Self-Regulatory Organizations; Miami International Securities Exchange, 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, 19929-19942 [2024-05835]
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Federal Register / Vol. 89, No. 55 / Wednesday, March 20, 2024 / Notices
SR–EMERALD–2024–09 and should be
submitted on or before April 10, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.69
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–05836 Filed 3–19–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99736; File No. SR–MIAX–
2024–13]
Self-Regulatory Organizations; Miami
International Securities Exchange,
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
March 14, 2024.
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 March 1,
2024, Miami International Securities
Exchange, LLC (‘‘MIAX’’ 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.
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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 Fee Schedule (‘‘Fee
Schedule’’) to: (i) amend the fees for the
MIAX Top of Market (‘‘ToM’’) data feed;
and (ii) establish fees for the MIAX
Complex Top of Market (‘‘cToM’’) data
feed.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxglobal.com/markets/
us-options/all-options-exchanges/rulefilings, at MIAX’s principal office, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
69 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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: (i) amend
the fees for ToM; and (ii) establish fees
for cToM. The ToM data feed contains
top of book quotations based on options
orders 3 and quotes 4 resting on the
Exchange’s Simple Order Book 5 as well
as administrative messages.6 The cToM
data feed includes the same types of
information as ToM, but for Complex
Orders 7 on the Exchange’s Strategy
Book.8 This information includes the
Exchange’s best bid and offer for a
complex strategy,9 with aggregate size,
based on displayable orders in the
complex strategy. The cToM data feed
also provides subscribers with the
following information: (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). ToM
3 The term ‘‘order’’ means a firm commitment to
buy or sell option contracts. See Exchange Rule 100.
4 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
Exchange Rule 517. A Market Maker may, at times,
choose to have multiple types of quotes active in
an individual option. See Exchange Rule 100.
5 The term ‘‘Simple Order Book’’ means the
Exchange’s regular electronic book of orders and
quotes. See Exchange Rule 518(a)(17).
6 See Fee Schedule, Section 6)a).
7 In sum, a ‘‘Complex Order’’ is ‘‘any order
involving the concurrent purchase and/or sale of
two or more different options in the same
underlying security (the ‘legs’ or ‘components’ of
the complex order), for the same account . . . .’’
See Exchange Rule 518(a)(5).
8 The ‘‘Strategy Book’’ is the Exchange’s
electronic book of complex orders and complex
quotes. See Exchange Rule 518(a)(19).
9 The term ‘‘complex strategy’’ means a particular
combination of components and their ratios to one
another. New complex strategies can be created as
the result of the receipt of a complex order or by
the Exchange for a complex strategy that is not
currently in the System. The Exchange may limit
the number of new complex strategies that may be
in the System at a particular time and will
communicate this limitation to Members via
Regulatory Circular. See Exchange Rule 518(a)(6).
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19929
subscribers are not required to subscribe
to cToM, and cToM subscribers are not
required to subscribe to ToM.
The Exchange notes that there is no
requirement that any Member 10 or
market participant subscribe to either
the ToM or cToM data feeds. Instead, a
Member may choose to maintain
subscriptions to ToM or cToM based on
their trading strategies and individual
business decisions. Moreover, persons
(including broker-dealers) who
subscribe to any exchange proprietary
data feed must also have equivalent
access to consolidated Options
Information 11 from the Options Price
Reporting Authority (‘‘OPRA’’) for the
same classes or series of options that are
included in the proprietary data feed
(including for exclusively listed
products), and proprietary data feeds
cannot be used to meet that particular
requirement. As such, all proprietary
data feeds are purely optional and only
those that deem the product to be of
sufficient overall value and usefulness
would purchase it. The proposed fees
described below would not apply
differently based upon the size or type
of firm, but rather based upon the type
of subscription 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.12
10 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.
11 The term ‘‘consolidated Options Information’’
means ‘‘consolidated Last Sale Reports combined
with either consolidated Quotation Information or
the BBO furnished by OPRA . . .’’ Access to
consolidated Options Information is deemed
‘‘equivalent’’ if both kinds of information are
equally accessible on the same terminal or work
station. See Limited Liability Company Agreement
of Options Price Reporting Authority, LLC (‘‘OPRA
Plan’’), Section 5.2(c)(iii). The Exchange notes that
this requirement under the OPRA Plan is also
reiterated under the Cboe Global Markets Global
Data Agreement and Cboe Global Markets North
American Data Policies, which subscribers to any
exchange proprietary product must sign and are
subject to, respectively. Additionally, the
Exchange’s Data Order Form (used for requesting
the Exchange’s market data products) requires
confirmation that the requesting market participant
receives data from OPRA.
12 The Exchange first filed the proposed fee
change on December 28, 2022. See Securities
Exchange Act Release No. 96626 (January 10, 2023),
88 FR 2699 (January 17, 2023) (SR–MIAX–2022–
49). After serval withdrawals and re-filings, the
Commission Staff suspended the proposed fees on
August 3, 2023. See Securities Exchange Act
Release No. 98050 (August 3, 2023), 88 FR 53941
(August 9, 2023) (SR–MIAX–2023–23). On January
17, 2024, the Exchange withdrew the suspended
proposed fee change. See Securities Exchange Act
Release No. 99408 (January 22, 2024), 89 FR 5271
(January 26, 2024).
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Federal Register / Vol. 89, No. 55 / Wednesday, March 20, 2024 / Notices
for subscriptions to the cToM data feed.
The objective of this approach was to
eliminate any fee-based barriers for
Members when the Exchange first
launched Complex Order functionality,
which the Exchange believed was
necessary to attract order flow as a
relatively new exchange at that time.
During that time, the Exchange absorbed
all costs associated with compiling and
disseminating the cToM data feed. The
Exchange now proposes to establish fees
for the cToM data feed to recoup its
ongoing costs going forward, as
described below.
The Exchange proposes to charge a
monthly fee of $2,000 to Internal
Distributors and $3,000 to External
Distributors of the cToM data feed. The
proposed fees are identical to those
proposed herein for the ToM data feed.
cToM
Like the ToM data feed, the Exchange
does not propose to adopt separate
The Exchange previously adopted
redistribution fees for the cToM data
rules governing the trading of Complex
feed. However, the recipient of cToM
Orders in 2016.14 At that time, the
data would be required to become a
Exchange also adopted the cToM data
Distributor and would be subject to the
feed and expressly waived fees over six
applicable Distribution fees. Also like
years to incentivize market participants
the ToM data feed, the Exchange does
to subscribe and make the Exchange’s
not propose to charge individual per
cToM data more widely available.15 In
user fees or any additional fees based on
the eight years since the Exchange
a subscriber’s use of the cToM data feed
adopted Complex Order functionality,
(e.g., displayed versus non-displayed
the Exchange has grown its monthly
use).
complex market share from 0% to
The Exchange proposes to assess
11.47% of the total electronic complex
cToM fees to Internal and External
non-index volume executed on
Distributors in the same manner as it
exchanges offering electronic complex
currently does for the ToM data feed.
functionality based on the month of
Each Distributor would be charged for
16
January 2024. During that same
each month it is credentialed to receive
period, the Exchange experienced a
cToM in the Exchange’s production
steady increase in the number of cToM
subscribers. Until the Exchange initially environment. Also, fees for cToM will
be reduced for new mid-month
filed to adopt cToM fees in July of
2021,17 the Exchange did not charge fees Distributors for the first month they
subscribe. New mid-month cToM
Distributors would be assessed a pro13 A ‘‘Distributor’’ of MIAX data is any entity that
rata percentage of the applicable
receives a feed or file of data either directly from
MIAX or indirectly through another entity and then
Distribution fee based on the percentage
distributes it either internally (within that entity) or
of the number of trading days remaining
externally (outside that entity). All Distributors are
in the affected calendar month as of the
required to execute a MIAX Distributor Agreement.
date on which they have been first
See Fee Schedule, Section 6)a).
14 See Securities Exchange Act Release No. 79072
credentialed to receive cToM in the
(October 7, 2016), 81 FR 71131 (October 14, 2016)
production environment, divided by the
(SR–MIAX–2016–26) (Order Approving a Proposed
total number of trading days in the
Rule Change to Adopt New Rules to Govern the
affected calendar month.
Trading of Complex Orders).
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ToM
The Exchange currently charges a
monthly fee of $1,250 to Internal
Distributors 13 and $1,750 to External
Distributors. The Exchange proposes to
charge a monthly fee of $2,000 to
Internal Distributors and $3,000 to
External Distributors. The proposed fee
increases are intended to cover the
Exchange’s increasing costs with
compiling and producing the ToM data
feed described in the Exchange’s Cost
Analysis detailed below. The Exchange
does not currently charge, nor does it
now propose to charge any additional
fees based on a Distributor’s use of the
ToM and cToM data feeds (e.g.,
displayed versus non-displayed use),
redistribution fees, or individual per
user fees.
15 See Securities Exchange Act Release No. 79146
(October 24, 2016), 81 FR 75171 (October 28, 2016)
(SR–MIAX–2016–36) (providing a complete
description of the cToM data feed).
16 The Exchange notes that it receives complex
market data for all U.S. options exchanges that offer
complex functionality from direct feeds from
OPRA.
17 See Securities Exchange Act Release Nos.
92359 (July 9, 2021), 86 FR 37393 (July 15, 2021)
(SR–MIAX–2021–28); 98050 (August 3, 2023), 88
FR 53941 (August 9, 2023) (SR–MIAX–2023–23)
(Suspension of and Order Instituting Proceedings
To Determine Whether To Approve or Disapprove
Proposed Rule Change To Increase Fees for the ToM
Market Data Product and Establish Fees for the
cToM Market Data Product).
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Minor, Non-Substantive Changes
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.
This proposed change does not alter the
operation of either fee.
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Implementation
The proposed fee changes are
effective beginning March 1, 2024.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of section 6(b) 18 of the
Act in general, and furthers the
objectives of section 6(b)(4) 19 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) 20 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
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.
In 2019, Commission staff published
guidance suggesting the types of
information that self-regulatory
organizations (‘‘SROs’’) may use to
demonstrate that their fee filings comply
with the standards of the Exchange Act
(the ‘‘Staff Guidance’’).21 While the
Exchange understands that the Staff
Guidance does not create new legal
obligations on SROs, the Staff 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. The Staff Guidance
provides that in assessing the
reasonableness of a fee, the Staff would
consider whether the fee is constrained
by significant competitive forces. To
determine whether a proposed fee is
constrained by significant competitive
forces, the Staff Guidance further
provides that the Staff would consider
whether the evidence provided by an
SRO in a Fee Filing proposal
demonstrates (i) that there are
reasonable substitutes for the product or
service that is the subject of a proposed
fee; (ii) that ‘‘platform’’ competition
constrains the fee; and/or (iii) that the
18 15
U.S.C. 78f.
U.S.C. 78f(b)(4).
20 15 U.S.C. 78f(b)(5).
21 See Staff Guidance on SRO Rule Filings
Relating to Fees (May 21, 2019), available at https://
www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
19 15
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revenue and cost analysis provided by
the SRO otherwise demonstrates that
the proposed fee would not result in the
SRO taking supra-competitive profits.22
The Exchange provides sufficient
evidence below to support the findings
that the proposed fees are constrained
by competitive forces; the ToM and
cToM data feeds each have a reasonable
substitute; and that the proposed fees
would not result in a supra-competitive
profit.
As noted above, the Exchange also
adopted the cToM data feed and
expressly waived fees over six years to
incentivize market participants to
subscribe and make the Exchange’s
cToM data more widely available.23 In
the eight years since the Exchange
adopted Complex Order functionality,
the Exchange has grown its monthly
complex market share from 0% to
11.47% of the total electronic complex
non-index volume executed on U.S.
options exchanges offering complex
functionality for the month of January
2024. 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.
The Proposed Fees for the ToM and
cToM Data Products Are Subject to
Significant Competitive Forces and the
Fee Levels Are Comparable to the Fees
Charged by Other Exchanges for Similar
Data Products
In adopting Regulation NMS, the
Commission granted SROs and brokerdealers increased authority and
flexibility to offer new and unique
market data to the public. It was
believed that this authority would
expand the amount of data available to
consumers, and also spur innovation
and competition for the provision of
market data. Particularly, the ToM and
cToM data feeds further broaden the
availability of U.S. option market data to
investors consistent with the principles
of Regulation NMS. The data products
also promotes increased transparency
through the dissemination of
information regarding quotes and last
sale information during the trading day,
which may allow market participants to
make better informed trading decisions
throughout the day.
As a threshold matter, the Exchange is
subject to significant competitive forces,
which constrains its pricing
determinations for transaction fees as
22 Id.
23 See
supra note 15.
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well market data fees. Indeed, there are
currently 17 registered exchanges that
trade equity options. For the month of
January 2024, based on publicly
available information, no single options
exchange had more than approximately
13–14% of the equity options market
share and the Exchange represented
only approximately 6.49% of the equity
options market share for the month of
January 2024.24 The Commission has
repeatedly expressed its preference for
competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. Particularly, in Regulation
NMS, the Commission highlighted the
importance of market forces in
determining prices and SRO revenues
and, also, recognized that current
regulation of the market system ‘‘has
been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 25
Making similar data products available
to market participants fosters
competition in the marketplace, and
constrains the ability of exchanges to
charge supra-competitive fees. In the
event that a market participant views
one exchange’s data product as more or
less attractive than the competition they
can and do switch between similar
products.
The fact that the market for order flow
is competitive has long been recognized
by the courts. In NetCoalition v.
Securities and Exchange Commission,
the D.C. Circuit stated, ‘‘[n]o one
disputes that competition for order flow
is ‘fierce.’ . . . As the SEC explained,
‘[i]n the U.S. national market system,
buyers and sellers of securities, and the
broker-dealers that act as their orderrouting agents, have a wide range of
choices of where to route orders for
execution’; [and] ‘no exchange can
afford to take its market share
percentages for granted’ because ‘no
exchange possesses a monopoly,
regulatory or otherwise, in the execution
of order flow from broker
dealers’. . . .’’ 26
The Commission and the courts have
repeatedly expressed their preference
for competition over regulatory
intervention to determine prices,
products, and services in the securities
24 See the ‘‘Market Share’’ section of the
Exchange’s website, available at https://www.miax
global.com/.
25 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
26 See NetCoalition, 615 F.3d at 539 (D.C. Cir.
2010) (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782–83
(December 9, 2008) (SR–NYSEArca–2006–21)).
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19931
markets. In Regulation NMS, while
adopting a series of steps to improve the
current market model, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues, and also recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 27
Congress directed the Commission to
‘‘rely on ‘competition, whenever
possible, in meeting its regulatory
responsibilities for overseeing the SROs
and the national market system.’ ’’ 28 As
a result, and as evidenced above, the
Commission has historically relied on
competitive forces to determine whether
a fee proposal is equitable, fair,
reasonable, and not unreasonably or
unfairly discriminatory. ‘‘If competitive
forces are operative, the self-interest of
the exchanges themselves will work
powerfully to constrain unreasonable or
unfair behavior.’’ 29 Accordingly, ‘‘the
existence of significant competition
provides a substantial basis for finding
that the terms of an exchange’s fee
proposal are equitable, fair, reasonable,
and not unreasonably or unfairly
discriminatory.’’ 30 In the Staff
Guidance, Commission Staff indicated
that they would look at factors beyond
the competitive environment, such as
cost, only if a ‘‘proposal lacks
persuasive evidence that the proposed
fee is constrained by significant
competitive forces.’’ 31 In this case, the
Exchange provided the below Cost
Analysis.
The Exchange notes 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) 32 of the
Act in particular. The Exchange believes
the proposed fees are competitive and
reasonable because the proposed fees
are similar to or less than fees charged
for similar market data feeds provided
by other options exchanges with
comparable market shares. As such, the
27 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
28 See NetCoalition, 615 F.3d at 534–35; see also
H.R. Rep. No. 94–229 at 92 (1975) (‘‘[I]t is the intent
of the conferees that the national market system
evolve through the interplay of competitive forces
as unnecessary regulatory restrictions are
removed.’’).
29 See Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74,770 (December 9,
2008) (SR–NYSEArca–2006–21).
30 Id.
31 See supra note 21.
32 15 U.S.C. 78f(b)(5).
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Exchange believes that denying its
ability to adopt the proposed fees that
would allow the Exchange to recoup its
costs with a reasonable margin in a
manner that is closer to parity with
legacy exchanges, in effect, impedes its
ability to compete, including in its
pricing of transaction fees and ability to
invest in competitive infrastructure and
other offerings.
First, the proposed fees for ToM are
comparable to the fees currently in
place for the options exchanges,
particularly Nasdaq ISE, LLC (‘‘ISE’’).33
For the month of January 2024, the
Exchange had 6.49% market share of
equity options volume; for that same
month, ISE had 6.19% market share of
equity options volume.34 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’’).35
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 ISE Top
Quote Feed, similar to ToM, includes
top of book, trades, and security status
messages, and costs market participants
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).36 ISE’s overall charge to
receive the ISE Top Quote Feed may be
even higher than the Exchange’s
proposed rates because ISE charges
additional per controlled device fees
33 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).
34 See Market Share section of https://www.miax
global.com/.
35 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 Arca Options
Proprietary Market Data Fees, available at: https://
www.nyse.com/publicdocs/nyse/data/NYSE_Arca_
Options_Proprietary_Data_Fee_Schedule.pdf.
36 See supra note 33.
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that can cause the distribution fee to
reach up to $5,000 per month.37 The
Exchange’s proposed rates do not
include additional fees.
Like ToM described above, the
proposed fees for cToM are comparable
to the fees currently in place for
competing options exchanges,
particularly NYSE American, LLC
(‘‘NYSE American’’).38 As noted above,
for the month of January 2024, the
Exchange had 6.49% of the total equity
options market share and 11.47% of the
total electronic complex non-index
volume executed on exchanges offering
electronic complex functionality. For
that same month, NYSE American had
7.44% of the total equity options market
share and 5.90% of the total electronic
complex non-index volume.39 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 data feed, which, similar to
cToM, includes top of book, trades, and
security status messages for complex
orders, costs market participants 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).40
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 exceed the
rates that the Exchange proposes to
charge.
37 Id.
38 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.
39 See supra note 34.
40 See supra note 38.
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There Are Reasonable Substitutes for
the ToM and cToM Data Feeds
Each options exchange offers top-ofbook quotation and last sale information
based on their own quotation and
trading activity that is substantially
similar to the information provided by
the Exchange through the ToM data
feed. Further, the quote and last sale
data contained in the ToM data feed is
identical to the data sent to OPRA for
redistribution to the public.41
Accordingly, market participants can
substitute ToM data with feeds from
other exchanges and/or through OPRA.
Exchange top-of-book data is therefore
widely available today from a number of
different sources.
Further, 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 Order Feed
(‘‘MOR’’).42 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.
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
41 The Exchange notes that it makes available to
subscribers that is included in the ToM data feed
no earlier than the time at which the Exchange
sends that data to OPRA.
42 See MIAX website, Market Data & Offerings,
available at https://www.miaxglobal.com/company/
data/data-products-services/market-data (last
visited February 28, 2024). In general, MOR
provides real-time ultra-low latency updates on the
following information: new Simple Orders added to
the MIAX Order Book; updates to Simple Orders
resting on the MIAX Order Book; new Complex
Orders added to the Strategy Book (i.e., the book of
Complex Orders); updates to Complex Orders
resting on the Strategy Book; MIAX listed series
updates; MIAX Complex Strategy definitions; the
state of the MIAX System; and MIAX’s underlying
trading state.
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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
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,43 and Rule 19b–4 thereunder,44
with respect to the types of information
SROs should provide when filing fee
changes, and section 6(b) of the Act,45
which requires, among other things, that
exchange fees be reasonable and
equitably allocated,46 not designed to
permit unfair discrimination,47 and that
they not impose a burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act.48 This proposal
addresses those requirements, and the
analysis and data in this section are
designed to clearly and
comprehensively show how they are
met.
In 2019, the Exchange completed a
study of its aggregate costs to produce
market data and connectivity (the ‘‘Cost
Analysis’’).49 The Cost Analysis
required a detailed analysis of the
Exchange’s aggregate baseline costs,
including a determination and
43 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
45 15 U.S.C. 78f(b).
46 15 U.S.C. 78f(b)(4).
47 15 U.S.C. 78f(b)(5).
48 15 U.S.C. 78f(b)(8).
49 The Exchange frequently updates it Cost
Analysis as strategic initiatives change, costs
increase or decrease, and market participant needs
and trading activity changes. The Exchange’s most
recent Cost Analysis was conducted ahead of this
filing.
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44 17
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allocation of costs for core services
provided by the Exchange—transaction
execution, market data, membership
services, physical connectivity, and port
access (which provide order entry,
cancellation and modification
functionality, risk functionality, the
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 (‘‘cost
drivers’’).
As an initial step, the Exchange
determined the total cost for the
Exchange and its affiliated markets 50 for
each cost driver as part of its 2024
budget review process. The 2024 budget
review is a company-wide process that
occurs over the course of many months,
includes meetings among senior
management, department heads, and the
Finance Team. Each department head is
required to send a ‘‘bottom up’’ budget
to the Finance Team allocating costs at
the profit and loss account and vendor
levels for the Exchange and 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, simple only or simple and complex
markets, auction functionality, etc.),
which may impact message traffic,
individual system architectures that
impact platform size,51 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. All of these factors result
in different allocation percentages
among the Exchange and its affiliated
markets, i.e., the different percentages of
the overall cost driver allocated to the
Exchange and its affiliated markets will
cause the dollar amount of the overall
cost allocated among the Exchange and
its affiliated markets to also differ.
Because the Exchange’s parent company
currently owns and operates four
50 The affiliated markets include Miami
International Securities Exchange, LLC (‘‘MIAX’’);
separately, the options and equities markets of
MIAX PEARL, LLC (‘‘MIAX Pearl’’); and MIAX
Emerald, LLC (‘‘MIAX Emerald’’).
51 For example, MIAX maintains 24 matching
engines, MIAX Pearl Options maintains 12
matching engines, MIAX Pearl Equities maintains
24 matching engines, and MIAX Emerald maintains
12 matching engines.
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19933
separate and distinct marketplaces, the
Exchange must determine the costs
associated with each actual market—as
opposed to the Exchange’s parent
company simply concluding that all
costs drivers are the same at each
individual marketplace and dividing
total cost by four (4) (evenly for each
marketplace). Rather, 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, due to the unique factors of
each marketplace as described above.
This allocation methodology also
ensures that no cost would be allocated
twice or double-counted between the
Exchange and its affiliated markets. The
Finance Team then consolidates the
budget and sends it to senior
management, including the Chief
Financial Officer and Chief Executive
Officer, for review and approval. Next,
the budget is presented to the Board of
Directors and the Finance and Audit
Committees for each exchange for their
approval. The above steps encompass
the first step of the cost allocation
process.
The next step involves determining
what portion of the cost allocated to the
Exchange pursuant to the above
methodology is to be allocated to each
core service, e.g., connectivity and
ports, market data, and transaction
services. The Exchange and its affiliated
markets adopted an allocation
methodology with thoughtful and
consistently applied principles to guide
how much of a particular cost amount
allocated to the Exchange should be
allocated within the Exchange to each
core service. This is the final step in the
cost allocation process and is applied to
each of the cost drivers set forth below.
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 (for example,
59% of the data center total expense
amount is allocated to 10Gb ULL
connectivity), with smaller allocations
to ToM and cToM (1.3% combined),
and the remainder to the provision of
other connectivity, ports, transaction
execution, membership services and
other market data services (39.7%). This
next level of the allocation methodology
at the individual exchange level also
took into account factors similar to
those set forth under the first step of the
allocation methodology process
described above, to determine the
appropriate allocation to connectivity or
market data versus allocations for other
services. This allocation methodology
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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 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 fees, fees for connectivity
and port services, membership fees,
regulatory fees, and market data fees.
Accordingly, the Exchange must cover
its expenses from these five 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 cost-justified 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
further refined, 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. In turn, the Exchange
allocated certain costs more to physical
connectivity and others to ports, while
certain costs were only allocated to such
services at a very low percentage or not
at all, using consistent allocation
methodologies as described above.
Based on this analysis, the Exchange
estimates that the aggregate monthly
cost to provide ToM and cToM data
feeds is $74,789 (the Exchange divided
the annual cost for each of ToM and
cToM by 12 months, then added both
numbers together), as further detailed
below.
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 2.6% of its overall
Human Resources cost to offering ToM
and cToM data feeds).
Allocated
annual cost a
Cost drivers
Allocated
monthly
cost b
Percentage
of all
Human Resources .......................................................................................................................
Connectivity (external fees, cabling, switches, etc.) ...................................................................
Internet Services and External Market Data ...............................................................................
Data Center .................................................................................................................................
Hardware and Software Maintenance & Licenses ......................................................................
Depreciation .................................................................................................................................
Allocated Shared Expenses ........................................................................................................
$588,806
1,205
0.00
19,292
26,386
35,967
225,807
$49,067
101
0.00
1,608
2,199
2,997
18,817
2.6
1.3
0.0
1.3
1.3
0.8
2.5
Total ......................................................................................................................................
897,463
74,789
2.2
a
The Annual Cost includes figures rounded to the nearest dollar.
The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and rounding up or down to the
nearest dollar.
khammond on DSKJM1Z7X2PROD with NOTICES
b
Below are additional details regarding
each of the line-item costs considered
by the Exchange to be related to offering
ToM and cToM. While some costs were
attempted to be allocated as equally as
possible among the Exchange and its
affiliated markets, the Exchange notes
that some of its cost allocation
percentages for certain cost drivers
differ when compared to the same cost
drivers for the Exchange’s affiliated
market, MIAX Emerald, in its similar
proposed fee change for ToM and cToM.
This is because the Exchange’s cost
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allocation methodology utilizes the
actual projected costs of the Exchange
(which are specific to the Exchange and
are independent of the costs projected
and utilized by the Exchange’s affiliated
markets) to determine its actual costs,
which may vary across the Exchange
and its affiliated markets based on
factors that are unique to each
marketplace. The Exchange provides
additional explanation below (including
the reason for the deviation) for the
significant differences, if any.
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The Exchange also notes that
expenses included in its 2024 fiscal year
budget and this proposal are generally
higher than its 2023 fiscal year budget
and Cost Analysis included in prior
filings. This is due to a number of
factors, such as, critical vendors and
suppliers increasing costs they charge
the Exchange, significant exchange staff
headcount increases, increased data
center costs from the Exchange’s data
center providers in multiple locations
and facilities, higher technology and
communications costs, planned
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hardware refreshes, and system capacity
upgrades that increase depreciation
expense. Specifically, with regard to
employee compensation, the 2024 fiscal
year budget includes additional
expenses related to increased headcount
and new hires that are needed to
support the Exchange as it continues to
grow (the Exchange and its affiliated
companies are projected to hire over 60
additional staff in 2024). Hardware and
software expenses have also increased
primarily due to price increases from
critical vendors and equipment
suppliers. Further, the Exchange
budgeted for additional hardware and
software needs to support the
Exchange’s continued growth and
expansion. Depreciation and
amortization have likewise increased
due to recent and planned refreshes in
Exchange hardware and software. This
new equipment and software then
becomes depreciable, as described
below. Data center costs have also
increased due the following: the
Exchange expanding its footprint within
its data center; and the data center
vendor increasing the costs it charges
the Exchange. Lastly, allocated shared
expenses have increased due to the
overall budgeted increase in costs from
2023 to 2024 necessary to operate and
support the Exchange as described
below.
khammond on DSKJM1Z7X2PROD with NOTICES
Human Resources
The Exchange notes that it and its
affiliated markets anticipate that by
year-end 2024, there will be 289
employees (excluding employees at
non-options/equities exchange
subsidiaries of Miami International
Holdings, Inc. (‘‘MIH’’), the holding
company of the Exchange and its
affiliated markets), 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 each market’s individual
Human Resources expense. Then,
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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For personnel costs (Human
Resources), the Exchange calculated an
allocation of employee time for
employees whose functions include
providing and maintaining ToM and
cToM data feeds and performance
thereof (primarily the Exchange’s
network infrastructure team, which
spends a portion of their time
performing functions necessary to
provide market data). As described more
fully above, the Exchange’s parent
company allocates costs to the Exchange
and its affiliated markets and then a
portion of the Human Resources costs
allocated to the Exchange is then
allocated to market data. From that
portion allocated to the Exchange that
applied to market data, the Exchange
then allocated a weighted average of
2.6% of each employee’s time from the
above group to ToM and cToM data
feeds (which excludes an allocation for
the recently hired Head of Data Services
for the Exchange and its affiliates).
The Exchange also allocated Human
Resources costs to provide ToM and
cToM to a limited subset of personnel
with ancillary functions related to
establishing and maintaining such
market data feeds (such as information
security, sales, membership, and finance
personnel). The Exchange allocated cost
on an employee-by-employee basis (i.e.,
only including those personnel who
support functions related to providing
market data feeds) and then applied a
smaller allocation to such employees’
time to ToM and cToM (less than 1.7%,
which includes an allocation for the
Head of Data Services). This other group
of personnel with a smaller allocation of
Human Resources costs also have a
direct nexus to providing ToM and
cToM, whether it is a sales person
selling a market data feed, finance
personnel billing for market data feeds
or providing budget analysis, or
information security ensuring that such
market data feeds are secure and
adequately defended from an outside
intrusion.
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 market data feeds, and
confirming that the proposed allocations
were reasonable based on an
understanding of the percentage of time
such employees devote to those tasks.
This includes personnel from the
Exchange departments that are
predominately involved in providing
ToM and cToM data feeds: Business
Systems Development, Trading Systems
Development, Systems Operations and
Network Monitoring, Network and Data
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19935
Center Operations, Listings, Trading
Operations, and Project Management.
Again, the Exchange allocated 2.6% of
each of their employee’s time assigned
to the Exchange for ToM and cToM, as
stated above. Employees from these
departments perform numerous
functions to support ToM and cToM
data feeds, such as the configuration
and maintenance of the hardware
necessary to support the ToM and cToM
data feeds. This hardware includes
servers, routers, switches, firewalls, and
monitoring devices. These employees
also perform software upgrades,
vulnerability assessments, remediation
and patch installs, equipment
configuration and hardening, as well as
performance and capacity management.
These employees also engage in
research and development analysis for
equipment and software supporting
ToM and cToM data feeds and design,
and support the development and ongoing maintenance of internallydeveloped applications as well as data
capture and analysis, and Member and
internal Exchange reports related to
network and system performance. The
above list of employee functions is not
exhaustive of all the functions
performed by Exchange employees to
support ToM and cToM, but illustrates
the breath of functions those employees
perform in support of the above cost and
time allocations.
Lastly, the Exchange notes that senior
level executives’ time was only
allocated to the ToM and cToM related
Human Resources costs to the extent
that they are involved in overseeing
tasks related to providing market data.
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.
Connectivity (External Fees, Cabling,
Switches, etc.) 52
The Connectivity cost driver includes
cabling and switches required to
generate and disseminate the ToM and
cToM data feeds and operate the
Exchange. The Connectivity cost driver
is more narrowly focused on technology
used to complete Member subscriptions
to ToM and cToM and the servers used
at the Exchange’s primary and back-up
data centers specifically for the ToM
52 This cost driver was titled ‘‘Network
Infrastructure’’ in prior proposals. The Exchange
has updated this section to now be in line with its
similar cost analysis and cost driver descriptions for
other non-transaction fee filings. See, e.g.,
Securities Exchange Act Release No. 99476
(February 5, 2024), 89 FR 9194 (February 9, 2024)
(SR–MIAX–2024–06).
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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).53
Internet Services and External Market
Data
The next cost driver consists of
internet services and external market
data. Internet services includes thirdparty service providers that provide the
internet, fiber and bandwidth
connections between the Exchange’s
networks, primary and secondary data
centers, and office locations in
Princeton and Miami. External market
data includes fees paid to third parties,
including other exchanges, to receive
market data. The Exchange did not
allocate any costs associated with
internet services or external market data
to the ToM and cToM data feeds.
Data Center
Data Center costs includes an
allocation of the costs the Exchange
incurs to provide ToM and cToM in the
third-party data centers where it
maintains its equipment (such as
dedicated space, security services,
cooling and power). 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. As the Data Center costs are
primarily for space, power, and cooling
of servers, the Exchange allocated 1.3%
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 the Connectivity cost driver.
Hardware and Software Maintenance
and Licenses
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Hardware and Software Maintenance
and Licenses includes hardware and
53 The Exchange understands that the Investors
Exchange, Inc. (‘‘IEX’’) and MEMX LLC (‘‘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 Nos. 94630 (April 7, 2022),
87 FR 21945, at page 21949 (April 13, 2022) (SR–
IEX–2022–02) and 97130 (March 13, 2023), 88 FR
16491 (March 17, 2023) (SR–MEMX–2023–04). 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 Connectivity cost driver to market
data based on a percentage of overall cost, not on
a per server basis.
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software licenses used to operate and
monitor physical assets necessary to
offer the ToM and cToM data feeds.54
Because the hardware and software
license fees are correlated to the servers
used by the Exchange, the Exchange
again applied an allocation of 1.3% of
its costs for Hardware and Software
Maintenance and Licenses to the ToM
and cToM data feeds. The Exchange
notes that this allocation is more than
MIAX Emerald as MIAX allocated 1.3%
of its Hardware and Software
Maintenance and License expense to
ToM and cToM, while MIAX Emerald
allocated 1.1% of its Hardware and
Software Maintenance and License
expense to ToM and cToM. MIAX’s
allocation results in a slightly higher
dollar amount of $8,000 per year (or
approximately $667 per month, when
dividing the annual cost difference by
12 months and rounding to the nearest
dollar) compared to the annual cost of
MIAX Emerald for its Hardware and
Software Maintenance and License cost
driver. This is because MIAX is in the
process of replacing and upgrading
various hardware and software used to
operate its options trading platform in
order to maintain premium network
performance, including dissemination
of ToM and cToM. At the time of this
filing, MIAX is undergoing a major
hardware refresh, replacing older
hardware with new hardware. This
hardware includes servers, network
switches, cables, optics, protocol data
units, and cabinets, to maintain a stateof-the-art technology platform. Because
of the timing of the hardware refresh
with the timing of this filing, MIAX has
a slightly higher expense than MIAX
Emerald.
Depreciation
All physical assets, software, and
hardware used to provide ToM and
cToM, which also includes assets used
for testing and monitoring of Exchange
infrastructure to provide market data,
were valued at cost, and depreciated or
leased over periods ranging from three
to five years. Thus, the depreciation cost
primarily relates to servers necessary to
operate the Exchange, some of which
are owned by the Exchange and some of
which are leased by the Exchange in
order to allow efficient periodic
technology refreshes. The Exchange also
54 This expense may be more than the Exchange’s
affiliated markets, specifically MIAX Emerald. This
is because each market may maintain and utilize a
different amount of hardware and software based on
its market model and infrastructure needs. The
Exchange allocated a percentage of the overall cost
based on actual amounts of hardware and software
utilized by that market, which resulted in different
cost allocations and dollar amounts.
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included in the Depreciation cost driver
certain budgeted improvements that the
Exchange intends to capitalize and
depreciate with respect to ToM and
cToM 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 ToM and cToM.
As noted above, the Exchange allocated
0.8% of its allocated depreciation costs
to providing ToM and cToM.
The vast majority of the software the
Exchange uses for its operations to
generate and disseminate the ToM and
cToM data feeds has been developed inhouse over an extended period. This
software development also requires
quality assurance and thorough testing
to ensure the software works as
intended. Hardware used to generate
and disseminate the ToM and cToM
data feeds, which includes servers and
other physical equipment the Exchange
purchased. 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 notes that this
allocation differs from its affiliated
market, MIAX Emerald, 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. For example, the
Exchange notes that the percentages it
and its affiliate, MIAX Emerald,
allocated to the depreciation of software
and hardware used to generate and
disseminate their respective ToM and
cToM data feeds are similar (0.8% for
MIAX and 0.5% for MIAX Emerald).
However, MIAX’s dollar amount is
greater than that of MIAX Emerald by
approximately $17,000 per year (albeit a
relatively small amount of
approximately $1,415 per month, when
rounding to the nearest dollar). This is
due to two primary factors. First, the
Exchange has undergone a technology
refresh since the time MIAX Emerald
launched in February 2019, leading to it
having more hardware and software that
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is subject to depreciation. Second, the
Exchange maintains 24 matching
engines while MIAX Emerald maintains
only 12 matching engines. This also
results in more of the Exchange’s
hardware and software being subject to
depreciation than MIAX Emerald’s
hardware and software due to the
greater amount of equipment and
software necessary to support the
greater number of matching engines on
the Exchange.
Allocated Shared Expenses
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Finally, as with other exchange
products and services, a portion of
general shared expenses was allocated
to the provision of ToM and cToM data
feeds. These general shared costs are
integral to exchange operations,
including its ability to provide ToM and
cToM. Costs included in general shared
expenses 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. Similarly, the cost
of paying directors to serve on the
Exchange’s Board of Directors is also
included in the Exchange’s general
shared expense cost driver.55 These
general shared expenses are incurred by
the Exchange’s parent company, MIH, as
a direct result of operating the Exchange
and its affiliated markets.
The Exchange employed a process to
determine a reasonable percentage to
allocate general shared expenses to ToM
and cToM pursuant to its multi-layered
allocation process. First, general
expenses were allocated among the
Exchange and affiliated markets as
described above. Then, the general
shared expense assigned to the
Exchange was allocated across core
services of the Exchange, including
market data. Then, these costs were
further allocated to sub-categories
within the final categories, i.e., ToM and
cToM as sub-categories of market data.
In determining the percentage of general
shared expenses allocated to market
data that ultimately apply to ToM and
cToM, the Exchange looked at the
percentage allocations of each of the
cost drivers and determined a
reasonable allocation percentage. The
55 The Exchange notes that MEMX allocated a
precise amount of 10% of the overall cost for
directors in a similar non-transaction fee filing. See
Securities Exchange Act Release No. 97130 (March
13, 2023), 88 FR 16491 (March 17, 2023) (SR–
MEMX–2023–04). The Exchange does not calculate
is expenses at that granular a level. Instead, director
costs are included as part of the overall general
allocation.
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Exchange also held meetings with
senior management, department heads,
and the Finance Team to determine the
proper amount of the shared general
expense to allocate to ToM and cToM.
The Exchange, therefore, believes it is
reasonable to assign an allocation, in the
range of allocations for other cost
drivers, while continuing to ensure that
this expense is only allocated once.
Again, the general shared expenses are
incurred by the Exchange’s parent
company as a result of operating the
Exchange and its affiliated markets and
it is therefore reasonable to allocate a
percentage of those expenses to the
Exchange and ultimately to specific
product offerings such as ToM and
cToM.
Again, a portion of all shared
expenses were allocated to the Exchange
(and its affiliated markets) which, in
turn, allocated a portion of that overall
allocation to all market data products
offered by the Exchange. The Exchange
then allocated 2.5% of the portion
allocated to market data to ToM and
cToM. The Exchange believes this
allocation percentage is reasonable
because, while the overall dollar
amount may be higher than other cost
drivers, the 2.5% is based on and in line
with the percentage allocations of each
of the Exchange’s other cost drivers. The
percentage allocated to ToM and cToM
also reflects its importance to the
Exchange’s strategy and necessity
towards the nature of the Exchange’s
overall operations, which is to provide
a resilient, highly deterministic trading
system that relies on faster market data
feeds than the Exchange’s competitors
to maintain premium performance. This
allocation reflects the Exchange’s focus
on providing and maintaining high
performance market data services, of
which ToM and cToM are main
contributors.
The Exchange notes that this
allocation differs from its affiliated
market, MIAX Emerald, due to a number
of factors, such as the increase in overall
headcount, thus providing a higher
contribution to the depreciated cost.
The Exchange notes that the percentages
it and its affiliate, MIAX Emerald,
allocated to this cost driver are similar
(2.5% for MIAX and 2.1% for MIAX
Emerald). However, MIAX’s dollar
amount is greater than that of MIAX
Emerald by approximately $38,000 per
year (albeit a relatively small amount of
approximately $3,192 per month, when
rounding to the nearest dollar). This is
due primarily to significant exchange
staff headcount increases. As mentioned
above, the 2024 fiscal year budget
includes additional expenses related to
increased headcount and new hires that
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19937
are needed to support the Exchange as
it continues to grow (with a projected 60
additional staff in 2024). Lastly,
allocated shared expenses have
increased due to the overall budgeted
increase in costs from 2023 to 2024
necessary to operate and support the
Exchange and its affiliated markets.
*
*
*
*
*
Approximate Cost for ToM and cToM
Per Month
After determining the approximate
allocated monthly cost related to ToM
and cToM combined, the total monthly
cost for ToM and cToM of $74,789 was
divided by the number of total
subscribers to ToM and cToM that the
Exchange maintained at the time that
proposed pricing was determined (41
Distributors), to arrive at a cost of
approximately $1,824 per month per
subscription (rounded to the nearest
dollar). Due to the nature of this
particular cost, this allocation
methodology results in an allocation
among the Exchange and its affiliated
markets based on set quantifiable
criteria, i.e., actual number of ToM and
cToM subscribers.
Cost Analysis—Additional Discussion
In conducting its Cost Analysis, the
Exchange did not allocate any of its
expenses in full to any core service
(including market data) and did not
double-count any expenses. Instead, as
described above, the Exchange allocated
applicable cost drivers across its core
services and used the same Cost
Analysis to form the basis of this
proposal and the filings the Exchange
recently submitted proposing fees for
certain connectivity and ports offered by
the Exchange. For instance, in
calculating the Human Resources
expenses to be allocated to market data
based upon the above described
methodology, the Exchange has a team
of employees dedicated to network
infrastructure and with respect to such
employees the Exchange allocated
network infrastructure personnel with a
high percentage of the cost of such
personnel (6.1%) given their focus on
functions necessary to provide market
data. The salaries of those same
personnel were allocated only 2.6% to
ToM and cToM and the remaining
97.4% was allocated to other market
data products offered by the Exchange
(MOR, AIS, etc.), connectivity services,
port services, transaction services, and
membership services. The Exchange did
not allocate any other Human Resources
expense for providing market data to
any other employee group, outside of a
smaller allocation of 2.6% for ToM and
cToM of the cost associated with certain
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specified personnel who work closely
with and support network infrastructure
personnel.
In total, the Exchange allocated 2.6%
of its personnel costs (Human
Resources) to providing ToM and cToM.
In turn, the Exchange allocated the
remaining 97.4% of its Human
Resources expense to membership
services, transaction services,
connectivity services, port services and
other market data products. Thus, again,
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.
As another example, the Exchange
allocated depreciation expense to all
core services, including market data, but
in different amounts. The Exchange
believes it is reasonable to allocate the
identified portion of such expense
because such expense includes the
actual cost of the computer equipment,
such as dedicated servers, computers,
laptops, monitors, information security
appliances and storage, and network
switching infrastructure equipment,
including switches and taps that were
purchased to operate and support the
network. Without this equipment, the
Exchange would not be able to operate
the network and provide ToM and
cToM data feeds to its Members and
their customers. However, the Exchange
did not allocate all of the depreciation
and amortization expense toward the
cost of providing ToM and cToM, but
instead allocated approximately 0.8% of
the Exchange’s overall depreciation and
amortization expense to ToM and cToM
combined. The Exchange allocated the
remaining depreciation and
amortization expense (99.2%) toward
the cost of providing transaction
services, membership services,
connectivity services, port services, and
other market data products.
The Exchange notes that its revenue
estimates are based on projections
across all potential revenue streams and
will only be realized to the extent such
revenue streams actually produce the
revenue estimated. The Exchange does
not yet know whether such expectations
will be realized. For instance, in order
to generate the revenue expected from
ToM and cToM, the Exchange will have
to be successful in retaining existing
clients that wish to maintain
subscriptions to those market data feeds
or in obtaining new clients that will
purchase such services. Similarly, the
Exchange will have to be successful in
retaining a positive net capture on
transaction fees in order to realize the
anticipated revenue from transaction
pricing.
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The Exchange notes that the Cost
Analysis is based on the Exchange’s
2024 fiscal year of operations and
projections. It is possible, however, that
actual costs may be higher or lower. To
the extent the Exchange sees growth in
use of market data services it will
receive additional revenue to offset
future cost increases. However, if use of
market data services 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 may propose to decrease fees
in the event that revenue materially
exceeds our 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 costbased analysis) and 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 our 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.
Projected Revenue 56
The proposed fees will allow the
Exchange to cover certain costs incurred
by the Exchange associated with
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
routinely works to improve the
performance of the network’s hardware
and software. The costs associated with
maintaining and enhancing a state-ofthe-art exchange network is a significant
56 For purposes of calculating projected 2024
revenue for ToM and cToM, the Exchange used
revenues for the most recently completed full
month.
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expense for the Exchange, and thus the
Exchange believes that it is reasonable
and appropriate to help offset those
costs by amending fees for market data
subscribers. Subscribers, particularly
those of ToM and cToM, expect the
Exchange to provide this level of
support so they continue to receive the
performance they expect. This
differentiates the Exchange from its
competitors. As detailed above, the
Exchange has five primary sources of
revenue that it can potentially use to
fund its operations: transaction fees,
fees for connectivity services,
membership and regulatory fees, and
market data fees. Accordingly, the
Exchange must cover its expenses from
these five primary sources of revenue.
The Exchange’s Cost Analysis
estimates the annual cost to provide
ToM and cToM will equal $897,463.
Based on current ToM and cToM
subscribers, the Exchange would
generate annual revenue of
approximately $1,040,880 for ToM and
cToM combined. The Exchange believes
this represents a modest profit of 13.8%
when compared to the cost of providing
ToM and cToM data feeds.
Based on the above discussion, the
Exchange believes that even if the
Exchange earns the above revenue or
incrementally more or less, 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
ToM and cToM data feeds versus the
total projected revenue of the Exchange
associated with ToM and cToM.
The Exchange also notes that the
resultant profit margin differs slightly
from the profit margins set forth in a
similar fee filing by its affiliated market,
MIAX Emerald. This is not atypical
among exchanges and is due to a
number of factors that differ between
these two markets, including: different
market models, market structures, and
product offerings (price-time, pro-rata,
simple, and complex); different pricing
models; different number of market
participants and connectivity
subscribers; different maintenance and
operations costs, as described in the cost
allocation methodology above; different
technical architecture (e.g., the number
of matching engines per exchange, i.e.,
MIAX maintains 24 matching engines
while MIAX Emerald maintains only 12
matching engines); and different
maturity phase of MIAX and its
affiliated markets (i.e., start-up versus
growth versus more mature). All of
these factors contribute to a unique and
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differing level of profit margin per
exchange.
Further, MIAX and MIAX Emerald
propose to charge the same rates for
their respective ToM and cToM data
feeds, which are comparable to, or lower
than, similar fees for similar products
charged by competing exchanges. For
example, for Internal Distributors of
ToM and cToM, the Exchange proposes
a lower fee than the fee charged by ISE
for ISE’s Top Quote Feed ($2,000 for the
Exchange vs. $3,000 for ISE).57 NYSE
Arca charges even higher fees for the
NYSE Arca Options Top Feed than the
Exchange’s proposed fees ($2,000 for the
Exchange vs. $3,000 per month plus an
additional $2,000 for redistribution on
NYSE Arca).58 Accordingly, the
Exchange believes that comparable and
competitive pricing are key factors in
determining whether a proposed fee
meets the requirements of the Act,
regardless of whether that same fee
across the Exchange’s affiliated markets
leads to slightly different profit margins
due to factors outside of the Exchange’s
control (i.e., more subscribers to ToM
and/or cToM on MIAX or MIAX
Emerald and vice versa).
The Exchange also reiterates that prior
to July of 2021, the month in which it
first proposed to adopt fees for cToM,
the Exchange did not charge 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, IEX
and MEMX, which are currently each
operating only one exchange, in their
recent non-transaction fee filings
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 that result from sharing
costs across multiple platforms.59 The
57 See
supra note 33.
supra note 35.
59 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.
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58 See
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Exchange and its affiliated markets often
share a single cost, which results in cost
efficiencies that can cause a broader gap
between the allocated cost amount and
projected revenue, even though the fee
levels being proposed are lower or
competitive with 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 should consider
whether the proposed fee level is
comparable to, or competitive 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 Commission Staff is making
determinations as to appropriate profit
margins, the Exchange believes that the
Commission should be clear to all
market participants as to what they have
determined 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 are used to justify
fees increases.
Accordingly, while the Exchange is
supportive of transparency around costs
and potential margins (applied across
all exchanges), 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
See, e.g., supra notes 53 and 55. 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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19939
solely to confirm that an Exchange is
not earning—or seeking to earn—supracompetitive profits, the standard set
forth in the Staff Guidance. The
Exchange believes the Cost Analysis and
related projections in this filing
demonstrate this fact.
The Exchange notes that the Cost
Analysis is based on the Exchange’s
2024 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 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.
Reasonableness
Overall. With regard to
reasonableness, the Exchange
understands that the Commission has
traditionally taken a market-based
approach to examine whether the
exchange making the fee proposal was
subject to significant competitive forces
in setting the terms of the proposal. The
Exchange understands that in general
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the analysis considers whether the
exchange 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 exchange taking supracompetitive profits. If the exchange
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 exchange
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 $1,040,880, representing
a potential mark-up of just 13.8% 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 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
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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.
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 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 exchanges for
comparable data products.60
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
60 See
PO 00000
supra notes 33, 35, and 38.
Frm 00145
Fmt 4703
Sfmt 4703
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
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 and not unfairly
discriminatory 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 and not unfairly
discriminatory 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
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Emerald), must first execute, among
other things, the MIAX Exchange Group
Exchange Data Agreement (the
‘‘Exchange Data Agreement’’).61
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.62 External Distributors
may distribute the Exchange’s market
data to persons who are not officers,
employees or affiliates of the External
Distributor,63 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.64 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
61 See Exchange Data Agreement, available at
https://www.miaxglobal.com/markets/us-options/
all-options/market-data-vendor-agreements.
62 See id.
63 See id.
64 See Section 6 of the Exchange’s Market Data
Policies, available at https://www.miaxglobal.com/
sites/default/files/page-files/MIAX_Exchange_
Group_Market_Data_Policies_07202021.pdf.
VerDate Sep<11>2014
16:52 Mar 19, 2024
Jkt 262001
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.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with section 6(b)(8) of
the Act,65 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
The Exchange does not believe the
proposed fees place an undue burden on
competition on other exchanges 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.66 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
65 15
U.S.C. 78f(b)(8).
supra notes 33, 35, and 38.
66 See
PO 00000
Frm 00146
Fmt 4703
Sfmt 4703
19941
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.
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,67 and Rule
19b–4(f)(2) 68 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–
MIAX–2024–13 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–MIAX–2024–13. 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
67 15
68 17
E:\FR\FM\20MRN1.SGM
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
20MRN1
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Federal Register / Vol. 89, No. 55 / Wednesday, March 20, 2024 / Notices
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–MIAX–2024–13 and should be
submitted on or before April 10, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.69
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–05835 Filed 3–19–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99739; File No. SR–
CboeBZX–2024–021]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Its
Fees Schedule
khammond on DSKJM1Z7X2PROD with NOTICES
March 14, 2024.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 1,
2024, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
16:52 Mar 19, 2024
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) proposes to
amend its Fees Schedule. The text of the
proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
the Exchange’s Office of the Secretary,
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 Schedule, effective March 1, 2024.
The Exchange first notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
17 options venues to which market
participants may direct their order flow.
Based on publicly available information,
no single options exchange has more
than 16% of the market share.3 Thus, in
such a low-concentrated and highly
competitive market, no single options
exchange, including the Exchange,
possesses significant pricing power in
the execution of option order flow. The
Exchange believes that the ever-shifting
market share among the exchanges from
3 See Cboe Global Markets U.S. Options Market
Monthly Volume Summary (February 26, 2024),
available at https://markets.cboe.com/us/options/
market_statistics/.
69 17
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Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
Jkt 262001
PO 00000
Frm 00147
Fmt 4703
Sfmt 4703
month to month demonstrates that
market participants can shift order flow
or discontinue to reduce use of certain
categories of products, in response to fee
changes. Accordingly, competitive
forces constrain the Exchange’s
transaction fees, and market participants
can readily trade on competing venues
if they deem pricing levels at those
other venues to be more favorable.
The Exchange assesses fees in
connection with orders routed away to
various exchanges. The Fees Schedule
currently lists fee codes and their
corresponding transaction fees for
certain Customer orders routed to other
options exchanges. Currently, under the
Fee Codes and Associated Fees section
of the Fee Schedule, fee code RP is
appended to routed Customer orders to
NYSE American (‘‘AMEX’’), BOX
Options Exchange (‘‘BOX’’), Nasdaq BX
Options (‘‘BX’’), Cboe Exchange, Inc.
(‘‘Cboe’’), Cboe EDGX Exchange, Inc.
(‘‘EDGX’’), MIAX Options Exchange
(‘‘MIAX’’) or Nasdaq PHLX LLC
(‘‘PHLX’’) (excluding orders in SPY
options) and assesses a charge of $0.25
per contract; fee code RQ is appended
to routed Customer orders in Penny
Program classes to NYSE Arca, Inc
(‘‘ARCA’’), Cboe C2 Exchange, Inc.
(‘‘C2’’), Nasdaq ISE (‘‘ISE’’), ISE Gemini,
LLC (‘‘GMNI’’), ISE Mercury, LLC
(‘‘MERC’’), MIAX Emerald Exchange
(‘‘EMLD’’), MIAX Pearl Exchange
(‘‘PERL’’), Nasdaq Options Market LLC
(‘‘NOM’’), MEMX LLC (‘‘MEMX’’), or
PHLX (for orders in SPY options) and
assesses a charge of $0.85 per contract;
and fee code RR is appended to routed
Customer orders in Non-Penny classes
to ARCA, C2, ISE, GMNI, MERC, EMLD,
PERL, NOM or MEMX and assesses a
charge of $1.25.
The Exchange notes that its current
approach to routing fees is to set forth
in a simple manner certain subcategories of fees that approximate the
cost of routing to other options
exchanges based on the cost of
transaction fees assessed by each venue
as well as costs to the Exchange for
routing (i.e., clearing fees, connectivity
and other infrastructure costs,
membership fees, etc.) (collectively,
‘‘Routing Costs’’). The Exchange then
monitors the fees charged as compared
to the costs of its routing services and
adjusts its routing fees and/or subcategories to ensure that the Exchange’s
fees do indeed result in a rough
approximation of overall Routing Costs
and are not significantly higher or lower
in any area. The Exchange notes that at
least one other options exchange
currently assesses routing fees in a
similar manner as the Exchange’s
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]]>Agencies
[Federal Register Volume 89, Number 55 (Wednesday, March 20, 2024)]
[Notices]
[Pages 19929-19942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05835]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99736; File No. SR-MIAX-2024-13]
Self-Regulatory Organizations; Miami International Securities
Exchange, 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
March 14, 2024.
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 March 1, 2024, Miami International Securities Exchange, LLC
(``MIAX'' 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 Fee Schedule
(``Fee Schedule'') to: (i) amend the fees for the MIAX Top of Market
(``ToM'') data feed; and (ii) establish fees for the MIAX Complex Top
of Market (``cToM'') data feed.
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings, at MIAX's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to: (i) amend the fees for ToM; and (ii)
establish fees for cToM. The ToM data feed contains top of book
quotations based on options orders \3\ and quotes \4\ resting on the
Exchange's Simple Order Book \5\ as well as administrative messages.\6\
The cToM data feed includes the same types of information as ToM, but
for Complex Orders \7\ on the Exchange's Strategy Book.\8\ This
information includes the Exchange's best bid and offer for a complex
strategy,\9\ with aggregate size, based on displayable orders in the
complex strategy. The cToM data feed also provides subscribers with the
following information: (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). ToM subscribers are not
required to subscribe to cToM, and cToM subscribers are not required to
subscribe to ToM.
---------------------------------------------------------------------------
\3\ The term ``order'' means a firm commitment to buy or sell
option contracts. See Exchange Rule 100.
\4\ 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 Exchange Rule 517. A Market
Maker may, at times, choose to have multiple types of quotes active
in an individual option. See Exchange Rule 100.
\5\ The term ``Simple Order Book'' means the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 518(a)(17).
\6\ See Fee Schedule, Section 6)a).
\7\ In sum, a ``Complex Order'' is ``any order involving the
concurrent purchase and/or sale of two or more different options in
the same underlying security (the `legs' or `components' of the
complex order), for the same account . . . .'' See Exchange Rule
518(a)(5).
\8\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Exchange Rule 518(a)(19).
\9\ The term ``complex strategy'' means a particular combination
of components and their ratios to one another. New complex
strategies can be created as the result of the receipt of a complex
order or by the Exchange for a complex strategy that is not
currently in the System. The Exchange may limit the number of new
complex strategies that may be in the System at a particular time
and will communicate this limitation to Members via Regulatory
Circular. See Exchange Rule 518(a)(6).
---------------------------------------------------------------------------
The Exchange notes that there is no requirement that any Member
\10\ or market participant subscribe to either the ToM or cToM data
feeds. Instead, a Member may choose to maintain subscriptions to ToM or
cToM based on their trading strategies and individual business
decisions. Moreover, persons (including broker-dealers) who subscribe
to any exchange proprietary data feed must also have equivalent access
to consolidated Options Information \11\ from the Options Price
Reporting Authority (``OPRA'') for the same classes or series of
options that are included in the proprietary data feed (including for
exclusively listed products), and proprietary data feeds cannot be used
to meet that particular requirement. As such, all proprietary data
feeds are purely optional and only those that deem the product to be of
sufficient overall value and usefulness would purchase it. The proposed
fees described below would not apply differently based upon the size or
type of firm, but rather based upon the type of subscription 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.\12\
---------------------------------------------------------------------------
\10\ 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.
\11\ The term ``consolidated Options Information'' means
``consolidated Last Sale Reports combined with either consolidated
Quotation Information or the BBO furnished by OPRA . . .'' Access to
consolidated Options Information is deemed ``equivalent'' if both
kinds of information are equally accessible on the same terminal or
work station. See Limited Liability Company Agreement of Options
Price Reporting Authority, LLC (``OPRA Plan''), Section 5.2(c)(iii).
The Exchange notes that this requirement under the OPRA Plan is also
reiterated under the Cboe Global Markets Global Data Agreement and
Cboe Global Markets North American Data Policies, which subscribers
to any exchange proprietary product must sign and are subject to,
respectively. Additionally, the Exchange's Data Order Form (used for
requesting the Exchange's market data products) requires
confirmation that the requesting market participant receives data
from OPRA.
\12\ The Exchange first filed the proposed fee change on
December 28, 2022. See Securities Exchange Act Release No. 96626
(January 10, 2023), 88 FR 2699 (January 17, 2023) (SR-MIAX-2022-49).
After serval withdrawals and re-filings, the Commission Staff
suspended the proposed fees on August 3, 2023. See Securities
Exchange Act Release No. 98050 (August 3, 2023), 88 FR 53941 (August
9, 2023) (SR-MIAX-2023-23). On January 17, 2024, the Exchange
withdrew the suspended proposed fee change. See Securities Exchange
Act Release No. 99408 (January 22, 2024), 89 FR 5271 (January 26,
2024).
---------------------------------------------------------------------------
[[Page 19930]]
ToM
The Exchange currently charges a monthly fee of $1,250 to Internal
Distributors \13\ and $1,750 to External Distributors. The Exchange
proposes to charge a monthly fee of $2,000 to Internal Distributors and
$3,000 to External Distributors. The proposed fee increases are
intended to cover the Exchange's increasing costs with compiling and
producing the ToM data feed described in the Exchange's Cost Analysis
detailed below. The Exchange does not currently charge, nor does it now
propose to charge any additional fees based on a Distributor's use of
the ToM and cToM data feeds (e.g., displayed versus non-displayed use),
redistribution fees, or individual per user fees.
---------------------------------------------------------------------------
\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 in 2016.\14\ At that time, the Exchange also adopted the
cToM data feed and expressly waived fees over six years to incentivize
market participants to subscribe and make the Exchange's cToM data more
widely available.\15\ In the eight years since the Exchange adopted
Complex Order functionality, the Exchange has grown its monthly complex
market share from 0% to 11.47% of the total electronic complex non-
index volume executed on exchanges offering electronic complex
functionality based on the month of January 2024.\16\ During that same
period, the Exchange experienced a steady increase in the number of
cToM subscribers. Until the Exchange initially filed to adopt cToM fees
in July of 2021,\17\ the Exchange did not charge fees for subscriptions
to the cToM data feed. The objective of this approach was to eliminate
any fee-based barriers for Members when the Exchange first launched
Complex Order functionality, which the Exchange believed was necessary
to attract order flow as a relatively new exchange at that time. During
that time, the Exchange absorbed all costs associated with compiling
and disseminating the cToM data feed. The Exchange now proposes to
establish fees for the cToM data feed to recoup its ongoing costs going
forward, as described below.
---------------------------------------------------------------------------
\14\ See Securities Exchange Act Release No. 79072 (October 7,
2016), 81 FR 71131 (October 14, 2016) (SR-MIAX-2016-26) (Order
Approving a Proposed Rule Change to Adopt New Rules to Govern the
Trading of Complex Orders).
\15\ See Securities Exchange Act Release No. 79146 (October 24,
2016), 81 FR 75171 (October 28, 2016) (SR-MIAX-2016-36) (providing a
complete description of the cToM data feed).
\16\ The Exchange notes that it receives complex market data for
all U.S. options exchanges that offer complex functionality from
direct feeds from OPRA.
\17\ See Securities Exchange Act Release Nos. 92359 (July 9,
2021), 86 FR 37393 (July 15, 2021) (SR-MIAX-2021-28); 98050 (August
3, 2023), 88 FR 53941 (August 9, 2023) (SR-MIAX-2023-23) (Suspension
of and Order Instituting Proceedings To Determine Whether To Approve
or Disapprove Proposed Rule Change To Increase Fees for the ToM
Market Data Product and Establish Fees for the cToM Market Data
Product).
---------------------------------------------------------------------------
The Exchange proposes to charge a monthly fee of $2,000 to Internal
Distributors and $3,000 to External Distributors of the cToM data feed.
The proposed fees are identical to those proposed herein for the ToM
data feed. Like the ToM data feed, the Exchange does not propose to
adopt separate redistribution fees for the cToM data feed. However, the
recipient of cToM data would be required to become a Distributor and
would be subject to the applicable Distribution fees. Also like the ToM
data feed, the Exchange does not propose to charge individual per user
fees or any additional fees based on a subscriber's use of the cToM
data feed (e.g., displayed versus non-displayed use).
The Exchange proposes to assess cToM fees to Internal and External
Distributors in the same manner as it currently does for the ToM data
feed. Each Distributor would be charged for each month it is
credentialed to receive cToM in the Exchange's production environment.
Also, fees for cToM will be reduced for new mid-month Distributors for
the first month they subscribe. New mid-month cToM Distributors would
be assessed a pro-rata percentage of the applicable Distribution fee
based on the percentage of the number of trading days remaining in the
affected calendar month as of the date on which they have been first
credentialed to receive cToM in the production environment, divided by
the total number of trading days in the affected calendar month.
Minor, Non-Substantive Changes
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. This proposed change does not alter the
operation of either fee.
Implementation
The proposed fee changes are effective beginning March 1, 2024.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of section 6(b) \18\ of the Act in general, and
furthers the objectives of section 6(b)(4) \19\ 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) \20\ 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 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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\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(4).
\20\ 15 U.S.C. 78f(b)(5).
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In 2019, Commission staff published guidance suggesting the types
of information that self-regulatory organizations (``SROs'') may use to
demonstrate that their fee filings comply with the standards of the
Exchange Act (the ``Staff Guidance'').\21\ While the Exchange
understands that the Staff Guidance does not create new legal
obligations on SROs, the Staff 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. The Staff Guidance provides that in
assessing the reasonableness of a fee, the Staff would consider whether
the fee is constrained by significant competitive forces. To determine
whether a proposed fee is constrained by significant competitive
forces, the Staff Guidance further provides that the Staff would
consider whether the evidence provided by an SRO in a Fee Filing
proposal demonstrates (i) that there are reasonable substitutes for the
product or service that is the subject of a proposed fee; (ii) that
``platform'' competition constrains the fee; and/or (iii) that the
[[Page 19931]]
revenue and cost analysis provided by the SRO otherwise demonstrates
that the proposed fee would not result in the SRO taking supra-
competitive profits.\22\ The Exchange provides sufficient evidence
below to support the findings that the proposed fees are constrained by
competitive forces; the ToM and cToM data feeds each have a reasonable
substitute; and that the proposed fees would not result in a supra-
competitive profit.
---------------------------------------------------------------------------
\21\ See Staff Guidance on SRO Rule Filings Relating to Fees
(May 21, 2019), available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
\22\ Id.
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As noted above, the Exchange also adopted the cToM data feed and
expressly waived fees over six years to incentivize market participants
to subscribe and make the Exchange's cToM data more widely
available.\23\ In the eight years since the Exchange adopted Complex
Order functionality, the Exchange has grown its monthly complex market
share from 0% to 11.47% of the total electronic complex non-index
volume executed on U.S. options exchanges offering complex
functionality for the month of January 2024. 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.
---------------------------------------------------------------------------
\23\ See supra note 15.
---------------------------------------------------------------------------
The Proposed Fees for the ToM and cToM Data Products Are Subject to
Significant Competitive Forces and the Fee Levels Are Comparable to the
Fees Charged by Other Exchanges for Similar Data Products
In adopting Regulation NMS, the Commission granted SROs and broker-
dealers increased authority and flexibility to offer new and unique
market data to the public. It was believed that this authority would
expand the amount of data available to consumers, and also spur
innovation and competition for the provision of market data.
Particularly, the ToM and cToM data feeds further broaden the
availability of U.S. option market data to investors consistent with
the principles of Regulation NMS. The data products also promotes
increased transparency through the dissemination of information
regarding quotes and last sale information during the trading day,
which may allow market participants to make better informed trading
decisions throughout the day.
As a threshold matter, the Exchange is subject to significant
competitive forces, which constrains its pricing determinations for
transaction fees as well market data fees. Indeed, there are currently
17 registered exchanges that trade equity options. For the month of
January 2024, based on publicly available information, no single
options exchange had more than approximately 13-14% of the equity
options market share and the Exchange represented only approximately
6.49% of the equity options market share for the month of January
2024.\24\ The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. Particularly, in
Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \25\ Making
similar data products available to market participants fosters
competition in the marketplace, and constrains the ability of exchanges
to charge supra-competitive fees. In the event that a market
participant views one exchange's data product as more or less
attractive than the competition they can and do switch between similar
products.
---------------------------------------------------------------------------
\24\ See the ``Market Share'' section of the Exchange's website,
available at https://www.miaxglobal.com/.
\25\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
The fact that the market for order flow is competitive has long
been recognized by the courts. In NetCoalition v. Securities and
Exchange Commission, the D.C. Circuit stated, ``[n]o one disputes that
competition for order flow is `fierce.' . . . As the SEC explained,
`[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .'' \26\
---------------------------------------------------------------------------
\26\ See NetCoalition, 615 F.3d at 539 (D.C. Cir. 2010) (quoting
Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR
74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------
The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention to determine
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues, and also recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \27\
---------------------------------------------------------------------------
\27\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
Congress directed the Commission to ``rely on `competition,
whenever possible, in meeting its regulatory responsibilities for
overseeing the SROs and the national market system.' '' \28\ As a
result, and as evidenced above, the Commission has historically relied
on competitive forces to determine whether a fee proposal is equitable,
fair, reasonable, and not unreasonably or unfairly discriminatory. ``If
competitive forces are operative, the self-interest of the exchanges
themselves will work powerfully to constrain unreasonable or unfair
behavior.'' \29\ Accordingly, ``the existence of significant
competition provides a substantial basis for finding that the terms of
an exchange's fee proposal are equitable, fair, reasonable, and not
unreasonably or unfairly discriminatory.'' \30\ In the Staff Guidance,
Commission Staff indicated that they would look at factors beyond the
competitive environment, such as cost, only if a ``proposal lacks
persuasive evidence that the proposed fee is constrained by significant
competitive forces.'' \31\ In this case, the Exchange provided the
below Cost Analysis.
---------------------------------------------------------------------------
\28\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep.
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that
the national market system evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed.'').
\29\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
\30\ Id.
\31\ See supra note 21.
---------------------------------------------------------------------------
The Exchange notes 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) \32\ of the Act in
particular. The Exchange believes the proposed fees are competitive and
reasonable because the proposed fees are similar to or less than fees
charged for similar market data feeds provided by other options
exchanges with comparable market shares. As such, the
[[Page 19932]]
Exchange believes that denying its ability to adopt the proposed fees
that would allow the Exchange to recoup its costs with a reasonable
margin in a manner that is closer to parity with legacy exchanges, in
effect, impedes its ability to compete, including in its pricing of
transaction fees and ability to invest in competitive infrastructure
and other offerings.
---------------------------------------------------------------------------
\32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
First, the proposed fees for ToM are comparable to the fees
currently in place for the options exchanges, particularly Nasdaq ISE,
LLC (``ISE'').\33\ For the month of January 2024, the Exchange had
6.49% market share of equity options volume; for that same month, ISE
had 6.19% market share of equity options volume.\34\ 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'').\35\ 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 ISE Top Quote Feed, similar to ToM, includes top of book,
trades, and security status messages, and costs market participants 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).\36\ ISE's
overall charge to receive the 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.\37\ The Exchange's proposed rates do not include
additional fees.
---------------------------------------------------------------------------
\33\ 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).
\34\ See Market Share section of https://www.miaxglobal.com/.
\35\ 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 Arca Options Proprietary Market
Data Fees, available at: https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf.
\36\ See supra note 33.
\37\ Id.
---------------------------------------------------------------------------
Like ToM described above, the proposed fees for cToM are comparable
to the fees currently in place for competing options exchanges,
particularly NYSE American, LLC (``NYSE American'').\38\ As noted
above, for the month of January 2024, the Exchange had 6.49% of the
total equity options market share and 11.47% of the total electronic
complex non-index volume executed on exchanges offering electronic
complex functionality. For that same month, NYSE American had 7.44% of
the total equity options market share and 5.90% of the total electronic
complex non-index volume.\39\ 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 data feed, which,
similar to cToM, includes top of book, trades, and security status
messages for complex orders, costs market participants 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).\40\ 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
exceed the rates that the Exchange proposes to charge.
---------------------------------------------------------------------------
\38\ 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.
\39\ See supra note 34.
\40\ See supra note 38.
---------------------------------------------------------------------------
There Are Reasonable Substitutes for the ToM and cToM Data Feeds
Each options exchange offers top-of-book quotation and last sale
information based on their own quotation and trading activity that is
substantially similar to the information provided by the Exchange
through the ToM data feed. Further, the quote and last sale data
contained in the ToM data feed is identical to the data sent to OPRA
for redistribution to the public.\41\ Accordingly, market participants
can substitute ToM data with feeds from other exchanges and/or through
OPRA. Exchange top-of-book data is therefore widely available today
from a number of different sources.
---------------------------------------------------------------------------
\41\ The Exchange notes that it makes available to subscribers
that is included in the ToM data feed no earlier than the time at
which the Exchange sends that data to OPRA.
---------------------------------------------------------------------------
Further, 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 Order Feed (``MOR'').\42\ 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.
---------------------------------------------------------------------------
\42\ See MIAX website, Market Data & Offerings, available at
https://www.miaxglobal.com/company/data/data-products-services/market-data (last visited February 28, 2024). In general, MOR
provides real-time ultra-low latency updates on the following
information: new Simple Orders added to the MIAX Order Book; updates
to Simple Orders resting on the MIAX Order Book; new Complex Orders
added to the Strategy Book (i.e., the book of Complex Orders);
updates to Complex Orders resting on the Strategy Book; MIAX listed
series updates; MIAX Complex Strategy definitions; the state of the
MIAX System; and MIAX's underlying trading state.
---------------------------------------------------------------------------
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
[[Page 19933]]
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 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,\43\ and Rule 19b-4
thereunder,\44\ with respect to the types of information SROs should
provide when filing fee changes, and section 6(b) of the Act,\45\ which
requires, among other things, that exchange fees be reasonable and
equitably allocated,\46\ not designed to permit unfair
discrimination,\47\ and that they not impose a burden on competition
not necessary or appropriate in furtherance of the purposes of the
Act.\48\ This proposal addresses those requirements, and the analysis
and data in this section are designed to clearly and comprehensively
show how they are met.
---------------------------------------------------------------------------
\43\ 15 U.S.C. 78s(b)(1).
\44\ 17 CFR 240.19b-4.
\45\ 15 U.S.C. 78f(b).
\46\ 15 U.S.C. 78f(b)(4).
\47\ 15 U.S.C. 78f(b)(5).
\48\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
In 2019, the Exchange completed a study of its aggregate costs to
produce market data and connectivity (the ``Cost Analysis'').\49\ 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--transaction execution, market
data, membership services, physical connectivity, and port access
(which provide order entry, cancellation and modification
functionality, risk functionality, the 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 (``cost drivers'').
---------------------------------------------------------------------------
\49\ The Exchange frequently updates it Cost Analysis as
strategic initiatives change, costs increase or decrease, and market
participant needs and trading activity changes. The Exchange's most
recent Cost Analysis was conducted ahead of this filing.
---------------------------------------------------------------------------
As an initial step, the Exchange determined the total cost for the
Exchange and its affiliated markets \50\ for each cost driver as part
of its 2024 budget review process. The 2024 budget review is a company-
wide process that occurs over the course of many months, includes
meetings among senior management, department heads, and the Finance
Team. Each department head is required to send a ``bottom up'' budget
to the Finance Team allocating costs at the profit and loss account and
vendor levels for the Exchange and 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, simple only or simple and complex markets, auction
functionality, etc.), which may impact message traffic, individual
system architectures that impact platform size,\51\ 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. All of
these factors result in different allocation percentages among the
Exchange and its affiliated markets, i.e., the different percentages of
the overall cost driver allocated to the Exchange and its affiliated
markets will cause the dollar amount of the overall cost allocated
among the Exchange and its affiliated markets to also differ. Because
the Exchange's parent company currently owns and operates four separate
and distinct marketplaces, the Exchange must determine the costs
associated with each actual market--as opposed to the Exchange's parent
company simply concluding that all costs drivers are the same at each
individual marketplace and dividing total cost by four (4) (evenly for
each marketplace). Rather, 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, due
to the unique factors of each marketplace as described above. This
allocation methodology also ensures that no cost would be allocated
twice or double-counted between the Exchange and its affiliated
markets. The Finance Team then consolidates the budget and sends it to
senior management, including the Chief Financial Officer and Chief
Executive Officer, for review and approval. Next, the budget is
presented to the Board of Directors and the Finance and Audit
Committees for each exchange for their approval. The above steps
encompass the first step of the cost allocation process.
---------------------------------------------------------------------------
\50\ The affiliated markets include Miami International
Securities Exchange, LLC (``MIAX''); separately, the options and
equities markets of MIAX PEARL, LLC (``MIAX Pearl''); and MIAX
Emerald, LLC (``MIAX Emerald'').
\51\ For example, MIAX maintains 24 matching engines, MIAX Pearl
Options maintains 12 matching engines, MIAX Pearl Equities maintains
24 matching engines, and MIAX Emerald maintains 12 matching engines.
---------------------------------------------------------------------------
The next step involves determining what portion of the cost
allocated to the Exchange pursuant to the above methodology is to be
allocated to each core service, e.g., connectivity and ports, market
data, and transaction services. The Exchange and its affiliated markets
adopted an allocation methodology with thoughtful and consistently
applied principles to guide how much of a particular cost amount
allocated to the Exchange should be allocated within the Exchange to
each core service. This is the final step in the cost allocation
process and is applied to each of the cost drivers set forth below. 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 (for example, 59% of the data
center total expense amount is allocated to 10Gb ULL connectivity),
with smaller allocations to ToM and cToM (1.3% combined), and the
remainder to the provision of other connectivity, ports, transaction
execution, membership services and other market data services (39.7%).
This next level of the allocation methodology at the individual
exchange level also took into account factors similar to those set
forth under the first step of the allocation methodology process
described above, to determine the appropriate allocation to
connectivity or market data versus allocations for other services. This
allocation methodology
[[Page 19934]]
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
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 fees, fees for connectivity and
port services, membership fees, regulatory fees, and market data fees.
Accordingly, the Exchange must cover its expenses from these five
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 cost-justified
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 further refined, 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. In turn, the Exchange
allocated certain costs more to physical connectivity and others to
ports, while certain costs were only allocated to such services at a
very low percentage or not at all, using consistent allocation
methodologies as described above. Based on this analysis, the Exchange
estimates that the aggregate monthly cost to provide ToM and cToM data
feeds is $74,789 (the Exchange divided the annual cost for each of ToM
and cToM by 12 months, then added both numbers together), as further
detailed below.
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 2.6% of its overall Human Resources cost to offering ToM
and cToM data feeds).
----------------------------------------------------------------------------------------------------------------
Allocated Allocated
Cost drivers annual cost monthly cost Percentage of
\a\ \b\ all
----------------------------------------------------------------------------------------------------------------
Human Resources................................................. $588,806 $49,067 2.6
Connectivity (external fees, cabling, switches, etc.)........... 1,205 101 1.3
Internet Services and External Market Data...................... 0.00 0.00 0.0
Data Center..................................................... 19,292 1,608 1.3
Hardware and Software Maintenance & Licenses.................... 26,386 2,199 1.3
Depreciation.................................................... 35,967 2,997 0.8
Allocated Shared Expenses....................................... 225,807 18,817 2.5
-----------------------------------------------
Total....................................................... 897,463 74,789 2.2
----------------------------------------------------------------------------------------------------------------
\a\ The Annual Cost includes figures rounded to the nearest dollar.
\b\ The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
rounding up or down to the nearest dollar.
Below are additional details regarding each of the line-item costs
considered by the Exchange to be related to offering ToM and cToM.
While some costs were attempted to be allocated as equally as possible
among the Exchange and its affiliated markets, the Exchange notes that
some of its cost allocation percentages for certain cost drivers differ
when compared to the same cost drivers for the Exchange's affiliated
market, MIAX Emerald, in its similar proposed fee change for ToM and
cToM. This is because the Exchange's cost allocation methodology
utilizes the actual projected costs of the Exchange (which are specific
to the Exchange and are independent of the costs projected and utilized
by the Exchange's affiliated markets) to determine its actual costs,
which may vary across the Exchange and its affiliated markets based on
factors that are unique to each marketplace. The Exchange provides
additional explanation below (including the reason for the deviation)
for the significant differences, if any.
The Exchange also notes that expenses included in its 2024 fiscal
year budget and this proposal are generally higher than its 2023 fiscal
year budget and Cost Analysis included in prior filings. This is due to
a number of factors, such as, critical vendors and suppliers increasing
costs they charge the Exchange, significant exchange staff headcount
increases, increased data center costs from the Exchange's data center
providers in multiple locations and facilities, higher technology and
communications costs, planned
[[Page 19935]]
hardware refreshes, and system capacity upgrades that increase
depreciation expense. Specifically, with regard to employee
compensation, the 2024 fiscal year budget includes additional expenses
related to increased headcount and new hires that are needed to support
the Exchange as it continues to grow (the Exchange and its affiliated
companies are projected to hire over 60 additional staff in 2024).
Hardware and software expenses have also increased primarily due to
price increases from critical vendors and equipment suppliers. Further,
the Exchange budgeted for additional hardware and software needs to
support the Exchange's continued growth and expansion. Depreciation and
amortization have likewise increased due to recent and planned
refreshes in Exchange hardware and software. This new equipment and
software then becomes depreciable, as described below. Data center
costs have also increased due the following: the Exchange expanding its
footprint within its data center; and the data center vendor increasing
the costs it charges the Exchange. Lastly, allocated shared expenses
have increased due to the overall budgeted increase in costs from 2023
to 2024 necessary to operate and support the Exchange as described
below.
Human Resources
The Exchange notes that it and its affiliated markets anticipate
that by year-end 2024, there will be 289 employees (excluding employees
at non-options/equities exchange subsidiaries of Miami International
Holdings, Inc. (``MIH''), the holding company of the Exchange and its
affiliated markets), 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 each
market's individual Human Resources expense. Then, 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.
For personnel costs (Human Resources), the Exchange calculated an
allocation of employee time for employees whose functions include
providing and maintaining ToM and cToM data feeds and performance
thereof (primarily the Exchange's network infrastructure team, which
spends a portion of their time performing functions necessary to
provide market data). As described more fully above, the Exchange's
parent company allocates costs to the Exchange and its affiliated
markets and then a portion of the Human Resources costs allocated to
the Exchange is then allocated to market data. From that portion
allocated to the Exchange that applied to market data, the Exchange
then allocated a weighted average of 2.6% of each employee's time from
the above group to ToM and cToM data feeds (which excludes an
allocation for the recently hired Head of Data Services for the
Exchange and its affiliates).
The Exchange also allocated Human Resources costs to provide ToM
and cToM to a limited subset of personnel with ancillary functions
related to establishing and maintaining such market data feeds (such as
information security, sales, membership, and finance personnel). The
Exchange allocated cost on an employee-by-employee basis (i.e., only
including those personnel who support functions related to providing
market data feeds) and then applied a smaller allocation to such
employees' time to ToM and cToM (less than 1.7%, which includes an
allocation for the Head of Data Services). This other group of
personnel with a smaller allocation of Human Resources costs also have
a direct nexus to providing ToM and cToM, whether it is a sales person
selling a market data feed, finance personnel billing for market data
feeds or providing budget analysis, or information security ensuring
that such market data feeds are secure and adequately defended from an
outside intrusion.
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 market data feeds, and
confirming that the proposed allocations were reasonable based on an
understanding of the percentage of time such employees devote to those
tasks. This includes personnel from the Exchange departments that are
predominately involved in providing ToM and cToM data feeds: Business
Systems Development, Trading Systems Development, Systems Operations
and Network Monitoring, Network and Data Center Operations, Listings,
Trading Operations, and Project Management. Again, the Exchange
allocated 2.6% of each of their employee's time assigned to the
Exchange for ToM and cToM, as stated above. Employees from these
departments perform numerous functions to support ToM and cToM data
feeds, such as the configuration and maintenance of the hardware
necessary to support the ToM and cToM data feeds. This hardware
includes servers, routers, switches, firewalls, and monitoring devices.
These employees also perform software upgrades, vulnerability
assessments, remediation and patch installs, equipment configuration
and hardening, as well as performance and capacity management. These
employees also engage in research and development analysis for
equipment and software supporting ToM and cToM data feeds and design,
and support the development and on-going maintenance of internally-
developed applications as well as data capture and analysis, and Member
and internal Exchange reports related to network and system
performance. The above list of employee functions is not exhaustive of
all the functions performed by Exchange employees to support ToM and
cToM, but illustrates the breath of functions those employees perform
in support of the above cost and time allocations.
Lastly, the Exchange notes that senior level executives' time was
only allocated to the ToM and cToM related Human Resources costs to the
extent that they are involved in overseeing tasks related to providing
market data. 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.
Connectivity (External Fees, Cabling, Switches, etc.) \52\
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\52\ This cost driver was titled ``Network Infrastructure'' in
prior proposals. The Exchange has updated this section to now be in
line with its similar cost analysis and cost driver descriptions for
other non-transaction fee filings. See, e.g., Securities Exchange
Act Release No. 99476 (February 5, 2024), 89 FR 9194 (February 9,
2024) (SR-MIAX-2024-06).
---------------------------------------------------------------------------
The Connectivity cost driver includes cabling and switches required
to generate and disseminate the ToM and cToM data feeds and operate the
Exchange. The Connectivity cost driver is more narrowly focused on
technology used to complete Member subscriptions to ToM and cToM and
the servers used at the Exchange's primary and back-up data centers
specifically for the ToM
[[Page 19936]]
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).\53\
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\53\ The Exchange understands that the Investors Exchange, Inc.
(``IEX'') and MEMX LLC (``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 Nos. 94630 (April 7, 2022), 87 FR 21945, at page 21949
(April 13, 2022) (SR-IEX-2022-02) and 97130 (March 13, 2023), 88 FR
16491 (March 17, 2023) (SR-MEMX-2023-04). 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 Connectivity cost driver to market data based on a
percentage of overall cost, not on a per server basis.
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Internet Services and External Market Data
The next cost driver consists of internet services and external
market data. Internet services includes third-party service providers
that provide the internet, fiber and bandwidth connections between the
Exchange's networks, primary and secondary data centers, and office
locations in Princeton and Miami. External market data includes fees
paid to third parties, including other exchanges, to receive market
data. The Exchange did not allocate any costs associated with internet
services or external market data to the ToM and cToM data feeds.
Data Center
Data Center costs includes an allocation of the costs the Exchange
incurs to provide ToM and cToM in the third-party data centers where it
maintains its equipment (such as dedicated space, security services,
cooling and power). 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. As the Data Center costs are primarily for
space, power, and cooling of servers, the Exchange allocated 1.3% 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 the Connectivity cost
driver.
Hardware and Software Maintenance and Licenses
Hardware and Software Maintenance and Licenses includes hardware
and software licenses used to operate and monitor physical assets
necessary to offer the ToM and cToM data feeds.\54\ Because the
hardware and software license fees are correlated to the servers used
by the Exchange, the Exchange again applied an allocation of 1.3% of
its costs for Hardware and Software Maintenance and Licenses to the ToM
and cToM data feeds. The Exchange notes that this allocation is more
than MIAX Emerald as MIAX allocated 1.3% of its Hardware and Software
Maintenance and License expense to ToM and cToM, while MIAX Emerald
allocated 1.1% of its Hardware and Software Maintenance and License
expense to ToM and cToM. MIAX's allocation results in a slightly higher
dollar amount of $8,000 per year (or approximately $667 per month, when
dividing the annual cost difference by 12 months and rounding to the
nearest dollar) compared to the annual cost of MIAX Emerald for its
Hardware and Software Maintenance and License cost driver. This is
because MIAX is in the process of replacing and upgrading various
hardware and software used to operate its options trading platform in
order to maintain premium network performance, including dissemination
of ToM and cToM. At the time of this filing, MIAX is undergoing a major
hardware refresh, replacing older hardware with new hardware. This
hardware includes servers, network switches, cables, optics, protocol
data units, and cabinets, to maintain a state-of-the-art technology
platform. Because of the timing of the hardware refresh with the timing
of this filing, MIAX has a slightly higher expense than MIAX Emerald.
---------------------------------------------------------------------------
\54\ This expense may be more than the Exchange's affiliated
markets, specifically MIAX Emerald. This is because each market may
maintain and utilize a different amount of hardware and software
based on its market model and infrastructure needs. The Exchange
allocated a percentage of the overall cost based on actual amounts
of hardware and software utilized by that market, which resulted in
different cost allocations and dollar amounts.
---------------------------------------------------------------------------
Depreciation
All physical assets, software, and hardware used to provide ToM and
cToM, which also includes assets used for testing and monitoring of
Exchange infrastructure to provide market data, were valued at cost,
and depreciated or leased over periods ranging from three to five
years. Thus, the depreciation cost primarily relates to servers
necessary to operate the Exchange, some of which are owned by the
Exchange and some of which are leased by the Exchange in order to allow
efficient periodic technology refreshes. The Exchange also included in
the Depreciation cost driver certain budgeted improvements that the
Exchange intends to capitalize and depreciate with respect to ToM and
cToM 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 ToM and cToM. As noted
above, the Exchange allocated 0.8% of its allocated depreciation costs
to providing ToM and cToM.
The vast majority of the software the Exchange uses for its
operations to generate and disseminate the ToM and cToM data feeds has
been developed in-house over an extended period. This software
development also requires quality assurance and thorough testing to
ensure the software works as intended. Hardware used to generate and
disseminate the ToM and cToM data feeds, which includes servers and
other physical equipment the Exchange purchased. 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 notes that this allocation differs from its affiliated
market, MIAX Emerald, 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.
For example, the Exchange notes that the percentages it and its
affiliate, MIAX Emerald, allocated to the depreciation of software and
hardware used to generate and disseminate their respective ToM and cToM
data feeds are similar (0.8% for MIAX and 0.5% for MIAX Emerald).
However, MIAX's dollar amount is greater than that of MIAX Emerald by
approximately $17,000 per year (albeit a relatively small amount of
approximately $1,415 per month, when rounding to the nearest dollar).
This is due to two primary factors. First, the Exchange has undergone a
technology refresh since the time MIAX Emerald launched in February
2019, leading to it having more hardware and software that
[[Page 19937]]
is subject to depreciation. Second, the Exchange maintains 24 matching
engines while MIAX Emerald maintains only 12 matching engines. This
also results in more of the Exchange's hardware and software being
subject to depreciation than MIAX Emerald's hardware and software due
to the greater amount of equipment and software necessary to support
the greater number of matching engines on the Exchange.
Allocated Shared Expenses
Finally, as with other exchange products and services, a portion of
general shared expenses was allocated to the provision of ToM and cToM
data feeds. These general shared costs are integral to exchange
operations, including its ability to provide ToM and cToM. Costs
included in general shared expenses 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. Similarly, the cost of paying
directors to serve on the Exchange's Board of Directors is also
included in the Exchange's general shared expense cost driver.\55\
These general shared expenses are incurred by the Exchange's parent
company, MIH, as a direct result of operating the Exchange and its
affiliated markets.
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\55\ The Exchange notes that MEMX allocated a precise amount of
10% of the overall cost for directors in a similar non-transaction
fee filing. See Securities Exchange Act Release No. 97130 (March 13,
2023), 88 FR 16491 (March 17, 2023) (SR-MEMX-2023-04). The Exchange
does not calculate is expenses at that granular a level. Instead,
director costs are included as part of the overall general
allocation.
---------------------------------------------------------------------------
The Exchange employed a process to determine a reasonable
percentage to allocate general shared expenses to ToM and cToM pursuant
to its multi-layered allocation process. First, general expenses were
allocated among the Exchange and affiliated markets as described above.
Then, the general shared expense assigned to the Exchange was allocated
across core services of the Exchange, including market data. Then,
these costs were further allocated to sub-categories within the final
categories, i.e., ToM and cToM as sub-categories of market data. In
determining the percentage of general shared expenses allocated to
market data that ultimately apply to ToM and cToM, the Exchange looked
at the percentage allocations of each of the cost drivers and
determined a reasonable allocation percentage. The Exchange also held
meetings with senior management, department heads, and the Finance Team
to determine the proper amount of the shared general expense to
allocate to ToM and cToM. The Exchange, therefore, believes it is
reasonable to assign an allocation, in the range of allocations for
other cost drivers, while continuing to ensure that this expense is
only allocated once. Again, the general shared expenses are incurred by
the Exchange's parent company as a result of operating the Exchange and
its affiliated markets and it is therefore reasonable to allocate a
percentage of those expenses to the Exchange and ultimately to specific
product offerings such as ToM and cToM.
Again, a portion of all shared expenses were allocated to the
Exchange (and its affiliated markets) which, in turn, allocated a
portion of that overall allocation to all market data products offered
by the Exchange. The Exchange then allocated 2.5% of the portion
allocated to market data to ToM and cToM. The Exchange believes this
allocation percentage is reasonable because, while the overall dollar
amount may be higher than other cost drivers, the 2.5% is based on and
in line with the percentage allocations of each of the Exchange's other
cost drivers. The percentage allocated to ToM and cToM also reflects
its importance to the Exchange's strategy and necessity towards the
nature of the Exchange's overall operations, which is to provide a
resilient, highly deterministic trading system that relies on faster
market data feeds than the Exchange's competitors to maintain premium
performance. This allocation reflects the Exchange's focus on providing
and maintaining high performance market data services, of which ToM and
cToM are main contributors.
The Exchange notes that this allocation differs from its affiliated
market, MIAX Emerald, due to a number of factors, such as the increase
in overall headcount, thus providing a higher contribution to the
depreciated cost. The Exchange notes that the percentages it and its
affiliate, MIAX Emerald, allocated to this cost driver are similar
(2.5% for MIAX and 2.1% for MIAX Emerald). However, MIAX's dollar
amount is greater than that of MIAX Emerald by approximately $38,000
per year (albeit a relatively small amount of approximately $3,192 per
month, when rounding to the nearest dollar). This is due primarily to
significant exchange staff headcount increases. As mentioned above, the
2024 fiscal year budget includes additional expenses related to
increased headcount and new hires that are needed to support the
Exchange as it continues to grow (with a projected 60 additional staff
in 2024). Lastly, allocated shared expenses have increased due to the
overall budgeted increase in costs from 2023 to 2024 necessary to
operate and support the Exchange and its affiliated markets.
* * * * *
Approximate Cost for ToM and cToM Per Month
After determining the approximate allocated monthly cost related to
ToM and cToM combined, the total monthly cost for ToM and cToM of
$74,789 was divided by the number of total subscribers to ToM and cToM
that the Exchange maintained at the time that proposed pricing was
determined (41 Distributors), to arrive at a cost of approximately
$1,824 per month per subscription (rounded to the nearest dollar). Due
to the nature of this particular cost, this allocation methodology
results in an allocation among the Exchange and its affiliated markets
based on set quantifiable criteria, i.e., actual number of ToM and cToM
subscribers.
Cost Analysis--Additional Discussion
In conducting its Cost Analysis, the Exchange did not allocate any
of its expenses in full to any core service (including market data) and
did not double-count any expenses. Instead, as described above, the
Exchange allocated applicable cost drivers across its core services and
used the same Cost Analysis to form the basis of this proposal and the
filings the Exchange recently submitted proposing fees for certain
connectivity and ports offered by the Exchange. For instance, in
calculating the Human Resources expenses to be allocated to market data
based upon the above described methodology, the Exchange has a team of
employees dedicated to network infrastructure and with respect to such
employees the Exchange allocated network infrastructure personnel with
a high percentage of the cost of such personnel (6.1%) given their
focus on functions necessary to provide market data. The salaries of
those same personnel were allocated only 2.6% to ToM and cToM and the
remaining 97.4% was allocated to other market data products offered by
the Exchange (MOR, AIS, etc.), connectivity services, port services,
transaction services, and membership services. The Exchange did not
allocate any other Human Resources expense for providing market data to
any other employee group, outside of a smaller allocation of 2.6% for
ToM and cToM of the cost associated with certain
[[Page 19938]]
specified personnel who work closely with and support network
infrastructure personnel.
In total, the Exchange allocated 2.6% of its personnel costs (Human
Resources) to providing ToM and cToM. In turn, the Exchange allocated
the remaining 97.4% of its Human Resources expense to membership
services, transaction services, connectivity services, port services
and other market data products. Thus, again, 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.
As another example, the Exchange allocated depreciation expense to
all core services, including market data, but in different amounts. The
Exchange believes it is reasonable to allocate the identified portion
of such expense because such expense includes the actual cost of the
computer equipment, such as dedicated servers, computers, laptops,
monitors, information security appliances and storage, and network
switching infrastructure equipment, including switches and taps that
were purchased to operate and support the network. Without this
equipment, the Exchange would not be able to operate the network and
provide ToM and cToM data feeds to its Members and their customers.
However, the Exchange did not allocate all of the depreciation and
amortization expense toward the cost of providing ToM and cToM, but
instead allocated approximately 0.8% of the Exchange's overall
depreciation and amortization expense to ToM and cToM combined. The
Exchange allocated the remaining depreciation and amortization expense
(99.2%) toward the cost of providing transaction services, membership
services, connectivity services, port services, and other market data
products.
The Exchange notes that its revenue estimates are based on
projections across all potential revenue streams and will only be
realized to the extent such revenue streams actually produce the
revenue estimated. The Exchange does not yet know whether such
expectations will be realized. For instance, in order to generate the
revenue expected from ToM and cToM, the Exchange will have to be
successful in retaining existing clients that wish to maintain
subscriptions to those market data feeds or in obtaining new clients
that will purchase such services. Similarly, the Exchange will have to
be successful in retaining a positive net capture on transaction fees
in order to realize the anticipated revenue from transaction pricing.
The Exchange notes that the Cost Analysis is based on the
Exchange's 2024 fiscal year of operations and projections. It is
possible, however, that actual costs may be higher or lower. To the
extent the Exchange sees growth in use of market data services it will
receive additional revenue to offset future cost increases. However, if
use of market data services 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 may propose to decrease
fees in the event that revenue materially exceeds our 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 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 our 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.
Projected Revenue \56\
---------------------------------------------------------------------------
\56\ For purposes of calculating projected 2024 revenue for ToM
and cToM, the Exchange used revenues for the most recently completed
full month.
---------------------------------------------------------------------------
The proposed fees will allow the Exchange to cover certain costs
incurred by the Exchange associated with 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 routinely works to improve the
performance of the network's hardware and software. The costs
associated with maintaining and enhancing a state-of-the-art exchange
network is a significant expense for the Exchange, and thus the
Exchange believes that it is reasonable and appropriate to help offset
those costs by amending fees for market data subscribers. Subscribers,
particularly those of ToM and cToM, expect the Exchange to provide this
level of support so they continue to receive the performance they
expect. This differentiates the Exchange from its competitors. As
detailed above, the Exchange has five primary sources of revenue that
it can potentially use to fund its operations: transaction fees, fees
for connectivity services, membership and regulatory fees, and market
data fees. Accordingly, the Exchange must cover its expenses from these
five primary sources of revenue.
The Exchange's Cost Analysis estimates the annual cost to provide
ToM and cToM will equal $897,463. Based on current ToM and cToM
subscribers, the Exchange would generate annual revenue of
approximately $1,040,880 for ToM and cToM combined. The Exchange
believes this represents a modest profit of 13.8% when compared to the
cost of providing ToM and cToM data feeds.
Based on the above discussion, the Exchange believes that even if
the Exchange earns the above revenue or incrementally more or less, 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 ToM and cToM data feeds versus the total
projected revenue of the Exchange associated with ToM and cToM.
The Exchange also notes that the resultant profit margin differs
slightly from the profit margins set forth in a similar fee filing by
its affiliated market, MIAX Emerald. This is not atypical among
exchanges and is due to a number of factors that differ between these
two markets, including: different market models, market structures, and
product offerings (price-time, pro-rata, simple, and complex);
different pricing models; different number of market participants and
connectivity subscribers; different maintenance and operations costs,
as described in the cost allocation methodology above; different
technical architecture (e.g., the number of matching engines per
exchange, i.e., MIAX maintains 24 matching engines while MIAX Emerald
maintains only 12 matching engines); and different maturity phase of
MIAX and its affiliated markets (i.e., start-up versus growth versus
more mature). All of these factors contribute to a unique and
[[Page 19939]]
differing level of profit margin per exchange.
Further, MIAX and MIAX Emerald propose to charge the same rates for
their respective ToM and cToM data feeds, which are comparable to, or
lower than, similar fees for similar products charged by competing
exchanges. For example, for Internal Distributors of ToM and cToM, the
Exchange proposes a lower fee than the fee charged by ISE for ISE's Top
Quote Feed ($2,000 for the Exchange vs. $3,000 for ISE).\57\ NYSE Arca
charges even higher fees for the NYSE Arca Options Top Feed than the
Exchange's proposed fees ($2,000 for the Exchange vs. $3,000 per month
plus an additional $2,000 for redistribution on NYSE Arca).\58\
Accordingly, the Exchange believes that comparable and competitive
pricing are key factors in determining whether a proposed fee meets the
requirements of the Act, regardless of whether that same fee across the
Exchange's affiliated markets leads to slightly different profit
margins due to factors outside of the Exchange's control (i.e., more
subscribers to ToM and/or cToM on MIAX or MIAX Emerald and vice versa).
---------------------------------------------------------------------------
\57\ See supra note 33.
\58\ See supra note 35.
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The Exchange also reiterates that prior to July of 2021, the month
in which it first proposed to adopt fees for cToM, the Exchange did not
charge 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, IEX and MEMX,
which are currently each operating only one exchange, in their recent
non-transaction fee filings 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 that
result from sharing costs across multiple platforms.\59\ The Exchange
and its affiliated markets often share a single cost, which results in
cost efficiencies that can cause a broader gap between the allocated
cost amount and projected revenue, even though the fee levels being
proposed are lower or competitive with 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 should
consider whether the proposed fee level is comparable to, or
competitive 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 Commission Staff is making determinations as to appropriate
profit margins, the Exchange believes that the Commission should be
clear to all market participants as to what they have determined 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 are used to
justify fees increases.
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\59\ 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 notes 53 and 55. 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.
---------------------------------------------------------------------------
Accordingly, while the Exchange is supportive of transparency
around costs and potential margins (applied across all exchanges), 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--or seeking to
earn--supra-competitive profits, the standard set forth in the Staff
Guidance. The Exchange believes the Cost Analysis and related
projections in this filing demonstrate this fact.
The Exchange notes that the Cost Analysis is based on the
Exchange's 2024 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.
Reasonableness
Overall. With regard to reasonableness, the Exchange understands
that the Commission has traditionally taken a market-based approach to
examine whether the exchange making the fee proposal was subject to
significant competitive forces in setting the terms of the proposal.
The Exchange understands that in general
[[Page 19940]]
the analysis considers whether the exchange 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 exchange taking supra-competitive profits. If the
exchange 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 exchange 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 $1,040,880,
representing a potential mark-up of just 13.8% 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 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.
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 exchanges for comparable data products.\60\
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\60\ See supra notes 33, 35, and 38.
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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 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 and not unfairly discriminatory 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 and not unfairly discriminatory 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
[[Page 19941]]
Emerald), must first execute, among other things, the MIAX Exchange
Group Exchange Data Agreement (the ``Exchange Data Agreement'').\61\
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.\62\ External Distributors may distribute the Exchange's
market data to persons who are not officers, employees or affiliates of
the External Distributor,\63\ 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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\61\ See Exchange Data Agreement, available at https://www.miaxglobal.com/markets/us-options/all-options/market-data-vendor-agreements.
\62\ See id.
\63\ 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.\64\ 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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\64\ See Section 6 of the Exchange's Market Data Policies,
available at https://www.miaxglobal.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.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with section 6(b)(8) of the Act,\65\ 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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\65\ 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 exchanges 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.\66\ 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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\66\ See supra notes 33, 35, and 38.
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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,\67\ and Rule 19b-4(f)(2) \68\ 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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\67\ 15 U.S.C. 78s(b)(3)(A)(ii).
\68\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-MIAX-2024-13 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-MIAX-2024-13. 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
[[Page 19942]]
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-MIAX-2024-13 and should be submitted on or before April 10, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\69\
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\69\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-05835 Filed 3-19-24; 8:45 am]
BILLING CODE 8011-01-P
