal Distributors \13\ $1,250 per month and External Distributors
$1,750 per month for ToM. The Exchange does not currently charge, nor
does it now propose to charge any additional fees based on a
subscriber's use of the ToM and cToM data feeds, e.g., displayed versus
non-displayed use, redistribution fees, or any individual per user
fees. As discussed more fully below, the Exchange recently calculated
its annual aggregate costs for producing ToM to subscribers to be
$317,753, or $26,479 per month (rounded to the nearest dollar when
dividing the annual cost by 12 months). The Exchange proposes to amend
Section 6)a) of the Fee Schedule to now charge Internal Distributors
$2,000 per month and External Distributors $3,000 per month for ToM in
an effort to cover the Exchange's increasing costs with compiling and
producing ToM to market participants as evidenced by the Exchange's
Cost Analysis detailed below.
---------------------------------------------------------------------------
\8\ The term ``order'' means a firm commitment to buy or sell
option contracts. See Exchange Rule 100.
\9\ The term ``quote'' or ``quotation'' means a bid or offer
entered by a Market Maker that is firm and may update the Market
Maker's previous quote, if any. The Rules of the Exchange provide
for the use of different types of quotes, including Standard quotes
and eQuotes, as more fully described in Rule 517. A Market Maker
may, at times, choose to have multiple types of quotes active in an
individual option. See Exchange Rule 100.
\10\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\11\ The term ``Simple Order Book'' means ``the Exchange's
regular electronic book of orders and quotes.'' See Exchange Rule
518(a)(15).
\12\ See Fee Schedule, Section 6)a).
\13\ A ``Distributor'' of MIAX data is any entity that receives
a feed or file of data either directly from MIAX or indirectly
through another entity and then distributes it either internally
(within that entity) or externally (outside that entity). All
Distributors are required to execute a MIAX Distributor Agreement.
See Fee Schedule, Section 6)a).
---------------------------------------------------------------------------
cToM
The Exchange previously adopted rules governing the trading of
Complex Orders \14\ on the MIAX Emerald System in 2018,\15\ ahead of
the Exchange's planned launch, which took place on March 1, 2019.
Shortly thereafter, the Exchange adopted the market data product, cToM,
and expressly waived fees for cToM to incentivize market participants
to subscribe.\16\ cToM was provided free of charge for four years and
the Exchange absorbed all costs associated with compiling and
disseminating cToM during that entire time. As discussed more fully
below, the Exchange recently calculated its annual aggregate costs for
producing cToM to subscribers to be $347,543, or $28,962 per month
(rounded to the nearest dollar when dividing the annual cost by 12
months). The Exchange now proposes to amend Section 6)a) of the Fee
Schedule to establish fees for cToM in order to recoup its ongoing
costs going forward.
---------------------------------------------------------------------------
\14\ See Exchange Rule 518(a)(5) for the definition of Complex
Orders.
\15\ 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).
\16\ 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
ToM as it relates to the Strategy Book,\17\ i.e., the Exchange's best
bid and offer for a complex strategy, with aggregate size, based on
displayable orders 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
therefore a distinct market data product from ToM in that it includes
additional information that is not available to subscribers that
receive only ToM. ToM subscribers are not required to subscribe to
cToM, and cToM subscribers are not required to subscribe to ToM.
---------------------------------------------------------------------------
\17\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Exchange Rule 518(a)(17).
---------------------------------------------------------------------------
cToM Proposed Fees
The Exchange proposes to amend Section (6)(a) of the Fee Schedule
to charge Internal Distributors $2,000 per month and External
Distributors $3,000 per month for the cToM data feed. The proposed fees
are identical to the fees that the Exchange proposes to charge for ToM.
The Exchange does not propose to adopt redistribution fees for the cToM
data feed. However, the recipient of cToM data would be required to
become a data subscriber and would be subject to the applicable data
subscriber fees. The Exchange also does not propose to charge any
additional fees based on a subscriber's use of the cToM data feed,
e.g., displayed versus non-displayed
[[Page 25045]]
use, and does not propose to impose any individual per user fees.
As it does today for ToM, the Exchange proposes to assess cToM fees
to Internal and External Distributors in each month the Distributor is
credentialed to use cToM in the production environment. Also, as 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. New cToM
Distributors will be assessed a pro-rata percentage of the fees listed
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 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 correction by deleting 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 not the exclusive source for Complex Order information from
the Exchange. It is a business decision of market participants whether
to subscribe to cToM or not. Market participants that choose not to
subscribe to cToM can derive much, if not all, of the same information
from other Exchange sources, including, for example, the MIAX Emerald
Order Feed (``MOR'').\18\ The following cToM information is included in
MOR: the Exchange's best bid and offer for a complex strategy, with
aggregate size, based on displayable orders 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 MOR,
complex strategy last sale information can be derived from ToM.
Specifically, market participants may deduce that last sale information
for multiple trades in related options series with the same timestamps
disseminated via ToM are likely part of a Complex Order transaction and
last sale.
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\18\ See MIAX website, Market Data & Offerings, available at
https://www.miaxoptions.com/market-data-offerings (last visited
April 11, 2023). In general, MOR provides real-time ultra-low
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.
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Additional Discussion--cToM Background
In the six years since the Exchange adopted Complex Order
functionality, the Exchange has grown its monthly complex market share
from 0% to 3.03% of the total electronic complex non-index volume
executed on exchanges offering electronic complex functionality for the
month of November 2022.\19\ During that same period, the Exchange has
had a steady increase in the number of cToM subscribers. Until the
Exchange initially filed to adopt cToM fees in July of 2021, the
Exchange did not charge fees for cToM data provided by the Exchange.
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\19\ The Exchange notes that it receives complex market data for
all U.S. options exchanges that offer complex functionality from
direct feeds from The Options Price Reporting Authority (``OPRA'').
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The objective of this approach was to eliminate any fee-based
barriers for Members when the Exchange launched with Complex Order
functionality in 2019, which the Exchange believes has been helpful in
its ability to attract order flow as a new exchange. As discussed more
fully below, the Exchange recently calculated its annual aggregate
costs for providing cToM at approximately $347,543. In order to
establish fees that are designed to recover the aggregate costs of
providing cToM plus a reasonable mark-up, the Exchange is proposing to
modify its Fee Schedule, as described above. In addition to the Cost
Analysis, described below, the Exchange believes that its proposed
approach to market data fees is reasonable based on a comparison to
competitors.
Additional Discussion--Comparison With Other Exchanges
ToM
The proposed fees for ToM are comparable to the fees currently in
place for the options exchanges, particularly Nasdaq ISE, LLC
(``ISE'').\20\ In November 2022, the Exchange had 3.11% market share of
equity options volume; for that same month, ISE had 6.19% market share
of equity options volume.\21\ The Exchange's proposed fees for ToM are
equal to, and for Internal Distributors, lower than, the rates data
recipients pay for comparable data feeds from ISE. The Exchange notes
that other competitors maintain fees applicable to market data that are
considerably higher than those proposed by the Exchange, including NYSE
Arca, Inc. (``NYSE Arca'').\22\ However, the Exchange has focused its
comparison on ISE because it is the closest market in terms of market
share and offers market data at prices lower than several other
incumbent exchanges. The fees for the Nasdaq ISE Top Quote Feed, which
like ToM, includes top of book, trades, and security status messages,
consists of an internal distributor access fee of $3,000 per month (50%
higher than the Exchange's proposed rate), and an external distributor
access fee of $3,000 per month (equal to the Exchange's proposed
rate).\23\ ISE's overall charge to receive the Nasdaq ISE Top Quote
Feed may be even higher than the Exchange's proposed rates because ISE
charges additional per controlled device fees that can cause the
distribution fee to reach up to $5,000 per month.\24\ The Exchange's
proposed rates do not include additional fees.
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\20\ See ISE Options 7 Pricing Schedule, Section 10, H.,
available at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207 (assessing Professional internal and external
distributors $3,000 per month, plus $20 per month per controlled
device for ISE's Top Quote Feed).
\21\ See Market at a Glance, U.S. Options Market Volume Summary,
available at https://www.miaxoptions.com/ (last visited April 11,
2023).
\22\ Fees for the NYSE Arca Options Top Feed, which is the
comparable product to ToM, are $3,000 per month for access (internal
use) and an additional $2,000 per month for redistribution (external
distribution), compared to the Exchange's proposed fees of $2,000
and $3,000 for Internal and External Distributors, respectively. In
addition, for its NYSE Arca Options Top Feed, NYSE Arca charges for
three different categories of non-display usage, and user fees, both
of which the Exchange does not propose to charge, causing the
overall cost of NYSE Arca Options Top Feed to far exceed the
Exchange's proposed rates. See NYSE Acra Options Proprietary Market
Data Fees, available at: https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf.
\23\ See supra note 20.
\24\ Id.
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cToM
The proposed fees for cToM are comparable to the fees currently in
place for competing options exchanges, particularly NYSE American, LLC
(``NYSE American'').\25\ As noted above, for the month of November
2022, the Exchange had 3.11% of the total equity
[[Page 25046]]
options market share and 3.03% of the total electronic complex non-
index volume executed on exchanges offering electronic complex
functionality. For that same month, NYSE American had 6.93% of the
total equity options market share and 6.35% of the total electronic
complex non-index volume.\26\ The Exchange proposes fees for cToM that
are comparable to the rates data recipients pay for comparable data
feeds from NYSE American. The Exchange has focused its comparison on
NYSE American because it is the closest market in terms of market
share. The fees for the NYSE American Options Complex, which, like
cToM, includes top of book, trades, and security status messages for
complex orders, consists of an internal distributor access fee of
$1,500 per month (slightly lower than the Exchange's proposed rate),
and an external distributor access fee of $1,000 per month (resulting
in a total external distribution fee of $2,500 per month).\27\ However,
NYSE American's overall charge to receive NYSE American Options Complex
data may be even higher than the Exchange's proposed rates because NYSE
American charges additional non-displayed usage fees (each are $1,000
per month and a subscriber may pay multiple non-displayed usage fees),
per user fees ($20 per month for professional users and $1.00 per month
for non-professional users), and multiple data feed fees ($200 per
month), all of which the Exchange does not propose to charge. These
additional charges by NYSE American can cause the total cost to receive
NYSE American Complex data to far exceed the rates that the Exchange
proposes to charge.
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\25\ See NYSE American Options Proprietary Market Data Fees,
available at https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Market_Data_Fee_Schedule.pdf.
\26\ See supra note 21.
\27\ Id.
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Additional Discussion--Cost Analysis
In general, the Exchange believes that exchanges, in setting fees
of all types, should meet high standards of transparency to demonstrate
why each new fee or fee increase meets the Exchange Act requirements
that fees be reasonable, equitably allocated, not unfairly
discriminatory, and not create an undue burden on competition among
members and markets. In particular, the Exchange believes that each
exchange should take extra care to be able to demonstrate that these
fees are based on its costs and reasonable business needs.
Accordingly, in proposing to charge fees for market data, the
Exchange is especially diligent in assessing those fees in a
transparent way against its own aggregate costs of providing the
related service, and in carefully and transparently assessing the
impact on Members--both generally and in relation to other Members--to
ensure the fees will not create a financial burden on any participant
and will not have an undue impact in particular on smaller Members and
competition among Members in general. The Exchange does not believe it
needs to otherwise address questions about market competition in the
context of this filing because the proposed fees are so clearly
consistent with the Act based on its Cost Analysis. The Exchange also
believes that this level of diligence and transparency is called for by
the requirements of Section 19(b)(1) under the Act,\28\ and Rule 19b-4
thereunder,\29\ with respect to the types of information self-
regulatory organizations (``SROs'') should provide when filing fee
changes, and Section 6(b) of the Act,\30\ which requires, among other
things, that exchange fees be reasonable and equitably allocated,\31\
not designed to permit unfair discrimination,\32\ and that they not
impose a burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.\33\ This rule change proposal
addresses those requirements, and the analysis and data in this section
are designed to clearly and comprehensively show how they are met.\34\
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\28\ 15 U.S.C. 78s(b)(1).
\29\ 17 CFR 240.19b-4.
\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(4).
\32\ 15 U.S.C. 78f(b)(5).
\33\ 15 U.S.C. 78f(b)(8).
\34\ In 2019, Commission staff published guidance suggesting the
types of information that SROs may use to demonstrate that their fee
filings comply with the standards of the Exchange Act (``Fee
Guidance''). While the Exchange understands that the Fee Guidance
does not create new legal obligations on SROs, the Fee Guidance is
consistent with the Exchange's view about the type and level of
transparency that exchanges should meet to demonstrate compliance
with their existing obligations when they seek to charge new fees.
See Staff Guidance on SRO Rule Filings Relating to Fees (May 21,
2019) available at https://www.sec.gov/tm/staff-guidancesro-rule-filings-fees.
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As noted above, the Exchange has conducted and recently updated a
study of its aggregate costs to produce the ToM and cToM data feeds--
the Cost Analysis.\35\ The Cost Analysis required a detailed analysis
of the Exchange's aggregate baseline costs, including a determination
and allocation of costs for core services provided by the Exchange--
transactions, market data, membership services, physical connectivity,
and ports (which provide order entry, cancellation and modification
functionality, risk functionality, ability to receive drop copies, and
other functionality). The Exchange separately divided its costs between
those costs necessary to deliver each of these core services, including
infrastructure, software, human resources (i.e., personnel), and
certain general and administrative expenses (collectively, ``cost
drivers'').
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\35\ The Exchange notes that its Cost Analysis is based on that
conducted by MEMX, LLC (``MEMX''). See Securities Exchange Act
Release Nos. 95936 (September 27, 2022), 87 FR 59845 (October 3,
2022) (SR-MEMX-2022-26); and 96430 (December 1, 2022), 87 FR 75083
(December 7, 2022) (SR-MEMX-2022-32). The Exchange notes that the
percentage allocations and cost levels are based on the Exchange's
2023 estimated budget and may differ from those provided by MEMX for
a number of reasons, including the Exchange's ability to allocate
costs among multiple exchanges while MEMX allocates cost to a single
exchange.
---------------------------------------------------------------------------
As an initial step, the Exchange determined the total cost for the
Exchange and the affiliated markets. That total cost was then divided
among the Exchange and each of its affiliated markets based on a number
of factors, including server counts, additional hardware and software
utilization, current or anticipated functional or non-functional
development projects, capacity needs, end-of-life or end-of-service
intervals, number of members, market model (e.g., price time or pro-
rata), which may impact message traffic, individual system
architectures that impact platform size,\36\ storage needs, dedicated
infrastructure versus shared infrastructure allocated per platform
based on the resources required to support each platform, number of
available connections, and employees allocated time. This will result
in different allocation percentages among the Exchange and its
affiliated markets. Meanwhile this allocation methodology ensures that
no portion of any cost was allocated twice or double-counted between
the Exchange and its affiliated markets.
---------------------------------------------------------------------------
\36\ For example, the Exchange maintains 12 matching engines,
MIAX Pearl Options maintains 12 matching engines, MIAX Pearl
Equities maintains 24 matching engines, and MIAX maintains 24
matching engines.
---------------------------------------------------------------------------
Next, the Exchange adopted an allocation methodology with
thoughtful and consistently principles to guide how much of a
particular cost amount allocated to the Exchange pursuant to the above
methodology should be allocated within the Exchange to each core
service. For instance, fixed costs that are not driven by client
activity (e.g., message rates), such as data center costs, were
allocated more heavily to the provision of physical connectivity (61.9%
of total expense amount allocated), with smaller allocations to
additional Limited Service MEI Ports (8.8%), and the remainder to the
provision of membership services, transaction execution and market data
[[Page 25047]]
services (29.3%). This next level of the allocation methodology at the
individual exchange level also took into account a number of factors
similar to those set forth under the first allocation methodology
described above, to determine the appropriate allocation to
connectivity or market data versus what is to be allocated to providing
other services. The allocation methodology was developed through an
assessment of costs with senior management intimately familiar with
each area of the Exchange's operations. After adopting this allocation
methodology, the Exchange then applied an estimated allocation of each
Cost Driver to each core service, resulting in the cost allocations
described below. Each of the below cost allocations is unique to the
Exchange and represents a percentage of overall cost that was allocated
to the Exchange pursuant to the initial allocation described above.
By allocating segmented costs to each core service, the Exchange
was able to estimate by core service the potential margin it might earn
based on different fee models. The Exchange notes that as a non-listing
venue it has five primary sources of revenue that it can potentially
use to fund its operations: transaction, access, membership,
regulatory, and market data fees. Accordingly, the Exchange generally
must cover its expenses from these four primary sources of revenue. The
Exchange also notes that as a general matter each of these sources of
revenue is based on services that are interdependent. For instance, the
Exchange's system for executing transactions is dependent on physical
hardware and connectivity; only Members and parties that they sponsor
to participate directly on the Exchange may submit orders to the
Exchange; many Members (but not all) consume market data from the
Exchange in order to trade on the Exchange; and, the Exchange consumes
market data from external sources in order to comply with regulatory
obligations. Accordingly, given this interdependence, the allocation of
costs to each service or revenue source required judgment of the
Exchange and was weighted based on estimates of the Exchange that the
Exchange believes are reasonable, as set forth below. While there is no
standardized and generally accepted methodology for the allocation of
an exchange's costs, the Exchange's methodology is the result of an
extensive review and analysis and will be consistently applied going
forward for any other potential fee proposals. In the absence of the
Commission attempting to specify a methodology for the allocation of
exchanges' interdependent costs, the Exchange will continue to be left
with its best efforts to attempt to conduct such an allocation in a
thoughtful and reasonable manner.
Through the Exchange's extensive Cost Analysis, which was again
recently updated to focus solely on the provision of ToM and cToM data
feeds, the Exchange analyzed nearly every expense item in the
Exchange's general expense ledger to determine whether each such
expense relates to the provision of ToM and cToM data feeds, and, if
such expense did so relate, what portion (or percentage) of such
expense actually supports the provision of ToM and cToM data feeds, and
thus bears a relationship that is, ``in nature and closeness,''
directly related to ToM and cToM data feeds. Based on its analysis, the
Exchange calculated its aggregate annual costs for providing the ToM
and cToM data feeds to be $665,296. This results in an estimated
monthly cost for providing ToM and cToM data feeds of $55,441 (rounded
to the nearest dollar when dividing the aggregate annual cost by 12
months). In order to cover operating costs and earn a reasonable profit
on its market data, the Exchange has determined it necessary to charge
fees for its proprietary data products, and, as such, the Exchange is
proposing to modify its Fee Schedule, as set forth above. With the
proposed fee changes, the Exchange anticipates annual revenue for ToM
and cToM to be $804,000 (or $67,000 per month combined).
Costs Related to Offering ToM and cToM Data Feeds
The following chart details the individual line-item (annual) costs
considered by the Exchange to be related to offering the ToM and cToM
data feeds to its Members and other customers, as well as the
percentage of the Exchange's overall costs that such costs represent
for such area (e.g., as set forth below, the Exchange allocated
approximately 2.8% of its overall Human Resources cost to offering ToM
and cToM data feeds).
------------------------------------------------------------------------
Cost drivers Costs % of all
------------------------------------------------------------------------
Human Resources......................... $354,553 2.8
Network Infrastructure (fiber 9,428 1.7
connectivity)..........................
Data Center............................. 20,630 1.7
Hardware and Software Maintenance & 22,202 1.7
Licenses...............................
Depreciation............................ 21,167 0.7
Allocated Shared Expenses............... 237,316 3.0
-------------------------------
Total............................... 665,296 2.5
------------------------------------------------------------------------
Human Resources
For personnel costs (Human Resources), the Exchange calculated an
allocation of employee time for employees whose functions include
directly providing services necessary to offer the ToM and cToM data
feeds, including performance thereof, as well as personnel with
ancillary functions related to establishing and providing such services
(such as information security and finance personnel). The Exchange
notes that it and its affiliated markets have approximately 184
employees (excluding employees at non-options exchange subsidiaries of
Miami International Holdings, Inc. (``MIH''), the holding company of
the Exchange and its affiliates, MIAX Pearl and MIAX), and each
department leader has direct knowledge of the time spent by each
employee with respect to the various tasks necessary to operate the
Exchange. Specifically, twice a year and as needed with additional new
hires and new project initiatives, in consultation with employees as
needed, managers and department heads assign a percentage of time to
every employee and then allocate that time amongst the Exchange and its
affiliated markets to determine that market's individual Human
Resources expense. Then, again managers and department heads assign a
percentage of each employee's time allocated to the Exchange into
buckets including network connectivity, ports, market data, and other
exchange services. This process ensures that every employee is 100%
allocated, ensuring there is no double counting between the Exchange
and its affiliated markets.
[[Page 25048]]
The estimates of Human Resources cost were therefore determined by
consulting with such department leaders, determining which employees
are involved in tasks related to providing the ToM and cToM data feeds,
and confirming that the proposed allocations were reasonable based on
an understanding of the percentage of their time such employees devote
to tasks related to providing the ToM and cToM data feeds. The Exchange
notes that senior level executives were allocated Human Resources costs
to the extent the Exchange believed they are involved in overseeing
tasks related to providing the ToM and cToM data feeds. The Exchange's
cost allocation for employees who perform work in support of generating
and disseminating the ToM and cToM data feeds on behalf of the
Exchange's options trading platform arrived at a full time equivalent
(``FTE'') of 1.2 FTEs. This includes personnel from the following
Exchange departments that are predominately involved in producing
Exchange market data: Business Systems Development, Trading Systems
Development, Systems Operations and Network Monitoring, Network and
Data Center Operations, Listings, Trading Operations, and Project
Management. The Human Resources cost was calculated using a blended
rate of compensation reflecting salary, equity and bonus compensation,
benefits, payroll taxes, and 401(k) matching contributions.
Network Infrastructure
The Network Infrastructure cost includes cabling and switches
required to generate and disseminate the ToM and cToM data feeds. The
Network Infrastructure cost was narrowly estimated by focusing on the
servers used at the Exchange's primary and back-up data centers
specifically for the ToM and cToM data feeds. Further, as certain
servers are only partially utilized to generate and disseminate the ToM
and cToM data feeds, only the percentage of such servers devoted to
generating and disseminating the ToM and cToM data feeds was included
(i.e., the capacity of such servers allocated to the ToM and cToM data
feeds).\37\
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\37\ The Exchange understands that the Investors Exchange, Inc.
(``IEX'') and MEMX both allocated a percentage of their servers to
the production and dissemination of market data to support proposed
market data fees. See Securities Exchange Act Release No. 94630
(April 7, 2022), 87 FR 21945, at page 21949 (April 13, 2022) (SR-
IEX-2022-02). See also supra note 35. The Exchange does not have
insight into either MEMX's or IEX's technology infrastructure or
what their determinations were based on. However, the Exchange
reviewed its own technology infrastructure and believes based on its
design, it is more appropriate for the Exchange to allocate a
portion of its network infrastructure cost to market data based on a
percentage of overall cost, not on a per server basis.
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Data Center
The Exchange does not own the primary data center or the secondary
data center, but instead leases space in data centers operated by third
parties where the Exchange houses servers, switches and related
equipment. Data Center costs include an allocation of the costs the
Exchange incurs to provide the ToM and cToM data feeds in the third-
party data centers where the Exchange maintains its equipment, as well
as related costs. As the Data Center costs are primarily for space,
power, and cooling of servers, the Exchange allocated 1.7% to the
applicable Data Center costs for the ToM and cToM data feeds. The
Exchange believes it is reasonable to apply the same proportionate
percentage of Data Center costs to that of Network Infrastructure.
Hardware and Software Maintenance and Licenses
Hardware and Software Maintenance and Licenses includes those
licenses used to operate and monitor physical assets necessary to offer
the ToM and cToM data feeds. Because the hardware and software license
fees are correlated to the servers used by the Exchange, the Exchange
again applied an allocation of 1.7% of its costs for Hardware and
Software Maintenance and Licenses to the ToM and cToM data feeds.\38\
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\38\ This expense may be less than the Exchange's affiliated
markets, specifically MIAX Pearl, because, unlike the Exchange, MIAX
Pearl (the options and equities markets) maintains an additional
gateway to accommodate its member's access and connectivity needs.
This added gateway contributes to the difference in allocations
between the Exchange and MIAX Pearl.
---------------------------------------------------------------------------
Monthly Depreciation
The vast majority of the hardware and software the Exchange uses
with respect to its operations, including the software used to generate
and disseminate the ToM and cToM data feeds has been developed in-house
and the cost of such development is depreciated over time. Accordingly,
the Exchange included Depreciation costs related to depreciated
hardware and software used to generate and disseminate the ToM and cToM
data feeds. The Exchange also included in the Depreciation costs
certain budgeted improvements that the Exchange intends to capitalize
and depreciate with respect to the ToM and cToM data feeds in the near-
term. As with the other allocated costs in the Exchange's updated Cost
Analysis, the Depreciation cost was therefore narrowly tailored to
depreciation related to the ToM and cToM data feeds. The Exchange also
notes that this allocation differs from its affiliated markets due to a
number of factors, such as the age of physical assets and software
(e.g., older physical assets and software were previously depreciated
and removed from the allocation), or certain system enhancements that
required new physical assets and software, thus providing a higher
contribution to the depreciated cost.
Allocated Shared Expenses
Finally, certain general shared expenses were allocated to the ToM
and cToM data feeds. However, contrary to its prior cost analysis,
rather than taking the whole amount of general shared expenses and
applying an allocated percentage, the Exchange has narrowly selected
specific general shared expenses relevant to the cToM data feed. The
costs included in general shared expenses allocated to the ToM and cToM
data feeds include office space and office expenses (e.g., occupancy
and overhead expenses), utilities, recruiting and training, marketing
and advertising costs, professional fees for legal, tax and accounting
services (including external and internal audit expenses), and
telecommunications costs. The cost of paying individuals to serve on
the Exchange's Board of Directors or any committee was not allocated to
providing ToM and cToM data feeds.
Cost Analysis--Additional Discussion
In conducting its Cost Analysis, the Exchange did not allocate any
of its expenses in full to any core service and did not double-count
any expenses. Instead, as described above, the Exchange identified and
allocated applicable Cost Drivers across its core services and used the
same approach to analyzing costs to form the basis of separate
proposals to amend fees for connectivity and port services \39\ and
this filing proposing fees for ToM and cToM. Thus, the Exchange's
allocations of cost across core services were based on real costs of
operating the Exchange and were not double-counted across the core
services or their associated revenue streams. The proposed fees for ToM
and cToM data feeds are designed to permit the Exchange to cover the
costs allocated to providing cToM data with a mark-up that the Exchange
believes is
[[Page 25049]]
modest (approximately 17%, which could decrease over time \40\), which
the Exchange believes is fair and reasonable after taking into account
the costs related to creating, generating, and disseminating the ToM
and cToM data feeds and the fact that the Exchange will need to fund
future expenditures (increased costs, improvements, etc.). The Exchange
also reiterates that prior to July of 2021, the month in which it first
proposed to adopt fees for cToM, the Exchange has not previously
charged any fees for cToM and its allocation of costs to cToM was part
of a holistic allocation that also allocated costs to other core
services without double-counting any expenses.
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\39\ See MIAX Exchange Group Alert, ``MIAX Options, Pearl
Options and Emerald Options Exchanges--January 1, 2023 Non-
Transaction Fee Changes,'' issued December 9, 2022, available at
https://www.miaxoptions.com/alerts/2022/12/09/miax-options-pearl-options-and-emerald-options-exchanges-january-1-2023-non-0.
\40\ The Exchange believes that its profit margins could
decrease if U.S. inflation continues at its current rate. See, e.g.,
https://www.usinflationcalculator.com/inflation/current-inflation-rates/ (last visited April 11, 2023).
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The Exchange is owned by a holding company that is the parent
company of four exchange markets and, therefore, the Exchange and its
affiliated markets must allocate shared costs across all of those
markets accordingly, pursuant to the above-described allocation
methodology. In contrast, the Investors Exchange LLC (``IEX'') and
MEMX, which are currently each operating only one exchange, in their
recent non-transaction fee filings can allocate the entire amount of
that same cost to a single exchange. This can result in lower profit
margins for the non-transaction fees proposed by IEX and MEMX because
the single allocated cost does not experience the efficiencies and
synergies associated with shared costs across multiple platforms.\41\
The Exchange and its affiliated markets must share a single cost, which
results in cost efficiencies that cause a broader gap between the
allocated cost amount and projected revenue, even though the fee levels
being proposed are lower or similar to competing markets (as described
above). To the extent that the application of a cost-based standard
results in Commission Staff making determinations as to the
appropriateness of certain profit margins, the Commission Staff must
consider whether the proposed fee level is comparable to, or on parity
with, the same fee charged by competing exchanges and how different
cost allocation methodologies (such as across multiple markets) may
result in different profit margins for comparable fee levels. If it is
the case that the Commission Staff is making determinations as to
appropriate profit margins, the Exchange believes that Staff should be
clear to all market participants as to what they determine is an
appropriate profit margin and should apply such determinations
consistently and, in the case of certain legacy exchanges,
retroactively, if such standards are to avoid having a discriminatory
effect.
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\41\ The Exchange acknowledges that IEX included in its proposal
to adopt market data fees after offering market data for free an
analysis of what its projected revenue would be if all of its
existing customers continued to subscribe versus what its projected
revenue would be if a limited number of customers subscribed due to
the new fees. See Securities Exchange Act Release No. 94630 (April
7, 2022), 87 FR 21945 (April 13, 2022) (SR-IEX-2022-02). MEMX did
not include a similar analysis in either of its recent non-
transaction fee proposals. See, e.g., supra note 35. The Exchange
does not believe a similar analysis would be useful here because it
is amending existing fees, not proposing to charge a new fee where
existing subscribers may terminate connections because they are no
longer enjoying the service at no cost.
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Further, the proposal reflects the Exchange's efforts to control
its costs, which the Exchange does on an ongoing basis as a matter of
good business practice. A potential profit margin should not be judged
alone based on its size, but is also indicative of costs management and
whether the ultimate fee reflects the value of the services provided.
For example, a profit margin on one exchange should not be deemed
excessive where that exchange has been successful in controlling its
costs, but not excessive where on another exchange where that exchange
is charging comparable fees but has a lower profit margin due to higher
costs. Doing so could have the perverse effect of not incentivizing
cost control where higher costs alone could be used to justify fees
increases.
Accordingly, while the Exchange believes in transparency around
costs and potential margins, as well as periodic review of revenues and
applicable costs (as discussed below), the Exchange does not believe
that these estimates should form the sole basis of whether or not a
proposed fee is reasonable or can be adopted. Instead, the Exchange
believes that the information should be used solely to confirm that an
Exchange is not earning supra-competitive profits, and the Exchange
believes the Cost Analysis and related projections demonstrate this
fact.
The Exchange notes that the Cost Analysis is based on the
Exchange's 2023 fiscal year of operations and projections. It is
possible, however, that such costs will either decrease or increase. To
the extent the Exchange sees growth in use of ToM and cToM data feeds
it will receive additional revenue to offset future cost increases.
However, if use of ToM and cToM data feeds is static or decreases, the
Exchange might not realize the revenue that it anticipates or needs in
order to cover applicable costs. Accordingly, the Exchange is
committing to conduct a one-year review after implementation of these
fees. The Exchange expects that it may propose to adjust fees at that
time, to increase fees in the event that revenues fail to cover costs
and a reasonable mark-up of such costs.
Similarly, the Exchange expects that it would propose to decrease
fees in the event that revenue materially exceeds current projections.
In addition, the Exchange will periodically conduct a review to inform
its decision making on whether a fee change is appropriate (e.g., to
monitor for costs increasing/decreasing or subscribers increasing/
decreasing, etc. in ways that suggest the then-current fees are
becoming dislocated from the prior cost-based analysis) and expects
that it would propose to increase fees in the event that revenues fail
to cover its costs and a reasonable mark-up, or decrease fees in the
event that revenue or the mark-up materially exceeds current
projections. In the event that the Exchange determines to propose a fee
change, the results of a timely review, including an updated cost
estimate, will be included in the rule filing proposing the fee change.
More generally, the Exchange believes that it is appropriate for an
exchange to refresh and update information about its relevant costs and
revenues in seeking any future changes to fees, and the Exchange
commits to do so.
Implementation
The proposed rule changes will be immediately effective.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) \42\ of the Act in general, and
furthers the objectives of Section 6(b)(4) \43\ of the Act, in
particular, in that it is designed to provide for the equitable
allocation of reasonable dues, fees and other charges among its Members
and other persons using its facilities. Additionally, the Exchange
believes that the proposed fees are consistent with the objectives of
Section 6(b)(5) \44\ of the Act in that they are designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to
[[Page 25050]]
a free and open market and national market system, and, in general, to
protect investors and the public interest, and, particularly, are not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\42\ 15 U.S.C. 78f.
\43\ 15 U.S.C. 78f(b)(4).
\44\ 15 U.S.C. 78f(b)(5).
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The Exchange notes prior to addressing the specific reasons the
Exchange believes the proposed fees and fee structure are reasonable,
equitably allocated and not unreasonably discriminatory, that the
proposed fees are consistent with the fee amounts charged by competing
U.S. securities exchanges. For this reason, the Exchange believes that
the proposed fees are consistent with the Act generally, and Section
6(b)(5) \45\ of the Act in particular.
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\45\ 15 U.S.C. 78f(b)(5).
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As noted above, in the four years since the Exchange launched
operations with Complex Order functionality, the Exchange has grown its
monthly complex market share from 0% to 3.03% of the total electronic
complex non-index volume executed on U.S. options exchanges offering
complex functionality for the month of November 2022.\46\ One of the
primary objectives of the Exchange is to provide competition and to
reduce fixed costs imposed upon the industry. Consistent with this
objective, the Exchange believes that this proposal reflects a simple,
competitive, reasonable, and equitable pricing structure.
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\46\ See supra note 21.
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Reasonableness
Overall. With regard to reasonableness, the Exchange understands
that the Commission has traditionally taken a market-based approach to
examine whether the SRO making the fee proposal was subject to
significant competitive forces in setting the terms of the proposal.
The Exchange understands that in general the analysis considers whether
the SRO has demonstrated in its filing that (i) there are reasonable
substitutes for the product or service; (ii) ``platform'' competition
constrains the ability to set the fee; and/or (iii) revenue and cost
analysis shows the fee would not result in the SRO taking supra-
competitive profits. If the SRO demonstrates that the fee is subject to
significant competitive forces, the Exchange understands that in
general the analysis will next consider whether there is any
substantial countervailing basis to suggest the fee's terms fail to
meet one or more standards under the Exchange Act. The Exchange further
understands that if the filing fails to demonstrate that the fee is
constrained by competitive forces, the SRO must provide a substantial
basis, other than competition, to show that it is consistent with the
Exchange Act, which may include production of relevant revenue and cost
data pertaining to the product or service.
The Exchange has not determined its proposed overall market data
fees based on assumptions about market competition, instead relying
upon a cost-plus model to determine a reasonable fee structure that is
informed by the Exchange's understanding of different uses of the
products by different types of participants. In this context, the
Exchange believes the proposed fees overall are fair and reasonable as
a form of cost recovery plus the possibility of a reasonable return for
the Exchange's aggregate costs of offering the ToM and cToM data feeds.
The Exchange believes the proposed fees are reasonable because they are
designed to generate annual revenue to recoup some or all of Exchange's
annual costs of providing ToM and cToM data with a reasonable mark-up.
As discussed in the Purpose section, the Exchange estimates this fee
filing will result in annual revenue of approximately $804,000,
representing a potential mark-up of just 17% over the cost of providing
ToM and cToM data. Accordingly, the Exchange believes that this fee
methodology is reasonable because it allows the Exchange to recoup some
or all of its expenses for providing the ToM and cToM data products
(with any additional revenue representing no more than what the
Exchange believes to be a reasonable rate of return). The Exchange also
believes that the proposed fees are reasonable because they are
generally less than the fees charged by competing options exchanges for
comparable market data products, notwithstanding that the competing
exchanges may have different system architectures that may result in
different cost structures for the provision of market data.
The Exchange believes the proposed fees for the ToM and cToM data
feeds are reasonable when compared to fees for comparable products,
compared to which the Exchange's proposed fees are generally lower, as
well as other comparable data feeds priced significantly higher than
the Exchange's proposed fees for the ToM and cToM data feeds.\47\
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\47\ See supra notes 20, 22, and 25, and accompanying text.
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Internal Distribution Fees. The Exchange believes that it is
reasonable to charge fees to access the ToM and cToM data feeds for
Internal Distribution because of the value of such data to subscribers
in their profit-generating activities. The Exchange also believes that
the proposed monthly Internal Distribution fee for cToM is reasonable
as it is similar to the amount charged by at least one other exchange
of comparable size for comparable data products, and lower than the
fees charged by other exchange for comparable data products.\48\
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\48\ See, e.g., supra notes 20, 22, and 25.
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External Distribution Fees. The Exchange believes that it is
reasonable to charge External Distribution fees for the ToM and cToM
data feeds because vendors receive value from redistributing the data
in their business products provided to their customers. The Exchange
believes that charging External Distribution fees is reasonable because
the vendors that would be charged such fees profit by re-transmitting
the Exchange's market data to their customers. These fees would be
charged only once per month to each vendor account that redistributes
any ToM and cToM data feeds, regardless of the number of customers to
which that vendor redistributes the data. For all of the foregoing
reasons, the Exchange believes that the proposed fees for the ToM and
cToM data feeds are reasonable.
Equitable Allocation
Overall. The Exchange believes that its proposed fees are
reasonable, fair, and equitable, and not unfairly discriminatory
because they are designed to align fees with services provided. The
Exchange believes the proposed fees for the ToM and cToM data feeds are
allocated fairly and equitably among the various categories of users of
the feeds, and any differences among categories of users are justified
and appropriate.
The Exchange believes that the proposed fees are equitably
allocated because they will apply uniformly to all data recipients that
choose to subscribe to the ToM and cToM data feeds. Any subscriber or
vendor that chooses to subscribe to the ToM and cToM data feeds is
subject to the same Fee Schedule, regardless of what type of business
they operate, and the decision to subscribe to one or more ToM and cToM
data feeds is based on objective differences in usage of ToM and cToM
data feeds among different Members, which are still ultimately in the
control of any particular Member. The Exchange believes the proposed
pricing of the ToM and cToM data feeds is equitably allocated because
it is based, in part, upon the amount of information contained in each
data feed and the
[[Page 25051]]
value of that information to market participants.
Internal Distribution Fees. The Exchange believes the proposed
monthly fees for Internal Distribution of the ToM and cToM data feeds
are equitably allocated because they would be charged on an equal basis
to all data recipients that receive the ToM and cToM data feeds for
internal distribution, regardless of what type of business they
operate.
External Distribution Fees. The Exchange believes the proposed
monthly fees for External Distribution of the ToM and cToM data feeds
are equitably allocated because they would be charged on an equal basis
to all data recipients that receive the ToM and cToM data feeds that
choose to redistribute the feeds externally, regardless of what
business they operate. The Exchange also believes that the proposed
monthly fees for External Distribution are equitably allocated when
compared to lower proposed fees for Internal Distribution because data
recipients that are externally distributing ToM and cToM data feeds are
able to monetize such distribution and spread such costs amongst
multiple third party data recipients, whereas the Internal Distribution
fee is applicable to use by a single data recipient (and its
affiliates).
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 ToM and cToM data feeds 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 decide 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'').\49\ 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.\50\ External
Distributors may distribute the Exchange's market data to persons who
are not officers, employees or affiliates of the External
Distributor,\51\ and may charge their own fees for the redistribution
of such market data. External Distributors may monetize their receipt
of the ToM and cToM data feeds by charging their customers fees for
receipt of the Exchange's cToM data. Internal Distributors do not have
the same ability to monetize the Exchange's ToM and cToM data feeds.
Accordingly, the Exchange believes it is fair, reasonable and not
unfairly discriminatory to assess External Distributors a higher fee
for the Exchange's ToM and cToM data feeds as External Distributors
have greater usage rights to commercialize such market data and can
adjust their own fee structures if necessary.
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\49\ See Exchange Data Agreement, available at https://miaxweb2.pairsite.com/sites/default/files/page-files/MIAX_Exchange_Group_Data_Agreement_09032020.pdf.
\50\ See id.
\51\ See id.
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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.
For example, External Distributors have monthly reporting requirements
under the Exchange's Market Data Policies.\52\ Exchange staff must
then, in turn, process and review information reported by External
Distributors to ensure the External Distributors are redistributing
cToM data in compliance with the Exchange's Market Data Agreement and
Policies.
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\52\ See Section 6 of the Exchange's Market Data Policies,
available at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Exchange_Group_Market_Data_Policies_07202021.pdf.
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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 subscriber 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 decide not to subscribe to the data
feed, firms can discontinue their use of the cToM data. For all of the
foregoing reasons, the Exchange believes that the proposed fees for the
ToM and cToM data feeds are equitably allocated.
The Proposed Fees Are Not Unfairly Discriminatory
The Exchange believes the proposed fees for the ToM and cToM data
feeds are not unfairly discriminatory because any differences in the
application of the fees are based on meaningful distinctions between
customers, and those meaningful distinctions are not unfairly
discriminatory between customers.
Overall. The Exchange believes that the proposed fees are not
unfairly discriminatory because they would apply to all data recipients
that choose to subscribe to the same ToM and cToM data feeds. Any
vendor or subscriber that chooses to subscribe to the ToM and cToM data
feeds is subject to the same Fee Schedule, regardless of what type of
business they operate. In sum, each vendor or subscriber has the
ability to choose the best business solution for itself. The Exchange
does not believe it is unfairly discriminatory to base pricing upon the
amount of information contained in each data feed and the value of that
information to market participants.
Internal Distribution Fees. The Exchange believes the proposed
monthly fees for Internal Distribution of the ToM and cToM data feeds
are not unfairly discriminatory because they would be charged on an
equal basis to all data recipients that receive the same ToM and cToM
data feeds for internal distribution, regardless of what type of
business they operate.
External Distribution Fees. The Exchange believes the proposed
monthly fees for redistributing the ToM and cToM data feeds are not
unfairly discriminatory because they would be charged on an equal basis
to all data recipients that receive the same ToM and cToM data feeds
that choose to redistribute the feed(s) externally. The Exchange also
believes that having higher monthly fees for External Distribution than
Internal Distribution is not unfairly discriminatory because data
recipients that are externally distributing ToM and cToM data feeds are
able to monetize such distribution and spread such costs amongst
multiple third party data recipients, whereas the Internal Distribution
fee is applicable to use by a single data recipient (and its
affiliates). For all of the foregoing reasons, the Exchange believes
that the proposed fees for the Exchange Data Feeds are not unfairly
discriminatory.
[[Page 25052]]
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\53\ the Exchange
does not believe that the proposed rule change would impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of the Act.
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\53\ 15 U.S.C. 78f(b)(8).
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Intra-Market Competition
The Exchange does not believe that the proposed fees place certain
market participants at a relative disadvantage to other market
participants because, as noted above, the proposed fees are associated
with usage of the data feed by each market participant based on whether
the market participant internally or externally distributes the
Exchange data, which are still ultimately in the control of any
particular Member, and such fees do not impose a barrier to entry to
smaller participants. Accordingly, the proposed fees do not favor
certain categories of market participants in a manner that would impose
a burden on competition; rather, the allocation of the proposed fees
reflects the types of data consumed by various market participants and
their usage thereof.
Inter-Market Competition
The Exchange does not believe the proposed fees place an undue
burden on competition on other SROs that is not necessary or
appropriate. In particular, market participants are not forced to
subscribe to either data feed, as described above. Additionally, other
exchanges have similar market data fees with comparable rates in place
for their participants.\54\ The proposed fees are based on actual costs
and are designed to enable the Exchange to recoup its applicable costs
with the possibility of a reasonable profit on its investment as
described in the Purpose and Statutory Basis sections. Competing
exchanges are free to adopt comparable fee structures subject to the
Commission's rule filing process. Allowing the Exchange, or any new
market entrant, to waive fees (as the Exchange did for cToM) for a
period of time to allow it to become established encourages market
entry and thereby ultimately promotes competition.
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\54\ See supra notes 20, 22, and 25, and accompanying text.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act,\55\ and Rule 19b-4(f)(2) \56\ 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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\55\ 15 U.S.C. 78s(b)(3)(A)(ii).
\56\ 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-2023-10 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-2023-10. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to File Number SR-EMERALD-2023-10 and should be submitted
on or before May 16, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\57\
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\57\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08649 Filed 4-24-23; 8:45 am]
BILLING CODE 8011-01-P
