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, 35868-35879 [2024-09475]
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Federal Register / Vol. 89, No. 86 / Thursday, May 2, 2024 / Notices
Rule 19b–4 under the Act,20 any request
for an opportunity to make an oral
presentation.21
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposed rule change should be
approved or disapproved by May 23,
2024. Any person who wishes to file a
rebuttal to any other person’s
submission must file that rebuttal by
June 6, 2024. The Commission asks that
commenters address the sufficiency of
the Exchange’s statements in support of
the proposal, in addition to any other
comments they may wish to submit
about the proposed rule change.
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–
CboeBZX–2024–006 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–CboeBZX–2024–006. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
20 17
CFR 240.19b–4.
19(b)(2) of the Act, as amended by the
Securities Acts Amendments of 1975, Public Law
94–29 (Jun. 4, 1975), grants to the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Acts Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
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21 Section
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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–CboeBZX–2024–006 and should be
submitted by May 23, 2024. Rebuttal
comments should be submitted by June
6, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–09472 Filed 5–1–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100041; File No. SR–MIAX–
2024–25]
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
April 26, 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 April 23,
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.
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
22 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00096
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feed. The text of the proposed rule
change is available on the Exchange’s
website at https://www.miaxglobal.com/
markets/us-options/all-optionsexchanges/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,
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
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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.
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. 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
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).
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),
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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.
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
88 FR 2699 (January 17, 2023) (SR–MIAX–2022–
49). After several 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).
13 A ‘‘Distributor’’ of MIAX data is any entity that
receives a feed or file of data either directly from
MIAX or indirectly through another entity and then
distributes it either internally (within that entity) or
externally (outside that entity). All Distributors are
required to execute a MIAX Distributor Agreement.
See Fee Schedule, Section 6)a).
14 See 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.
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35869
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.
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.
The Exchange proposes to assess
Internal Distributors fees that are less
than the fees assessed for External
Distributors because External
Distributors may monetize their receipt
of the ToM and cToM data feeds by
charging their customers fees for receipt
of the Exchange’s data. Internal
Distributors do not have the same
ability. 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 nondisplayed 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 prorata 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
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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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, 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
immediately effective.
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
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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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
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 reasonable
because the projected revenue and cost
analysis contained herein demonstrates
that the proposed fees would not result
in the Exchange taking supracompetitive profits.
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.
Cost Analysis
In general, the Exchange believes that
exchanges, in setting fees of all types,
should meet high standards of
transparency to demonstrate why each
new fee or fee increase meets the
Exchange Act requirements that fees be
reasonable, equitably allocated, not
unfairly discriminatory, and not create
an undue burden on competition among
members and markets. In particular, the
Exchange believes that each exchange
22 Id.
23 See
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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,24 and Rule 19b–4 thereunder,25
with respect to the types of information
SROs should provide when filing fee
changes, and Section 6(b) of the Act,26
which requires, among other things, that
exchange fees be reasonable and
equitably allocated,27 not designed to
permit unfair discrimination,28 and that
they do not impose a burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.29 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’’).30 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
24 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
26 15 U.S.C. 78f(b).
27 15 U.S.C. 78f(b)(4).
28 15 U.S.C. 78f(b)(5).
29 15 U.S.C. 78f(b)(8).
30 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.
25 17
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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 31 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,32 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
cost drivers are the same at each
individual marketplace and dividing
31 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’’).
32 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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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
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,
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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
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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
% 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.
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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
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
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communications costs, planned
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
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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
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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
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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.) 33
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
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).34
33 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).
34 The Exchange understands that the Investors
Exchange, Inc. (‘‘IEX’’) and MEMX LLC (‘‘MEMX’’)
both allocated a percentage of their servers to the
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35873
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
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.35
Because the hardware and software
license fees are correlated to the servers
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.
35 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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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 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. 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
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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 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
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
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shared expense cost driver.36 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
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
36 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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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 $38,096 per year (albeit a
relatively small amount of
approximately $3,174 per month, when
rounding to the nearest dollar). This is
due primarily to significant exchange
staff headcount increases.37 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.
*
*
*
*
*
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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 in August 2023
(33 Internal Distributors + 7 External
Distributors = 40 total Distributors),38 to
37 The Exchange notes that this reference to
increased headcount is used here to explain why
MIAX’s dollar amount of its allocated shared
expense is greater than that of MIAX Emerald. A
similar reference is not included in the above
discussion of the Human Resources cost driver
because the description of that cost driver does not
include a similar comparison.
38 The Exchange used August 2023 subscription
data because that was the last full month the fees
proposed herein for ToM and cToM were charged,
before the Exchange’s prior filing to adopt the same
fees was suspended by the Commission. See supra
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arrive at a cost of approximately $1,870
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
commensurate 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 1.7% for ToM and
cToM of the cost associated with certain
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,
note 12. While there has been no material overall
change to the number of subscriptions since August
2023, the Exchange notes that the number of
subscriptions may fluctuate and demand may
change when fees are removed and reinstated.
Accordingly, the Exchange believes that, in order to
obtain an accurate measure of actual demand for
fee-liable subscriptions, the Exchange looked to the
last month that the fees were in place prior to
suspension, which was August 2023.
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35875
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
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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 39
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
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
39 For purposes of calculating projected
annualized 2024 revenue for ToM and cToM, the
Exchange used monthly revenues for August 2023,
the last month the Exchange billed at the proposed
rates before the Commission suspended the earlier
filing. Id.
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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.40 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
differing level of profit margin per
exchange.
Further, MIAX and MIAX Emerald
propose to charge the same rates for
40 The Exchange notes that the total revenue
number of $1,040,880 does not equal the full
monthly fee multiplied by the total number of
Distributors, due to a new Distributor first
purchasing a ToM and cToM data feed mid-month
and having their first month’s fee(s) pro-rated for
External Distribution, pursuant to Section 6)a) of
the Exchange Fee Schedule.
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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).41 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).42 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
41 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).
42 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.
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cost does not experience the efficiencies
and synergies that result from sharing
costs across multiple platforms.43 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
43 The Exchange acknowledges that IEX included
in its proposal to adopt market data fees after
offering market data for free an analysis of what its
projected revenue would be if all of its existing
customers continued to subscribe versus what its
projected revenue would be if a limited number of
customers subscribed due to the new fees. See
Securities Exchange Act Release No. 94630 (April
7, 2022), 87 FR 21945 (April 13, 2022) (SR–IEX–
2022–02). MEMX did not include a similar analysis
in either of its recent non-transaction fee proposals.
See, e.g., supra note 34. 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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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
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.
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
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
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35877
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 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.44
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
44 See
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because the vendors that would be
charged such fees profit by retransmitting the Exchange’s market data
to their customers. These fees would be
charged only once per month to each
vendor account that redistributes any
ToM and cToM data feeds, regardless of
the number of customers to which that
vendor redistributes the data. For all of
the foregoing reasons, the Exchange
believes that the proposed fees for the
ToM and cToM data feeds are
reasonable.
Equitable Allocation
Overall. The Exchange believes that
its proposed fees are reasonable, fair,
and equitable, and not unfairly
discriminatory because they are
designed to align fees with services
provided. The Exchange believes the
proposed fees for the ToM and cToM
data feeds are allocated fairly and
equitably among the various categories
of users of the feeds, and any differences
among categories of users are justified
and appropriate.
The Exchange believes that the
proposed fees are equitably allocated
because they will apply uniformly to all
data recipients that choose to subscribe
to the ToM and cToM data feeds. Any
subscriber or vendor that chooses to
subscribe to the ToM and cToM data
feeds is subject to the same Fee
Schedule, regardless of what type of
business they operate, and the decision
to subscribe to one or more ToM and
cToM data feeds is based on objective
differences in usage of ToM and cToM
data feeds among different Members,
which are still ultimately in the control
of any particular Member. The Exchange
believes the proposed pricing of the
ToM and cToM data feeds is equitably
allocated because it is based, in part,
upon the amount of information
contained in each data feed and the
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
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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
Emerald), must first execute, among
other things, the MIAX Exchange Group
Exchange Data Agreement (the
‘‘Exchange Data Agreement’’).45
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.46 External Distributors
may distribute the Exchange’s market
data to persons who are not officers,
employees or affiliates of the External
Distributor,47 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 ToM and 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.48 Exchange staff must then, in
turn, process and review information
reported by External Distributors to
ensure the External Distributors are
redistributing cToM data in compliance
with the Exchange’s Market Data
Agreement and Policies.
The Exchange believes the proposed
cToM fees are equitable and not unfairly
discriminatory because the fee level
results in a reasonable and equitable
allocation of fees amongst subscribers
for similar services, depending on
whether the subscriber is an Internal or
External Distributor. Moreover, the
decision as to whether or not to
purchase market data is entirely
optional to all market participants.
Potential purchasers are not required to
purchase the market data, and the
Exchange is not required to make the
market data available. Purchasers may
request the data at any time or may
decline to purchase such data. The
allocation of fees among users is fair and
reasonable because, if market
participants decide not to subscribe to
the data feed, firms can discontinue
their use of the cToM data.
For all of the foregoing reasons, the
Exchange believes that the proposed
fees for the ToM and cToM data feeds
are equitably allocated.
45 See Exchange Data Agreement, available at
https://www.miaxglobal.com/markets/us-options/
all-options/market-data-vendor-agreements.
46 See id.
47 See id.
48 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.
49 15 U.S.C. 78f(b)(8).
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,49 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
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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.
whether the proposed rule should be
approved or disapproved.
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.50 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.
• 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–2024–25 on the subject line.
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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,51 and Rule
19b–4(f)(2) 52 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
50 See
supra notes 41 and 42.
U.S.C. 78s(b)(3)(A)(ii).
52 17 CFR 240.19b–4(f)(2).
51 15
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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:
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–2024–25. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–MIAX–2024–25 and should be
submitted on or before May 23, 2024.
Frm 00107
Fmt 4703
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.53
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–09475 Filed 5–1–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100042; File No. SR–
EMERALD–2024–15]
Electronic Comments
PO 00000
35879
Sfmt 4703
Self-Regulatory Organizations; MIAX
Emerald, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Increase Fees for the
ToM Market Data Product and
Establish Fees for the cToM Market
Data Product
April 26, 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 April 18,
2024, MIAX Emerald, LLC (‘‘MIAX
Emerald’’ or ‘‘Exchange’’), filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the MIAX Emerald Fee Schedule
(the ‘‘Fee Schedule’’) to (i) amend the
fees for the MIAX Emerald Top of
Market (‘‘ToM’’) data feed; and (ii)
establish fees for the MIAX Emerald
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 Emerald’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
53 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\02MYN1.SGM
02MYN1
]]>Agencies
[Federal Register Volume 89, Number 86 (Thursday, May 2, 2024)]
[Notices]
[Pages 35868-35879]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-09475]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100041; File No. SR-MIAX-2024-25]
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
April 26, 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 April 23, 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,
[[Page 35869]]
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. 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 several 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).
---------------------------------------------------------------------------
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. The Exchange proposes to assess Internal Distributors fees
that are less than the fees assessed for External Distributors because
External Distributors may monetize their receipt of the ToM and cToM
data feeds by charging their customers fees for receipt of the
Exchange's data. Internal Distributors do not have the same ability.
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
[[Page 35870]]
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 immediately effective.
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.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(4).
\20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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
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 reasonable
because the projected revenue and cost analysis contained herein
demonstrates that the proposed fees would not result in the Exchange
taking supra-competitive profits.
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\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.
---------------------------------------------------------------------------
Cost Analysis
In general, the Exchange believes that exchanges, in setting fees
of all types, should meet high standards of transparency to demonstrate
why each new fee or fee increase meets the Exchange Act requirements
that fees be reasonable, equitably allocated, not unfairly
discriminatory, and not create an undue burden on competition among
members and markets. In particular, the Exchange believes that each
exchange should take extra care to be able to demonstrate that these
fees are based on its costs and reasonable business needs.
Accordingly, in proposing to charge fees for market data, the
Exchange is especially diligent in assessing those fees in a
transparent way against its own aggregate costs of providing the
related service, and in carefully and transparently assessing the
impact on Members--both generally and in relation to other Members--to
ensure the fees will not create a financial burden on any participant
and will not have an undue impact in particular on smaller Members and
competition among Members in general. The Exchange does not believe it
needs to otherwise address questions about market competition in the
context of this filing because the proposed fees are 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,\24\ and Rule 19b-4
thereunder,\25\ with respect to the types of information SROs should
provide when filing fee changes, and Section 6(b) of the Act,\26\ which
requires, among other things, that exchange fees be reasonable and
equitably allocated,\27\ not designed to permit unfair
discrimination,\28\ and that they do not impose a burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.\29\ This proposal addresses those requirements, and the
analysis and data in this section are designed to clearly and
comprehensively show how they are met.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78s(b)(1).
\25\ 17 CFR 240.19b-4.
\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78f(b)(4).
\28\ 15 U.S.C. 78f(b)(5).
\29\ 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'').\30\ 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
[[Page 35871]]
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'').
---------------------------------------------------------------------------
\30\ 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 \31\ 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,\32\ 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 cost 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.
---------------------------------------------------------------------------
\31\ 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'').
\32\ 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 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
[[Page 35872]]
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 \a\ monthly cost \b\ % of 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 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
[[Page 35873]]
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.) \33\
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\33\ 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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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 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).\34\
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\34\ 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.\35\ Because the
hardware and software license fees are correlated to the servers
[[Page 35874]]
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.
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\35\ 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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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 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. 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 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 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.\36\
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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\36\ 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
[[Page 35875]]
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 $38,096 per year (albeit
a relatively small amount of approximately $3,174 per month, when
rounding to the nearest dollar). This is due primarily to significant
exchange staff headcount increases.\37\ 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.
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\37\ The Exchange notes that this reference to increased
headcount is used here to explain why MIAX's dollar amount of its
allocated shared expense is greater than that of MIAX Emerald. A
similar reference is not included in the above discussion of the
Human Resources cost driver because the description of that cost
driver does not include a similar comparison.
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* * * * *
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 in August 2023 (33 Internal Distributors +
7 External Distributors = 40 total Distributors),\38\ to arrive at a
cost of approximately $1,870 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.
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\38\ The Exchange used August 2023 subscription data because
that was the last full month the fees proposed herein for ToM and
cToM were charged, before the Exchange's prior filing to adopt the
same fees was suspended by the Commission. See supra note 12. While
there has been no material overall change to the number of
subscriptions since August 2023, the Exchange notes that the number
of subscriptions may fluctuate and demand may change when fees are
removed and reinstated. Accordingly, the Exchange believes that, in
order to obtain an accurate measure of actual demand for fee-liable
subscriptions, the Exchange looked to the last month that the fees
were in place prior to suspension, which was August 2023.
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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 commensurate 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 1.7% for
ToM and cToM of the cost associated with certain 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
[[Page 35876]]
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 \39\
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\39\ For purposes of calculating projected annualized 2024
revenue for ToM and cToM, the Exchange used monthly revenues for
August 2023, the last month the Exchange billed at the proposed
rates before the Commission suspended the earlier filing. Id.
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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.\40\ The Exchange
believes this represents a modest profit of 13.8% when compared to the
cost of providing ToM and cToM data feeds.
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\40\ The Exchange notes that the total revenue number of
$1,040,880 does not equal the full monthly fee multiplied by the
total number of Distributors, due to a new Distributor first
purchasing a ToM and cToM data feed mid-month and having their first
month's fee(s) pro-rated for External Distribution, pursuant to
Section 6)a) of the Exchange Fee Schedule.
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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 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).\41\ 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).\42\
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).
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\41\ 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).
\42\ 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.
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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
[[Page 35877]]
cost does not experience the efficiencies and synergies that result
from sharing costs across multiple platforms.\43\ 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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\43\ The Exchange acknowledges that IEX included in its proposal
to adopt market data fees after offering market data for free an
analysis of what its projected revenue would be if all of its
existing customers continued to subscribe versus what its projected
revenue would be if a limited number of customers subscribed due to
the new fees. See Securities Exchange Act Release No. 94630 (April
7, 2022), 87 FR 21945 (April 13, 2022) (SR-IEX-2022-02). MEMX did
not include a similar analysis in either of its recent non-
transaction fee proposals. See, e.g., supra note 34. 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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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.
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 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.\44\
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\44\ See supra notes 41 and 42.
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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
[[Page 35878]]
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 Emerald), must
first execute, among other things, the MIAX Exchange Group Exchange
Data Agreement (the ``Exchange Data Agreement'').\45\ 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.\46\ External
Distributors may distribute the Exchange's market data to persons who
are not officers, employees or affiliates of the External
Distributor,\47\ 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 ToM and 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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\45\ See Exchange Data Agreement, available at https://www.miaxglobal.com/markets/us-options/all-options/market-data-vendor-agreements.
\46\ See id.
\47\ 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.\48\ 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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\48\ 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,\49\ 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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\49\ 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
[[Page 35879]]
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.\50\ 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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\50\ See supra notes 41 and 42.
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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,\51\ and Rule 19b-4(f)(2) \52\ 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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\51\ 15 U.S.C. 78s(b)(3)(A)(ii).
\52\ 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-2024-25 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-2024-25. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-MIAX-2024-25 and should be
submitted on or before May 23, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\53\
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\53\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-09475 Filed 5-1-24; 8:45 am]
BILLING CODE 8011-01-P
