Self-Regulatory Organizations; MIAX Emerald, LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Change To Amend the Fee Schedule To Modify Certain Connectivity and Port Fees, 68680-68684 [2023-22032]

Download as PDF 68680 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices any failure of an SRO to provide this information may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Act and the applicable rules and regulations.49 The Commission is instituting proceedings to allow for additional consideration and comment on the issues raised herein, including as to whether the proposed fees are consistent with the Act, and specifically, with its requirements that exchange fees be reasonable and equitably allocated, not be unfairly discriminatory, and not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.50 V. Commission’s Solicitation of Comments The Commission requests written views, data, and arguments with respect to the concerns identified above as well as any other relevant concerns. Such comments should be submitted by October 25, 2023. Rebuttal comments should be submitted by November 8, 2023. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.51 The Commission asks that commenters address the sufficiency and merit of the Exchange’s statements in support of the proposal, in addition to any other comments they may wish to submit about the proposed rule change. 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– 49 See id. 15 U.S.C. 78f(b)(4), (5), and (8). 51 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the Commission flexibility to determine what type of proceeding—either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by an SRO. See Securities Acts Amendments of 1975, Report of the Senate Committee on Banking, Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). lotter on DSK11XQN23PROD with NOTICES1 50 See VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 CboeEDGA–2023–015 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–CboeEDGA–2023–015. 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 a.m. and 3 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–CboeEDGA–2023–015 and should be submitted on or before October 25, 2023. Rebuttal comments should be submitted by November 8, 2023. VI. Conclusion PO 00000 U.S.C. 78s(b)(3)(C). Frm 00122 Fmt 4703 [FR Doc. 2023–22015 Filed 10–3–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98656; File No. SR– EMERALD–2023–19] Self-Regulatory Organizations; MIAX Emerald, LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Change To Amend the Fee Schedule To Modify Certain Connectivity and Port Fees September 29, 2023. I. Introduction On August 8, 2023, MIAX Emerald, LLC (‘‘MIAX Emerald’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change (File No. SR–EMERALD–2023– 19) to amend certain connectivity and port fees. The proposed rule change was immediately effective upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Act.3 The proposed rule change was published for comment in the Federal Register on August 25, 2023.4 Pursuant to Section 19(b)(3)(C) of the Act,5 the Commission is hereby: (1) temporarily suspending the proposed rule change; and (2) instituting proceedings to determine whether to approve or disapprove the proposed rule change. II. Background and Description of the Proposed Rule Change As described in more detail in the Notice, the Exchange proposes to: (1) increase fees for a 10 gigabit (‘‘Gb’’) ultra-low latency (‘‘ULL’’) fiber 53 17 It is therefore ordered, pursuant to Section 19(b)(3)(C) of the Act,52 that File No. SR–CboeEDGA–2023–015, be and hereby is, temporarily suspended. In addition, the Commission is instituting proceedings to determine whether the proposed rule change should be approved or disapproved. 52 15 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.53 Sherry R. Haywood, Assistant Secretary. Sfmt 4703 CFR 200.30–3(a)(57). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take effect upon filing with the Commission if it is designated by the exchange as ‘‘establishing or changing a due, fee, or other charge imposed by the self-regulatory organization on any person, whether or not the person is a member of the self-regulatory organization.’’ 15 U.S.C. 78s(b)(3)(A)(ii). 4 See Securities Exchange Act Release No. 98176 (August 21, 2023), 88 FR 58342 (SR–EMERALD– 2023–19) (‘‘Notice’’). Comment on the proposed rule change can be found at: https://www.sec.gov/ comments/sr-emerald-2023-19/sremerald202319. htm. 5 15 U.S.C. 78s(b)(3)(C). 1 15 E:\FR\FM\04OCN1.SGM 04OCN1 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 connection for Members 6 and nonMembers from $10,000 to $13,500 per month; 7 and (2) increase fees for Limited Service MIAX Emerald Express Interface 8 (‘‘MEI’’) Ports available to Market Makers 9 through implementing a tiered-pricing structure.10 With respect to Limited Service MEI Ports, the Exchange will continue to provide two Limited Service MEI Ports for each matching engine 11 to which a Market Maker connects free of charge.12 6 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. 7 See Notice, supra note 4, at 58346. 8 The MIAX Emerald Express Interface (‘‘MEI’’) is a connection to the MIAX Emerald System that enables Market Makers to submit simple and complex electronic quotes to MIAX Emerald. See the Definitions Section of the Fee Schedule. 9 The term ‘‘Market Makers’’ refers to Lead Market Makers (‘‘LMMs’’), Primary Lead Market Makers (‘‘PLMMs’’), and Registered Market Makers (‘‘RMMs’’) collectively. See the Definitions Section of the Fee Schedule and Exchange Rule 100. For purposes of Limit Service MEI Ports, Market Makers also include firms that engage in other types of liquidity activity, such as seeking to remove resting liquidity from the Exchange’s Book. The Exchange states that the Limited Service MEI Ports provide Market Makers with the ability to send simple and complex eQuotes and quote purge messages only, but not Market Maker Quotes, to the MIAX Emerald System. Limited Service MEI Ports are also capable of receiving administrative information. See Notice, supra note 4, at 58346, n.57. 10 See Notice, supra note 4, 58342. The Exchange initially filed the proposed fee change (SR– EMERALD–2022–38) on December 30, 2022, with an effective date of January 1, 2023, and, on January 9, 2023, the Exchange withdrew SR–EMERALD– 2022–38 and resubmitted this proposal as SR– EMERALD–2023–01. See Securities Exchange Act Release No. 96628 (January 10, 2023), 88 FR 2651 (January 17, 2023). That filing was withdrawn by the Exchange and the Exchange filed a new proposed fee change with additional justification (SR–EMERALD–2023–05) on February 23, 2023. See Securities Exchange Act Release No. 97079 (March 8, 2023), 88 FR 15764 (March 14, 2023). The Exchange subsequently withdrew that filing and replaced it with SR–EMERALD–2023–12 on April 20, 2023. See Securities Exchange Act Release No. 97422 (May 2, 2023), 88 FR 29750 (May 8, 2023). The Exchange subsequently withdrew that filing and replaced it with SR–EMERALD–2023–14 on June 16, 2023. See Securities Exchange Act Release No. 97813 (June 27, 2023), 88 FR 42785 (July 3, 2023). The Exchange subsequently withdrew that filing and replaced it with the instant filing to provide additional information and a revised justification for the proposal, which is discussed herein. See Notice, supra note 4, at 58342. 11 The term ‘‘Matching Engine’’ means a part of the MIAX Emerald electronic system that processes options orders and trades on a symbol-by-symbol basis. Some Matching Engines will process option classes with multiple root symbols, and other Matching Engines may be dedicated to one single option root symbol (for example, options on SPY may be processed by one single Matching Engine that is dedicated only to SPY). A particular root symbol may only be assigned to a single designated Matching Engine. A particular root symbol may not be assigned to multiple Matching Engines. See Notice, supra note 4, at 58346 (citing Definitions Section of the Fee Schedule). 12 See Notice, supra note 4, at 58346. VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 Prior to the proposed fee change, Market Makers were assessed a $100 monthly fee for each additional Limited Service MEI Port for each matching engine above the first two Limited Service MEI Ports that were included for free.13 Now, the Exchange proposes to establish a tiered-pricing structure for the Limited Service MEI Ports pursuant to which: (i) the third and fourth Limited Service MEI Ports for each matching engine will increase to $200 a month per port; (ii) the fifth and sixth Limited Service MEI Ports for each matching engine will increase to $300 a month per port; and (iii) the seventh or more Limited Service MEI Ports will increase to $400 a month per port.14 Market Makers are limited to twelve additional Limited Service MEI Ports per matching engine, for a total of fourteen Limited Service MEI Ports per matching engine.15 III. Suspension of the Proposed Rule Change Pursuant to Section 19(b)(3)(C) of the Act,16 at any time within 60 days of the date of filing of an immediately effective proposed rule change pursuant to Section 19(b)(1) of the Act,17 the Commission summarily may temporarily suspend the change in the rules of a self-regulatory organization (‘‘SRO’’) if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. The Commission believes a temporary suspension of the proposed rule change is necessary and appropriate to allow for additional analysis of the proposed rule change’s consistency with the Act and the rules thereunder. In support of the proposal, the Exchange states its belief that the proposed fees overall are reasonable because they promote parity among exchange pricing for access, which promotes competition, while allowing the Exchange to recover its costs to provide dedicated access via 10Gb ULL connectivity and Limited Service MEI Ports.18 The Exchange further states that the proposed fees are fair and reasonable because they will not result in pricing that deviates from that of other exchanges or a ‘‘supra-competitive profit,’’ when comparing the total expense of the Exchange associated with providing 10Gb ULL connectivity and 13 See id. id. 15 See Exchange Fee Schedule Section 5(d)(ii). 16 15 U.S.C. 78s(b)(3)(C). 17 15 U.S.C. 78s(b)(1). 18 See Notice, supra note 4, at 58348. 14 See PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 68681 Limited Service MEI Port services versus the total projected revenue of the Exchange associated with these services.19 According to the Exchange, employing a methodology that is the ‘‘result of an extensive review and analysis,’’ it estimates the total projected annual cost of providing 10Gb ULL connectivity to be $11,361,586 and for providing Limited Service MEI Ports to be $1,779,066.20 To arrive at these figures, the Exchange states that it undertook an extensive cost analysis to analyze every expense in the Exchange’s general expense ledger to determine whether each such expense related to the provision of connectivity and port services, and, if such expense did so relate, what portion (or percentage) of such expense supported the provision of connectivity and port services.21 The Exchange states that it determined the total cost for the Exchange and its affiliated markets for each cost driver 22 through a company-wide process that included discussions with senior management, Exchange department heads, and the Finance Team.23 The Exchange further states that it determined what portion of the cost allocated to the Exchange pursuant to this methodology is to be allocated to each core service, including the appropriate allocation to connectivity and ports.24 The Exchange states that through this allocation methodology, the Exchange ‘‘applied an allocation of each cost driver to each core service’’ and ‘‘[e]ach of the [resulting] cost allocations is unique to the Exchange 19 See id. at 58359–60. id. at 58352–53, 58356. The Exchange states that its cost analysis is based on the Exchange’s 2023 fiscal year of operations and projections. See id. at 58359. 21 See id. at 58352. 22 The Exchange defines ‘‘cost drivers’’ within the filing as the costs necessary to deliver each of the core services, including infrastructure, software, human resources (i.e., personnel), and certain general and administrative expenses. See Notice, supra note 4, at 58351. 23 See Notice, supra note 4, at 58351–52. The Exchange states that because the Exchange’s parent company currently owns and operates four separate and distinct marketplaces, the Exchange’s parent company determines an accurate cost for each marketplace, which results in different allocations and amounts across exchanges for the same cost drivers. See id. at 58352. According to the Exchange, its allocation methodology ensures that no cost would be allocated twice or double-counted between the Exchange and its affiliated markets. See id. 24 See id. The Exchange describes ‘‘core services’’ as services provided by the Exchange, including transaction execution, market data, membership services, physical connectivity, and port access (which provides order entry, cancellation and modification functionality, risk functionality, the ability to receive drop copies, and other functionality). See id. at 58351. 20 See E:\FR\FM\04OCN1.SGM 04OCN1 68682 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 and represents a percentage of overall cost that was allocation to the Exchange pursuant to the initial allocation.’’ 25 The Exchange states that the $11,361,586 aggregate annual costs for providing physical dedicated 10Gb ULL connectivity via an unshared network is the sum of the following individual line-item costs: (1) Human Resources at $3,520,856; (2) Connectivity (external fees, cabling, switches, etc.) at $71,675; (3) Internet Services and External Market Data at $373,249; (4) Data Center at $752,545; (5) Hardware and Software Maintenance and Licenses at $666,208; (6) Depreciation at $1,929,118; and (7) Allocated Shared Expenses at $4,407,935.26 The Exchange represents that it estimates that the proposed fees will result in an annual revenue of approximately $16,524,000, which is a potential profit margin of 31% over the cost of providing 10Gb ULL connectivity services.27 The Exchange states that the $1,779,066 aggregate annual costs for offering Limited Service MEI Ports is the sum of the following individual lineitem costs: (1) Human Resources at $737,784; (2) Connectivity (external fees, cabling, switches, etc.) at $3,713; (3) Internet Services and External Market Data at $14,102; (4) Data Center at $55,686; (5) Hardware and Software Maintenance and Licenses at $41,951; (6) Depreciation at $112,694; and (7) Allocated Shared Expenses at $813,136.28 The Exchange represents that it estimates that the proposed fees will result in an annual revenue of approximately $2,809,200, which is a potential profit margin of 37% over the cost of providing Limited Service MEI Ports.29 The Exchange states its belief that the proposed fees are reasonable because they allow the Exchange to ‘‘recoup the Exchange’s costs of providing dedicated 10Gb ULL connectivity and Limited Service MEI Ports’’ and that the cost analysis and related projections demonstrate that the Exchange is not earning ‘‘supra-competitive profits.’’ 30 In addition, the Exchange states that the proposed fees are comparable to or lower than the fees charged by competing options exchanges for similar products.31 In further support of the proposal, the Exchange states its belief that the proposed fees are reasonable, fair, 25 Id. at 58352. 26 See id. at 58353. 27 See id. at 58359. 28 See id. at 58356. 29 See Notice, supra note 4, at 58359. 30 Id. at 58360. 31 See id. VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 equitable, and not unfairly discriminatory, because they are designed to align fees with services provided and will apply equally to all subscribers.32 Moreover, the Exchange asserts that the proposed fees are equitably allocated among users of the network connectivity and port alternatives, as the ‘‘users of 10Gb ULL connections consume substantially more bandwidth and network resources than the users of 1Gb ULL connection.’’ 33 The Exchange also states that with respect to Limited Service MEI Ports, the tiered-pricing structure is ‘‘explicitly designed to link fees to related costs imposed on the [E]xchange’’ and that ‘‘Market Makers that purchase more connections cause significantly greater costs and expenses to the Exchange.’’ 34 Finally, the Exchange asserts that the proposed fees would not cause any unnecessary or inappropriate burden on inter-market competition because if the fee is set too high it would make it easier for other exchanges to compete with the Exchange, and only if the proposed fees were a ‘‘substantial fee decrease could this be considered a form of predatory pricing.’’ 35 The Exchange also asserts that the proposed rule change would not cause any unnecessary or inappropriate burden on intra-market competition because the proposed fees will allow the Exchange to recoup some of its costs in providing 10Gb ULL connectivity and Limited Service MEI Ports at below market rates since the Exchange launched operations.36 To date, the Commission has received one comment letter on the revised justifications for the proposed increase in fees for 10Gb ULL connectivity and Limited Service MEI Ports.37 This commenter states that the revisions reflected in the Exchange’s instant proposal as compared to its earlier filings ‘‘do[ ] not fundamentally redress the valid critiques that SIG raised in its prior letters objecting to the subject fee increases.’’ 38 When exchanges file their proposed rule changes with the Commission, including fee filings like the Exchange’s present proposal, they are required to provide a statement supporting the proposal’s basis under the Act and the 32 See id. at 58361. 33 Id. 34 Id. 35 Id. at 58363. id. at 58362. 37 See Letter from Gerald D. O’Connell, Executive Director, Susquehanna International Group, LLP, to Vanessa Countryman, Secretary, Commission, dated September 18, 2023 (‘‘SIG Letter’’). 38 Id. 36 See PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 rules and regulations thereunder applicable to the exchange.39 The instructions to Form 19b–4, on which exchanges file their proposed rule changes, specify that such statement ‘‘should be sufficiently detailed and specific to support a finding that the proposed rule change is consistent with [those] requirements.’’ 40 Section 6 of the Act, including Sections 6(b)(4), (5), and (8), require the rules of an exchange to: (1) provide for the equitable allocation of reasonable fees among members, issuers, and other persons using the exchange’s facilities; 41 (2) perfect the mechanism of a free and open market and a national market system, protect investors and the public interest, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers; 42 and (3) not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.43 In temporarily suspending the Exchange’s proposed rule change, the Commission intends to further consider whether the proposal to increase fees for 10Gb ULL connectivity and adopt a tired-pricing structure for Limited Service MEI Ports is consistent with the statutory requirements applicable to a national securities exchange under the Act. In particular, the Commission will consider whether the proposed rule change satisfies the standards under the Act and the rules thereunder requiring, among other things, that an exchange’s rules provide for the equitable allocation of reasonable fees among members, issuers, and other persons using its facilities; not permit unfair discrimination between customers, issuers, brokers or dealers; and do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.44 Therefore, the Commission finds that it is appropriate in the public interest, for the protection of investors, and otherwise in furtherance of the purposes of the Act, to temporarily suspend the proposed rule change.45 39 See 17 CFR 240.19b–4 (Item 3 entitled ‘‘SelfRegulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change’’). 40 See id. 41 15 U.S.C. 78f(b)(4). 42 15 U.S.C. 78f(b)(5). 43 15 U.S.C. 78f(b)(8). 44 See 15 U.S.C. 78f(b)(4), (5), and (8), respectively. 45 For purposes of temporarily suspending the proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). E:\FR\FM\04OCN1.SGM 04OCN1 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 IV. Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change In addition to temporarily suspending the proposal, the Commission also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 46 and 19(b)(2)(B) of the Act 47 to determine whether the Exchange’s proposed rule change should be approved or disapproved. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, the Commission seeks and encourages interested persons to provide additional comment on the proposed rule change to inform the Commission’s analysis of whether to approve or disapprove the proposed rule change. Pursuant to Section 19(b)(2)(B) of the Act,48 the Commission is providing notice of the grounds for possible disapproval under consideration: • Whether the Exchange has demonstrated how the proposed fees are consistent with Section 6(b)(4) of the Act, which requires that the rules of a national securities exchange ‘‘provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities;’’ 49 • Whether the Exchange has demonstrated how the proposed fees are consistent with Section 6(b)(5) of the Act, which requires, among other things, that the rules of a national securities exchange not be ‘‘designed to permit unfair discrimination between customers, issuers, brokers, or dealers;’’ 50 and • Whether the Exchange has demonstrated how the proposed fees are consistent with Section 6(b)(8) of the Act, which requires that the rules of a national securities exchange ‘‘not impose any burden on competition not necessary or appropriate in furtherance of the purposes of [the Act].’’ 51 46 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily suspends a proposed rule change, Section 19(b)(3)(C) of the Act requires that the Commission institute proceedings under Section 19(b)(2)(B) to determine whether a proposed rule change should be approved or disapproved. 47 15 U.S.C. 78s(b)(2)(B). 48 Id. Section 19(b)(2)(B) of the Act also provides that proceedings to determine whether to disapprove a proposed rule change must be concluded within 180 days of the date of publication of notice of the filing of the proposed rule change. See id. The time for conclusion of the proceedings may be extended for up to 60 days if the Commission finds good cause for such extension and publishes its reasons for so finding, or if the exchange consents to the longer period. See id. 49 15 U.S.C. 78f(b)(4). 50 15 U.S.C. 78f(b)(5). 51 15 U.S.C. 78f(b)(8). VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 As discussed in Section III above, the Exchange made various arguments in support of its proposal. The Commission believes that there are questions as to whether the Exchange has provided sufficient information to demonstrate that the proposed fees are consistent with the Act and the rules thereunder. Under the Commission’s Rules of Practice, the ‘‘burden to demonstrate that a proposed rule change is consistent with the [Act] and the rules and regulations issued thereunder . . . is on the [SRO] that proposed the rule change.’’ 52 The description of a proposed rule change, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to support an affirmative Commission finding,53 and any failure of an SRO to provide this information may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Act and the applicable rules and regulations.54 The Commission is instituting proceedings to allow for additional consideration and comment on the issues raised herein, including as to whether the proposed fees are consistent with the Act, and specifically, with its requirements that exchange fees be reasonable and equitably allocated, not be unfairly discriminatory, and not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.55 V. Commission’s Solicitation of Comments The Commission requests written views, data, and arguments with respect to the concerns identified above as well as any other relevant concerns. Such comments should be submitted by October 25, 2023. Rebuttal comments should be submitted by November 8, 2023. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.56 52 17 CFR 201.700(b)(3). id. 54 See id. 55 See 15 U.S.C. 78f(b)(4), (5), and (8). 56 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the Commission flexibility to determine what type of proceeding—either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by an 53 See PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 68683 The Commission asks that commenters address the sufficiency and merit of the Exchange’s statements in support of the proposal, in addition to any other comments they may wish to submit about the proposed rule change. 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–2023–19 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–2023–19. 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 a.m. and 3 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 SRO. See Securities Acts Amendments of 1975, Report of the Senate Committee on Banking, Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). E:\FR\FM\04OCN1.SGM 04OCN1 68684 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices submissions should refer to file number SR–EMERALD–2023–19 and should be submitted on or before October 25, 2023. Rebuttal comments should be submitted by November 8, 2023. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(3)(C) of the Act,57 that File No. SR–EMERALD–2023–19, be and hereby is, temporarily suspended. In addition, the Commission is instituting proceedings to determine whether the proposed rule change should be approved or disapproved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.58 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–22032 Filed 10–3–23; 8:45 am] BILLING CODE 8011–01–P [Release No. 3498663; File No. SR– NYSEARCA–2023–67] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To List and Trade Shares of the American Century Focused Dynamic Growth ETF and the American Century Focused Large Cap Value ETF Under NYSE Arca Rule 8.601–E (Active Proxy Portfolio Shares) September 29, 2023. lotter on DSK11XQN23PROD with NOTICES1 Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on September 28, 2023, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade shares of the American Century Focused Dynamic Growth ETF and the U.S.C. 78s(b)(3)(C). CFR 200.30–3(a)(57). 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 58 17 VerDate Sep<11>2014 20:21 Oct 03, 2023 Jkt 262001 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION 57 15 American Century Focused Large Cap Value ETF. The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. 1. Purpose The Exchange has adopted NYSE Arca Rule 8.601–E for the purpose of permitting the listing and trading, or trading pursuant to unlisted trading privileges (‘‘UTP’’), of Active Proxy Portfolio Shares, which are securities issued by an actively managed open-end investment management company.4 4 See Securities Exchange Act Release No. 89185 (June 29, 2020), 85 FR 40328 (July 6, 2020) (SR– NYSEArca–2019–95). Rule 8.601–E(c)(1) provides that ‘‘[t]he term ‘‘Active Proxy Portfolio Share’’ means a security that (a) is issued by an investment company registered under the Investment Company Act of 1940 (‘‘Investment Company’’) organized as an open-end management investment company that invests in a portfolio of securities selected by the Investment Company’s investment adviser consistent with the Investment Company’s investment objectives and policies; (b) is issued in a specified minimum number of shares, or multiples thereof, in return for a deposit by the purchaser of the Proxy Portfolio or Custom Basket, as applicable, and/or cash with a value equal to the next determined net asset value (‘‘NAV’’); (c) when aggregated in the same specified minimum number of Active Proxy Portfolio Shares, or multiples thereof, may be redeemed at a holder’s request in return for the Proxy Portfolio or Custom Basket, as applicable, and/or cash to the holder by the issuer with a value equal to the next determined NAV; and (d) the portfolio holdings for which are disclosed within at least 60 days following the end of every fiscal quarter.’’ Rule 8.601–E(c)(2) provides that ‘‘[t]he term ‘‘Actual Portfolio’’ means the identities and quantities of the securities and other assets held by the Investment Company that shall form the basis for the Investment Company’s calculation of NAV at the end of the business day.’’ Rule 8.601– E(c)(3) provides that ‘‘[t]he term ‘‘Proxy Portfolio’’ means a specified portfolio of securities, other financial instruments and/or cash designed to track closely the daily performance of the Actual Portfolio of a series of Active Proxy Portfolio Shares as provided in the exemptive relief pursuant to the Investment Company Act of 1940 applicable to such PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 Commentary .01 to Rule 8.601–E requires the Exchange to file separate proposals under Section 19(b) of the Act before listing and trading any series of Active Proxy Portfolio Shares on the Exchange. Therefore, the Exchange is submitting this proposal in order to list and trade shares (‘‘Shares’’) of the American Century Focused Dynamic Growth ETF and the American Century Focused Large Cap Value ETF (each a ‘‘Fund’’ and, collectively, the ‘‘Funds’’) under Rule 8.601–E.5 Key Features of Active Proxy Portfolio Shares While funds issuing Active Proxy Portfolio Shares will be activelymanaged and, to that extent, will be similar to Managed Fund Shares, Active Proxy Portfolio Shares differ from Managed Fund Shares in the following important respects. First, in contrast to Managed Fund Shares, which are actively-managed funds listed and traded under NYSE Arca Rule 8.600–E 6 and for which a ‘‘Disclosed Portfolio’’ is required to be disseminated at least once daily,7 the portfolio for an issue of series.’’ Rule 8.601–E(c)(4) provides that the term ‘‘Custom Basket’’ means a portfolio of securities that is different from the Proxy Portfolio and is otherwise consistent with the exemptive relief issued pursuant to the Investment Company Act of 1940 applicable to a series of Active Proxy Portfolio Shares. 5 Pursuant to Commission approval, the Funds are currently listed on Cboe BZX Exchange, Inc. (‘‘BZX’’) and utilize the Precidian ActiveShares methodology (the ‘‘Precidian Model’’). See Securities Exchange Act Release No. 88175 (February 12, 2020), 85 FR 9494 (February 19, 2020) (SR–CboeBZX–2019–057) (Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2 thereto, To List and Trade Shares of the American Century Focused Dynamic Growth ETF and American Century Focused Large Cap Value ETF Under BZX Rule 14.11(k)). 6 The Commission has previously approved listing and trading on the Exchange of a number of issues of Managed Fund Shares under NYSE Arca Rule 8.600–E. See, e.g., Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73 FR 27878 (May 14, 2008) (SR–NYSEArca–2008–31) (order approving Exchange listing and trading of twelve actively-managed funds of the WisdomTree Trust); 60460 (August 7, 2009), 74 FR 41468 (August 17, 2009) (SR–NYSEArca–2009–55) (order approving listing of Dent Tactical ETF); 63076 (October 12, 2010), 75 FR 63874 (October 18, 2010) (SR– NYSEArca–2010–79) (order approving Exchange listing and trading of Cambria Global Tactical ETF); 63802 (January 31, 2011), 76 FR 6503 (February 4, 2011) (SR–NYSEArca–2010–118) (order approving Exchange listing and trading of the SiM Dynamic Allocation Diversified Income ETF and SiM Dynamic Allocation Growth Income ETF). The Commission also has approved a proposed rule change relating to generic listing standards for Managed Fund Shares. See Securities Exchange Act Release No. 78397 (July 22, 2016), 81 FR 49320 (July 27, 2016) (SR–NYSEArca–2015–110) (amending NYSE Arca Equities Rule 8.600 to adopt generic listing standards for Managed Fund Shares). 7 NYSE Arca Rule 8.600–E(c)(2) defines the term ‘‘Disclosed Portfolio’’ as the identities and E:\FR\FM\04OCN1.SGM 04OCN1

Agencies

[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68680-68684]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22032]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98656; File No. SR-EMERALD-2023-19]


Self-Regulatory Organizations; MIAX Emerald, LLC; Suspension of 
and Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove Proposed Rule Change To Amend the Fee Schedule To Modify 
Certain Connectivity and Port Fees

September 29, 2023.

I. Introduction

    On August 8, 2023, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change (File No. SR-EMERALD-2023-19) to amend certain 
connectivity and port fees. The proposed rule change was immediately 
effective upon filing with the Commission pursuant to Section 
19(b)(3)(A) of the Act.\3\ The proposed rule change was published for 
comment in the Federal Register on August 25, 2023.\4\ Pursuant to 
Section 19(b)(3)(C) of the Act,\5\ the Commission is hereby: (1) 
temporarily suspending the proposed rule change; and (2) instituting 
proceedings to determine whether to approve or disapprove the proposed 
rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take 
effect upon filing with the Commission if it is designated by the 
exchange as ``establishing or changing a due, fee, or other charge 
imposed by the self-regulatory organization on any person, whether 
or not the person is a member of the self-regulatory organization.'' 
15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ See Securities Exchange Act Release No. 98176 (August 21, 
2023), 88 FR 58342 (SR-EMERALD-2023-19) (``Notice''). Comment on the 
proposed rule change can be found at: https://www.sec.gov/comments/sr-emerald-2023-19/sremerald202319.htm.
    \5\ 15 U.S.C. 78s(b)(3)(C).
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II. Background and Description of the Proposed Rule Change

    As described in more detail in the Notice, the Exchange proposes 
to: (1) increase fees for a 10 gigabit (``Gb'') ultra-low latency 
(``ULL'') fiber

[[Page 68681]]

connection for Members \6\ and non-Members from $10,000 to $13,500 per 
month; \7\ and (2) increase fees for Limited Service MIAX Emerald 
Express Interface \8\ (``MEI'') Ports available to Market Makers \9\ 
through implementing a tiered-pricing structure.\10\
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    \6\ 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.
    \7\ See Notice, supra note 4, at 58346.
    \8\ The MIAX Emerald Express Interface (``MEI'') is a connection 
to the MIAX Emerald System that enables Market Makers to submit 
simple and complex electronic quotes to MIAX Emerald. See the 
Definitions Section of the Fee Schedule.
    \9\ The term ``Market Makers'' refers to Lead Market Makers 
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered 
Market Makers (``RMMs'') collectively. See the Definitions Section 
of the Fee Schedule and Exchange Rule 100. For purposes of Limit 
Service MEI Ports, Market Makers also include firms that engage in 
other types of liquidity activity, such as seeking to remove resting 
liquidity from the Exchange's Book. The Exchange states that the 
Limited Service MEI Ports provide Market Makers with the ability to 
send simple and complex eQuotes and quote purge messages only, but 
not Market Maker Quotes, to the MIAX Emerald System. Limited Service 
MEI Ports are also capable of receiving administrative information. 
See Notice, supra note 4, at 58346, n.57.
    \10\ See Notice, supra note 4, 58342. The Exchange initially 
filed the proposed fee change (SR-EMERALD-2022-38) on December 30, 
2022, with an effective date of January 1, 2023, and, on January 9, 
2023, the Exchange withdrew SR-EMERALD-2022-38 and resubmitted this 
proposal as SR-EMERALD-2023-01. See Securities Exchange Act Release 
No. 96628 (January 10, 2023), 88 FR 2651 (January 17, 2023). That 
filing was withdrawn by the Exchange and the Exchange filed a new 
proposed fee change with additional justification (SR-EMERALD-2023-
05) on February 23, 2023. See Securities Exchange Act Release No. 
97079 (March 8, 2023), 88 FR 15764 (March 14, 2023). The Exchange 
subsequently withdrew that filing and replaced it with SR-EMERALD-
2023-12 on April 20, 2023. See Securities Exchange Act Release No. 
97422 (May 2, 2023), 88 FR 29750 (May 8, 2023). The Exchange 
subsequently withdrew that filing and replaced it with SR-EMERALD-
2023-14 on June 16, 2023. See Securities Exchange Act Release No. 
97813 (June 27, 2023), 88 FR 42785 (July 3, 2023). The Exchange 
subsequently withdrew that filing and replaced it with the instant 
filing to provide additional information and a revised justification 
for the proposal, which is discussed herein. See Notice, supra note 
4, at 58342.
---------------------------------------------------------------------------

    With respect to Limited Service MEI Ports, the Exchange will 
continue to provide two Limited Service MEI Ports for each matching 
engine \11\ to which a Market Maker connects free of charge.\12\ Prior 
to the proposed fee change, Market Makers were assessed a $100 monthly 
fee for each additional Limited Service MEI Port for each matching 
engine above the first two Limited Service MEI Ports that were included 
for free.\13\ Now, the Exchange proposes to establish a tiered-pricing 
structure for the Limited Service MEI Ports pursuant to which: (i) the 
third and fourth Limited Service MEI Ports for each matching engine 
will increase to $200 a month per port; (ii) the fifth and sixth 
Limited Service MEI Ports for each matching engine will increase to 
$300 a month per port; and (iii) the seventh or more Limited Service 
MEI Ports will increase to $400 a month per port.\14\ Market Makers are 
limited to twelve additional Limited Service MEI Ports per matching 
engine, for a total of fourteen Limited Service MEI Ports per matching 
engine.\15\
---------------------------------------------------------------------------

    \11\ The term ``Matching Engine'' means a part of the MIAX 
Emerald electronic system that processes options orders and trades 
on a symbol-by-symbol basis. Some Matching Engines will process 
option classes with multiple root symbols, and other Matching 
Engines may be dedicated to one single option root symbol (for 
example, options on SPY may be processed by one single Matching 
Engine that is dedicated only to SPY). A particular root symbol may 
only be assigned to a single designated Matching Engine. A 
particular root symbol may not be assigned to multiple Matching 
Engines. See Notice, supra note 4, at 58346 (citing Definitions 
Section of the Fee Schedule).
    \12\ See Notice, supra note 4, at 58346.
    \13\ See id.
    \14\ See id.
    \15\ See Exchange Fee Schedule Section 5(d)(ii).
---------------------------------------------------------------------------

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\16\ at any time within 
60 days of the date of filing of an immediately effective proposed rule 
change pursuant to Section 19(b)(1) of the Act,\17\ the Commission 
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') if it appears to the Commission that 
such action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act. The Commission believes a temporary suspension of the proposed 
rule change is necessary and appropriate to allow for additional 
analysis of the proposed rule change's consistency with the Act and the 
rules thereunder.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(C).
    \17\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    In support of the proposal, the Exchange states its belief that the 
proposed fees overall are reasonable because they promote parity among 
exchange pricing for access, which promotes competition, while allowing 
the Exchange to recover its costs to provide dedicated access via 10Gb 
ULL connectivity and Limited Service MEI Ports.\18\ The Exchange 
further states that the proposed fees are fair and reasonable because 
they will not result in pricing that deviates from that of other 
exchanges or a ``supra-competitive profit,'' when comparing the total 
expense of the Exchange associated with providing 10Gb ULL connectivity 
and Limited Service MEI Port services versus the total projected 
revenue of the Exchange associated with these services.\19\ According 
to the Exchange, employing a methodology that is the ``result of an 
extensive review and analysis,'' it estimates the total projected 
annual cost of providing 10Gb ULL connectivity to be $11,361,586 and 
for providing Limited Service MEI Ports to be $1,779,066.\20\
---------------------------------------------------------------------------

    \18\ See Notice, supra note 4, at 58348.
    \19\ See id. at 58359-60.
    \20\ See id. at 58352-53, 58356. The Exchange states that its 
cost analysis is based on the Exchange's 2023 fiscal year of 
operations and projections. See id. at 58359.
---------------------------------------------------------------------------

    To arrive at these figures, the Exchange states that it undertook 
an extensive cost analysis to analyze every expense in the Exchange's 
general expense ledger to determine whether each such expense related 
to the provision of connectivity and port services, and, if such 
expense did so relate, what portion (or percentage) of such expense 
supported the provision of connectivity and port services.\21\ The 
Exchange states that it determined the total cost for the Exchange and 
its affiliated markets for each cost driver \22\ through a company-wide 
process that included discussions with senior management, Exchange 
department heads, and the Finance Team.\23\ The Exchange further states 
that it determined what portion of the cost allocated to the Exchange 
pursuant to this methodology is to be allocated to each core service, 
including the appropriate allocation to connectivity and ports.\24\ The 
Exchange states that through this allocation methodology, the Exchange 
``applied an allocation of each cost driver to each core service'' and 
``[e]ach of the [resulting] cost allocations is unique to the Exchange

[[Page 68682]]

and represents a percentage of overall cost that was allocation to the 
Exchange pursuant to the initial allocation.'' \25\
---------------------------------------------------------------------------

    \21\ See id. at 58352.
    \22\ The Exchange defines ``cost drivers'' within the filing as 
the costs necessary to deliver each of the core services, including 
infrastructure, software, human resources (i.e., personnel), and 
certain general and administrative expenses. See Notice, supra note 
4, at 58351.
    \23\ See Notice, supra note 4, at 58351-52. The Exchange states 
that because the Exchange's parent company currently owns and 
operates four separate and distinct marketplaces, the Exchange's 
parent company determines an accurate cost for each marketplace, 
which results in different allocations and amounts across exchanges 
for the same cost drivers. See id. at 58352. According to the 
Exchange, its allocation methodology ensures that no cost would be 
allocated twice or double-counted between the Exchange and its 
affiliated markets. See id.
    \24\ See id. The Exchange describes ``core services'' as 
services provided by the Exchange, including transaction execution, 
market data, membership services, physical connectivity, and port 
access (which provides order entry, cancellation and modification 
functionality, risk functionality, the ability to receive drop 
copies, and other functionality). See id. at 58351.
    \25\ Id. at 58352.
---------------------------------------------------------------------------

    The Exchange states that the $11,361,586 aggregate annual costs for 
providing physical dedicated 10Gb ULL connectivity via an unshared 
network is the sum of the following individual line-item costs: (1) 
Human Resources at $3,520,856; (2) Connectivity (external fees, 
cabling, switches, etc.) at $71,675; (3) Internet Services and External 
Market Data at $373,249; (4) Data Center at $752,545; (5) Hardware and 
Software Maintenance and Licenses at $666,208; (6) Depreciation at 
$1,929,118; and (7) Allocated Shared Expenses at $4,407,935.\26\ The 
Exchange represents that it estimates that the proposed fees will 
result in an annual revenue of approximately $16,524,000, which is a 
potential profit margin of 31% over the cost of providing 10Gb ULL 
connectivity services.\27\
---------------------------------------------------------------------------

    \26\ See id. at 58353.
    \27\ See id. at 58359.
---------------------------------------------------------------------------

    The Exchange states that the $1,779,066 aggregate annual costs for 
offering Limited Service MEI Ports is the sum of the following 
individual line-item costs: (1) Human Resources at $737,784; (2) 
Connectivity (external fees, cabling, switches, etc.) at $3,713; (3) 
Internet Services and External Market Data at $14,102; (4) Data Center 
at $55,686; (5) Hardware and Software Maintenance and Licenses at 
$41,951; (6) Depreciation at $112,694; and (7) Allocated Shared 
Expenses at $813,136.\28\ The Exchange represents that it estimates 
that the proposed fees will result in an annual revenue of 
approximately $2,809,200, which is a potential profit margin of 37% 
over the cost of providing Limited Service MEI Ports.\29\
---------------------------------------------------------------------------

    \28\ See id. at 58356.
    \29\ See Notice, supra note 4, at 58359.
---------------------------------------------------------------------------

    The Exchange states its belief that the proposed fees are 
reasonable because they allow the Exchange to ``recoup the Exchange's 
costs of providing dedicated 10Gb ULL connectivity and Limited Service 
MEI Ports'' and that the cost analysis and related projections 
demonstrate that the Exchange is not earning ``supra-competitive 
profits.'' \30\ In addition, the Exchange states that the proposed fees 
are comparable to or lower than the fees charged by competing options 
exchanges for similar products.\31\
---------------------------------------------------------------------------

    \30\ Id. at 58360.
    \31\ See id.
---------------------------------------------------------------------------

    In further support of the proposal, the Exchange states its belief 
that the proposed fees are reasonable, fair, equitable, and not 
unfairly discriminatory, because they are designed to align fees with 
services provided and will apply equally to all subscribers.\32\ 
Moreover, the Exchange asserts that the proposed fees are equitably 
allocated among users of the network connectivity and port 
alternatives, as the ``users of 10Gb ULL connections consume 
substantially more bandwidth and network resources than the users of 
1Gb ULL connection.'' \33\ The Exchange also states that with respect 
to Limited Service MEI Ports, the tiered-pricing structure is 
``explicitly designed to link fees to related costs imposed on the 
[E]xchange'' and that ``Market Makers that purchase more connections 
cause significantly greater costs and expenses to the Exchange.'' \34\
---------------------------------------------------------------------------

    \32\ See id. at 58361.
    \33\ Id.
    \34\ Id.
---------------------------------------------------------------------------

    Finally, the Exchange asserts that the proposed fees would not 
cause any unnecessary or inappropriate burden on inter-market 
competition because if the fee is set too high it would make it easier 
for other exchanges to compete with the Exchange, and only if the 
proposed fees were a ``substantial fee decrease could this be 
considered a form of predatory pricing.'' \35\ The Exchange also 
asserts that the proposed rule change would not cause any unnecessary 
or inappropriate burden on intra-market competition because the 
proposed fees will allow the Exchange to recoup some of its costs in 
providing 10Gb ULL connectivity and Limited Service MEI Ports at below 
market rates since the Exchange launched operations.\36\
---------------------------------------------------------------------------

    \35\ Id. at 58363.
    \36\ See id. at 58362.
---------------------------------------------------------------------------

    To date, the Commission has received one comment letter on the 
revised justifications for the proposed increase in fees for 10Gb ULL 
connectivity and Limited Service MEI Ports.\37\ This commenter states 
that the revisions reflected in the Exchange's instant proposal as 
compared to its earlier filings ``do[ ] not fundamentally redress the 
valid critiques that SIG raised in its prior letters objecting to the 
subject fee increases.'' \38\
---------------------------------------------------------------------------

    \37\ See Letter from Gerald D. O'Connell, Executive Director, 
Susquehanna International Group, LLP, to Vanessa Countryman, 
Secretary, Commission, dated September 18, 2023 (``SIG Letter'').
    \38\ Id.
---------------------------------------------------------------------------

    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\39\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements.'' \40\
---------------------------------------------------------------------------

    \39\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \40\ See id.
---------------------------------------------------------------------------

    Section 6 of the Act, including Sections 6(b)(4), (5), and (8), 
require the rules of an exchange to: (1) provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \41\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \42\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\43\
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f(b)(4).
    \42\ 15 U.S.C. 78f(b)(5).
    \43\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In temporarily suspending the Exchange's proposed rule change, the 
Commission intends to further consider whether the proposal to increase 
fees for 10Gb ULL connectivity and adopt a tired-pricing structure for 
Limited Service MEI Ports is consistent with the statutory requirements 
applicable to a national securities exchange under the Act. In 
particular, the Commission will consider whether the proposed rule 
change satisfies the standards under the Act and the rules thereunder 
requiring, among other things, that an exchange's rules provide for the 
equitable allocation of reasonable fees among members, issuers, and 
other persons using its facilities; not permit unfair discrimination 
between customers, issuers, brokers or dealers; and do not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\44\
---------------------------------------------------------------------------

    \44\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------

    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.\45\
---------------------------------------------------------------------------

    \45\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).

---------------------------------------------------------------------------

[[Page 68683]]

IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    In addition to temporarily suspending the proposal, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\46\ and 19(b)(2)(B) of the Act \47\ to determine whether the 
Exchange's proposed rule change should be approved or disapproved. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, the Commission seeks and encourages interested persons to 
provide additional comment on the proposed rule change to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule change.
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \47\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\48\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
---------------------------------------------------------------------------

    \48\ Id. Section 19(b)(2)(B) of the Act also provides that 
proceedings to determine whether to disapprove a proposed rule 
change must be concluded within 180 days of the date of publication 
of notice of the filing of the proposed rule change. See id. The 
time for conclusion of the proceedings may be extended for up to 60 
days if the Commission finds good cause for such extension and 
publishes its reasons for so finding, or if the exchange consents to 
the longer period. See id.
---------------------------------------------------------------------------

     Whether the Exchange has demonstrated how the proposed 
fees are consistent with Section 6(b)(4) of the Act, which requires 
that the rules of a national securities exchange ``provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
its members and issuers and other persons using its facilities;'' \49\
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

     Whether the Exchange has demonstrated how the proposed 
fees are consistent with Section 6(b)(5) of the Act, which requires, 
among other things, that the rules of a national securities exchange 
not be ``designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers;'' \50\ and
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

     Whether the Exchange has demonstrated how the proposed 
fees are consistent with Section 6(b)(8) of the Act, which requires 
that the rules of a national securities exchange ``not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of [the Act].'' \51\
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    As discussed in Section III above, the Exchange made various 
arguments in support of its proposal. The Commission believes that 
there are questions as to whether the Exchange has provided sufficient 
information to demonstrate that the proposed fees are consistent with 
the Act and the rules thereunder.
    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule change.'' \52\ The description of a proposed 
rule change, its purpose and operation, its effect, and a legal 
analysis of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative Commission 
finding,\53\ and any failure of an SRO to provide this information may 
result in the Commission not having a sufficient basis to make an 
affirmative finding that a proposed rule change is consistent with the 
Act and the applicable rules and regulations.\54\
---------------------------------------------------------------------------

    \52\ 17 CFR 201.700(b)(3).
    \53\ See id.
    \54\ See id.
---------------------------------------------------------------------------

    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposed fees are consistent with the Act, and 
specifically, with its requirements that exchange fees be reasonable 
and equitably allocated, not be unfairly discriminatory, and not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.\55\
---------------------------------------------------------------------------

    \55\ See 15 U.S.C. 78f(b)(4), (5), and (8).
---------------------------------------------------------------------------

V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by October 25, 2023. 
Rebuttal comments should be submitted by November 8, 2023. Although 
there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of views, 
data, and arguments, the Commission will consider, pursuant to Rule 
19b-4, any request for an opportunity to make an oral presentation.\56\
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    \56\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
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    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
    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-2023-19 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-2023-19. 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 
a.m. and 3 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

[[Page 68684]]

submissions should refer to file number SR-EMERALD-2023-19 and should 
be submitted on or before October 25, 2023. Rebuttal comments should be 
submitted by November 8, 2023.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\57\ that File No. SR-EMERALD-2023-19, be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \57\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\58\
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    \58\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22032 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P
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