Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX Pearl Equities Exchange Fee Schedule To Establish Market Data Fees, 43467-43482 [2024-10820]
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Federal Register / Vol. 89, No. 97 / Friday, May 17, 2024 / Notices
benefit the Exchange. Moreover, if the
Exchange charges excessive fees, it may
stand to lose not only connectivity
revenues but also other revenues,
including revenues associated with the
execution of orders.
In summary, the proposal represents
an equitable allocation of reasonable
dues, fees and other charges because
Exchange fees have fallen in real terms
and customers have a choice in trading
venue and will exercise that choice and
trade at another venue if exchange fees
are not set competitively.
No Unfair Discrimination
The Exchange believes that the
proposed fee changes are not unfairly
discriminatory because the fees are
assessed uniformly across all market
participants that voluntarily subscribe
to or purchase connectivity and colocation services or products, which are
available to all customers.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
Nothing in the proposal burdens
inter-market competition (the
competition among self-regulatory
organizations) because approval of the
proposal does not impose any burden
on the ability of other exchanges to
compete. The Exchange operates in a
highly competitive market in which
market participants can determine
whether or not to connect to the
Exchange based on the value received
compared to the cost of doing so.
Indeed, market participants have
numerous alternative exchanges that
they may participate on and direct their
order flow, as well as off-exchange
venues, where competitive products are
available for trading.
Nothing in the proposal burdens
intra-market competition (the
competition among consumers) because
the Exchange’s connectivity and colocation services are available to any
customer under the same fee schedule
as any other customer, and any market
participant that wishes to purchase such
services can do so on a nondiscriminatory basis.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
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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.21
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: (i) necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
43467
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–BX–2024–014 and should be
submitted on or before June 7, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–10825 Filed 5–16–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–100109; File No. SR–
PEARL–2024–22]
• 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–
BX–2024–014 on the subject line.
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the MIAX Pearl
Equities Exchange Fee Schedule To
Establish Market Data Fees
Paper Comments
May 13, 2024.
• 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–BX–2024–014. 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,
21 15
PO 00000
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 30,
2024, MIAX PEARL, LLC (‘‘MIAX Pearl’’
or ‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the 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 Pearl Equities
Exchange Fee Schedule (the ‘‘Fee
Schedule’’) to adopt fees for the
Exchange’s proprietary market data
feeds.3
22 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 All references to the ‘‘Exchange’’ in this filing
refer to MIAX Pearl Equities. Any references to the
1 15
U.S.C. 78s(b)(3)(A)(ii).
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Federal Register / Vol. 89, No. 97 / Friday, May 17, 2024 / Notices
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings, at MIAX Pearl’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.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
MIAX Pearl Equities provided its
proprietary market data for free to
subscribers for over three and half years
since it commenced operations in
September 2020.4 Prior to the initial
proposal to adopt market data fees, the
Exchange solely and entirely absorbed
all costs associated with compiling and
disseminating its proprietary market
data. The Exchange offers two standard
proprietary market data products, the
Top of Market (‘‘ToM’’) feed and the
Depth of Market (‘‘DoM’’) feed
(collectively, the ‘‘market data feeds’’).
Each of these proprietary market data
products are described in Exchange
Rule 2625.
Exchange Rule 2625(a) provides that
the DoM feed is a data feed that contains
the displayed price and size of each
order in an equity security entered in
the System,5 as well as order execution
information, order cancellations, order
modifications, order identification
numbers, and administrative messages.
Exchange Rule 2625(b) provides that the
ToM feed is a data feed that contains the
price and aggregate size of displayed top
of book quotations, order execution
information, and administrative
messages for equity securities entered
into the System. Section 3 of the Fee
options trading facility of MIAX PEARL, LLC will
specifically be referred to as ‘‘MIAX Pearl Options.’’
4 See Securities Exchange Act Release No. 90651
(December 11, 2020), 85 FR 81971 (December 17,
2020) (SR–PEARL–2020–33).
5 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
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Schedule entitled, Market Data Fees,
specifically provides that fees for both
the ToM and DoM feeds are waived for
the Waiver Period.6 As described in
more detail below, the Exchange
proposes to remove this waiver language
and adopt fees for the ToM and DoM
feeds to recoup its ongoing costs going
forward.7
The Exchange notes that there is no
requirement that any Equity Member 8
or market participant subscribe to the
ToM or DoM feeds offered by the
Exchange. Instead, an Equity Member
may choose to maintain subscriptions to
the ToM or DoM feeds based on their
own business needs and trading models.
The proposed fees will not apply
differently based upon the size or type
of firm, but rather based upon the
subscriptions that each firm elects to
purchase.
The Exchange commenced operations
in September 2020 and expressly
waived fees for both the ToM and DoM
data feeds since that time to incentivize
market participants to subscribe and
make the Exchange’s market data more
widely available.9 In the three and a half
years since the Exchange launched
operations, its market share has grown
from 0% to approximately 2.0% for the
month of March 2024.10 One of the
primary objectives of the Exchange is to
provide competition and to provide low
cost options to the industry. Consistent
with this objective, the Exchange
believes that this proposal reflects a
6 The term ‘‘Waiver Period’’ means, for each
applicable fee, the period of time from the initial
effective date of the MIAX Pearl Equities Fee
Schedule until such time that MIAX Pearl has an
effective fee filing establishing the applicable fee.
MIAX Pearl Equities will issue a Regulatory
Circular announcing the establishment of an
applicable fee that was subject to a Waiver Period
at least fifteen (15) days prior to the termination of
the Waiver Period and effective date of any such
applicable fee. See the Definitions section of the Fee
Schedule.
7 The Exchange initially filed the proposed fee
change on March 26, 2024 for effectiveness on April
1, 2024. See Securities Exchange Act Release No.
99907 (April 4, 2024), 89 FR 25293 (April 10, 2024)
(SR–PEARL–2024–15) (the ‘‘Initial Proposal’’). The
Exchange withdrew SR–PEARL–2024–15 on April
30, 2024 and replaced it with this filing. The
Exchange notes this filing proposes a reduced fee
for Non-Display Usage by Trading Platforms for the
ToM feed from $2,500 per month in the Initial
Proposal to $1,000 per month. The reduced fee for
Non-Display Usage by Trading Platforms will be
effective May 1, 2024. All other proposed fees
remain the same from the Initial Proposal. See Fee
Change Alert—MIAX Pearl Equities Exchange—
May 1, 2024, available at https://
www.miaxglobal.com/alert/2024/04/30/miax-pearlequities-exchange-may-1-2024-fee-changes.
8 The term ‘‘Equity Member’’ is a Member
authorized by the Exchange to transact business on
MIAX Pearl Equities. See Exchange Rule 1901.
9 See supra note 4.
10 See the ‘‘Market Share’’ section of the
Exchange’s website, available at https://
www.miaxglobal.com/.
PO 00000
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simple, competitive, reasonable, and
equitable pricing structure.
The Exchange believes that
exchanges, in setting fees of all types,
should meet very high standards of
transparency to demonstrate why each
new fee or fee increase meets the
requirements of the Act that fees be
reasonable, equitably allocated, not
unfairly discriminatory, and not create
an undue burden on competition among
Equity Members and markets. The
Exchange believes this high standard is
especially important when an exchange
imposes various fees for market
participants to access an exchange’s
market data. The Exchange believes that
it is important to demonstrate that these
fees are based on its costs and
reasonable business needs. Accordingly,
the Exchange included a cost analysis
below in connection with the proposed
market data fees and the costs
associated with compiling and
providing the ToM and DoM feeds
(‘‘Cost Analysis’’).
The Exchange believes the proposed
fees will allow the Exchange to offset
the expenses 11 the Exchange has and
will continue to incur associated with
compiling and disseminating the ToM
and DoM feeds. Further, the Exchange
believes it provided sufficient
transparency in the Cost Analysis
provided below, which provides a basis
for how the Exchange determined to
charge such fees. The Exchange’s
proposal is described below.
Definitions
The Exchange proposes to include a
Definitions section at the beginning of
Section 3 of the Fee Schedule. The
purpose of the Definitions section is to
provide market participants greater
clarity and transparency regarding the
applicability of fees by defining certain
terms used in connection with market
data feeds within the Fee Schedule in a
single location related to the Exchange’s
market data products. The Exchange
notes that other equities exchanges
include similar Definitions in their
respective fee schedules,12 and that each
of the Exchange’s proposed definitions
are based on those exchanges. The
11 For the avoidance of doubt, all references to
expense or costs in this filing, including the cost
categories discussed below, refer to costs incurred
by MIAX Pearl Equities only and not MIAX Pearl
Options, the options trading facility.
12 See the market data sections of the fee
schedules for the Cboe BZX Exchange, Inc. (‘‘Cboe
BZX’’); Cboe BYX Exchange, Inc. (‘‘Cboe BYX’’);
Cboe EDGA Exchange, Inc. (‘‘Cboe EDGA’’); and
Cboe EDGX Exchange, Inc. (‘‘Cboe EDGX’’). See also
the market data definition section of the MEMX
LLC’s (‘‘MEMX’’) fee schedule; and Securities
Exchange Act Release No. 97130 (March 13, 2023),
88 FR 16491 (March 17, 2023) (SR–MEMX–2023–
04) (‘‘MEMX Market Data Fee Proposal’’).
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Federal Register / Vol. 89, No. 97 / Friday, May 17, 2024 / Notices
Exchange believes that including a
Definitions section for market data
products makes the Fee Schedule more
user-friendly and comprehensive.
The Exchange proposes to define the
following terms in Section 3 of the Fee
Schedule:
• Distributor. Any entity that receives
the Exchange data product directly from
the Exchange or indirectly through
another entity and then distributes it
internally or externally to a third party.
• External Distributor. A Distributor
that receives the Exchange data product
and then distributes that data to a third
party or one or more Users outside the
Distributor’s own entity.
• Internal Distributor. A Distributor
that receives the Exchange data product
and then distributes that data to one or
more Users within the Distributor’s own
entity.
Æ The Exchange notes that it proposes
to use the phrase ‘‘own entity’’ in the
definition of Internal Distributor and
External Distributor because a
Distributor would be permitted to share
data received from an exchange data
product to other legal entities affiliated
with the Distributor’s entity that have
been disclosed to the Exchange without
such distribution being considered
external to a third party. For instance,
if a company has multiple affiliated
broker-dealers under the same holding
company, that company could have one
of the broker-dealers or a non-brokerdealer affiliate subscribe to an exchange
data product and then share the data
with other affiliates that have a need for
the data. This sharing with affiliates
would not be considered external
distribution to a third party but instead
would be considered internal
distribution to data recipients within
the Distributor’s own entity.
• Non-Display Usage. Any method of
accessing an Exchange data product that
involves access or use by a machine or
automated device without access or use
of a display by a natural person or
persons.
• Non-Professional User. A natural
person or qualifying trust that uses
Exchange data only for personal
purposes and not for any commercial
purpose and, for a natural person who
works in the United States, is not: (i)
registered or qualified in any capacity
with the Securities and Exchange
Commission, the Commodities Futures
Trading Commission, any state
securities agency, any securities
exchange or association, or any
commodities or futures contract market
or association; (ii) engaged as an
‘‘investment adviser’’ as that term is
defined in Section 202(a)(11) of the
Investment Advisors Act of 1940
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(whether or not registered or qualified
under that Act); or (iii) employed by a
bank or other organization exempt from
registration under federal or state
securities laws to perform functions that
would require registration or
qualification if such functions were
performed for an organization not so
exempt; or, for a natural person who
works outside of the United States, does
not perform the same functions as
would disqualify such person as a NonProfessional User if he or she worked in
the United States.
• Professional User. Any User other
than a Non-Professional User.
• Trading Platform. Any execution
platform operated as or by a registered
National Securities Exchange (as
defined in Section 3(a)(1) of the
Exchange Act), an Alternative Trading
System (as defined in Rule 300(a) of
Regulation ATS), or an Electronic
Communications Network (as defined in
Rule 600(b)(23) of Regulation NMS).
• User. A Professional User or NonProfessional User.
Proposed Market Data Pricing
As described above, the ToM feed is
a data feed that contains the price and
aggregate size of displayed top of book
quotations, order execution information,
and administrative messages for equity
securities entered into the System. The
DoM feed is a data feed that contains the
displayed price and size of each order
in an equity security entered in the
System, as well as order execution
information, order cancellations, order
modifications, order identification
numbers, and administrative messages.
The Exchange proposes to charge the
below fees for the ToM and DoM data
feeds, which, the Exchange believes are
generally similar to or lower than
market data fees charged by other
similarly situated equities exchanges.
Each of the below capitalized terms are
defined above and would be included
under the proposed Definitions section
under Section 3, Market Data Fees, of
the Fee Schedule.
1. Internal Distributor Fee. The
Exchange proposes to charge Internal
Distributors a monthly fee of $1,000.00
for the ToM feed and $2,000.00 for the
DoM feed. The proposed Internal
Distributor fees would only be charged
once per month per Distributor.
2. External Distributor Fee. The
Exchange proposes to charge External
Distributors a monthly fee of $2,000.00
for the ToM feed and $2,500.00 for the
DoM feed. The proposed External
Distributor fees would only be charged
once per month per Distributor.
3. User Fees. For the ToM feed, the
Exchange proposes to charge a monthly
PO 00000
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43469
fee of $2.00 for each Professional User
and $0.10 for each Non-Professional
User. For the DoM feed, the Exchange
proposes to charge a monthly fee of
$30.00 for each Professional User and
$3.00 for each Non-Professional User.
The proposed User fees would apply to
each person that has access to the ToM
or DoM feed that is provided by a
Distributor (either Internal or External)
for displayed usage. Each Distributor’s
User count would include every
individual that accesses the data
regardless of the purpose for which the
individual uses the data. Distributors of
the ToM or DoM feed would be required
to report all Professional and NonProfessional Users in accordance with
the following:
• In connection with a Distributor’s
distribution of the ToM or DoM feed,
the Distributor must count as one User
each unique User that the Distributor
has entitled to have access to the ToM
or DoM feed.
• Distributors must report each
unique individual person who receives
access through multiple devices or
multiple methods (e.g., a single User has
multiple passwords and user
identifications) as one User.
• If a Distributor entitles one or more
individuals to use the same device, the
Distributor must include only the
individuals, and not the device, in the
count. Thus, Distributors would not be
required to report User device counts
associated with a User’s display use of
the data feed.
4. Enterprise Fee. As an alternative to
User fees, Distributors may purchase a
monthly Enterprise license to receive
ToM or DoM feeds for distribution to an
unlimited number of Professional and
Non-Professional Users. This provision
would be codified under footnote ‘‘a’’
under the description of each the ToM
and DoM feed in the Fee Schedule. The
Exchange proposes to establish a
monthly Enterprise fee of $15,000.00 for
ToM and $25,000.00 for the DoM feed.
5. Non-Display Usage Fees. For both
the ToM and DoM feeds, the Exchange
proposes to establish separate NonDisplay Usage fees for usage by Trading
Platforms and other Users (i.e., not by
Trading Platforms).
• Non-Display Usage. For NonDisplay Usage, the Exchange proposes
to establish a monthly fee of $1,000.00
for the ToM feed and $2,500.00 for the
DoM feed.13
13 Non-Display Usage would include trading uses
such as high frequency or algorithmic trading as
well as any trading in any asset class, automated
order or quote generation and/or order pegging,
price referencing for smart order routing, operations
control programs, investment analysis, order
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• Distributors of Non-Display Usage
for both the ToM and DoM feed will
only be subject to the Non-Display
Usage fee for the DoM feed. In other
words, such Distributors would receive
both the ToM and DoM feeds but only
be charged the Non-Display Usage fee of
$2,500.00 for the DoM feed. This
provision would be codified under
footnote ‘‘b’’ under the description of
each the ToM and DoM feed in the Fee
Schedule.
• Non-Display Usage by Trading
Platforms. For Non-Display Usage by
Trading Platforms, the Exchange
proposes to establish a monthly fee of
$1,000.00 for the ToM feed and
$2,500.00 for the DoM feed. The NonDisplayed Usage by Trading Platform
fee would only be charged per
Distributor that uses the data within a
Trading Platform.
• Distributors of Non-Display Usage
by Trading Platforms for both the ToM
and DoM feed will only be subject to the
Non-Display Usage by Trading
Platforms fee for the DoM feed. In other
words, such Distributors would receive
both the ToM and DoM feeds but only
be charged the Non-Display Usage by
Trading Platforms fee of $2,500.00 for
the DoM feed. This provision would be
codified under footnote ‘‘c’’ under the
description of each the ToM and DoM
feed in the Fee Schedule.
• The fee would also represent the
maximum charge per Distributor
regardless of the number of Trading
Platforms operated by the Distributor
that receives the data for Non-Display
Usage. This provision would be codified
under footnote ‘‘d’’ under the
description of each the ToM and DoM
feed in the Fee Schedule.
• Miscellaneous. The proposed fees
for Non-Display Usage would only be
charged once per category per
Distributor. In other words, with respect
to Non-Display Usage Fees, a Distributor
that uses the ToM feed for: (i) nondisplay purposes but not to operate a
Trading Platform would pay $1,000.00
per month; (ii) a Distributor that uses
the ToM feed in connection with the
operation of one or more Trading
Platforms (but not for other purposes)
would pay $2,500.00 per month; and
(iii) a Distributor that uses the ToM feed
for non-display purposes other than
operating a Trading Platform and for the
operation of one or more Trading
Platforms would pay $3,500.00 per
month.
verification, surveillance programs, risk
management, compliance, and portfolio
management.
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Implementation
The Exchange issued alerts publicly
announcing the proposed fees on
January 31, 2024 and March 15, 2024.14
The Exchange issued a Regulatory
Circular on March 15, 2024 announcing
the establishment of the proposed
market data fees to satisfy the required
fifteen (15) day notice period, as
described in the Definitions Section of
the Fee Schedule for termination of the
Waiver Period.15
The proposed reduced monthly fee for
ToM for Non-Display Usage by Trading
Platform will be effective beginning May
1, 2024. The remaining fees subject to
this proposal are immediately effective.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6(b) 16 of the
Act in general, and furthers the
objectives of Section 6(b)(4) 17 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 Equity 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) 18 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
14 See Fee Change Alert, MIAX Pearl Equities
Exchange—April 1, 2024 Market Data Fee Changes,
available at https://www.miaxglobal.com/alert/
2024/01/31/miax-pearl-equities-exchange-april-12024-market-data-fee-changes; see also Fee Change
Alert, MIAX Pearl Equities Exchange—Update:
April 1, 2024 Market Data Fee Changes, available
at https://www.miaxglobal.com/alert/2024/03/15/
miax-pearl-equities-exchange-update-april-1-2024market-data-fee-changes.
15 See MIAX Pearl Equities Regulatory Circular
2024–06, Termination of Waiver Period for Market
Data Fees and Establishment of Fee Amounts, dated
March 15, 2024, available at Pearl_Equities_RC_
2024_06.pdf (miaxglobal.com).
16 15 U.S.C. 78f.
17 15 U.S.C. 78f(b)(4).
18 15 U.S.C. 78f(b)(5).
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(the ‘‘Staff Guidance’’).19 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.20
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.
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
Equity Members—both generally and in
relation to other Equity Members—to
ensure the fees will not create a
financial burden on any participant and
19 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.
20 Id.
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will not have an undue impact in
particular on smaller Equity Members
and competition among Equity 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,21 and Rule 19b–4
thereunder,22 with respect to the types
of information SROs should provide
when filing fee changes, and Section
6(b) of the Act,23 which requires, among
other things, that exchange fees be
reasonable and equitably allocated,24
not designed to permit unfair
discrimination,25 and that they not
impose a burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.26 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 2020, the Exchange completed a
study of its aggregate costs to produce
market data and connectivity, defined
above as its Cost Analysis.27 The Cost
Analysis required a detailed analysis of
the Exchange’s aggregate baseline costs,
including a determination and
allocation of costs for core services
provided by the Exchange—transaction
execution, market data, membership
services, physical connectivity, and port
access (which provide order entry,
cancellation and modification
functionality, risk functionality, the
ability to receive drop copies, and other
functionality). The Exchange separately
divided its costs between those costs
necessary to deliver each of these core
services, including infrastructure,
software, human resources (i.e.,
personnel), and certain general and
administrative expenses (‘‘cost
drivers’’).
As an initial step, the Exchange
determined the total cost for the
Exchange and its affiliated markets 28 for
21 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
23 15 U.S.C. 78f(b).
24 15 U.S.C. 78f(b)(4).
25 15 U.S.C. 78f(b)(5).
26 15 U.S.C. 78f(b)(8).
27 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.
28 The affiliated markets include Miami
International Securities Exchange, LLC (‘‘MIAX’’);
separately, the options and equities markets of
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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,29 storage needs,
dedicated infrastructure versus shared
infrastructure allocated per platform
based on the resources required to
support each platform, number of
available connections, and employees
allocated time. All of these factors result
in different allocation percentages
among the Exchange and its affiliated
markets, i.e., the different percentages of
the overall cost driver allocated to the
Exchange and its affiliated markets will
cause the dollar amount of the overall
cost allocated among the Exchange and
its affiliated markets to also differ.
Because the Exchange’s parent company
currently owns and operates four
separate and distinct marketplaces, the
Exchange must determine the costs
associated with each actual market—as
opposed to the Exchange’s parent
company simply concluding that all
costs drivers are the same at each
individual marketplace and dividing
total cost by four (4) (evenly for each
marketplace). Rather, the Exchange’s
parent company determines an accurate
cost for each marketplace, which results
in different allocations and amounts
across exchanges for the same cost
drivers, due to the unique factors of
each marketplace as described above.
This allocation methodology also
ensures that no cost would be allocated
twice or double-counted between the
Exchange and its affiliated markets.
MIAX PEARL, LLC further confirms that
there is no double counting of expenses
between the options and equities
MIAX Pearl; and MIAX Emerald, LLC (‘‘MIAX
Emerald’’).
29 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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platform of MIAX PEARL, LLC. 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,
60.1% of the data center total expense
amount is allocated to 10Gb ULL
connectivity), with smaller allocations
to ToM and DoM (2.0% combined), and
the remainder to the provision of other
connectivity, ports, transaction
execution, and membership services
(37.9%). 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.30
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.
30 The Exchange only offers two market data
feeds, ToM and DoM. Therefore each cost allocation
described below applies to market data generally
since they are the only two data feeds the Exchange
offers and are the subject of this proposal.
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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 Equity Members and parties that
they sponsor to participate directly on
the Exchange may submit orders to the
Exchange; many Equity 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 market data
feeds, and, if such expense did so relate,
what portion (or percentage) of such
expense actually supports the provision
of market data feeds, and thus bears a
relationship that is, ‘‘in nature and
closeness,’’ directly related to market
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 the market data feeds is
$150,031 (the Exchange divided the
annual cost for each market data feed by
12 months, then added both numbers
together), as further detailed below.
Costs Related to Offering the Market
Data Feeds
The following chart details the
individual line-item (annual) costs
considered by the Exchange to be
related to offering the market data feeds
to its Equity 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 8.9% of its overall
Human Resources cost to offering the
market data feeds).
Allocated annual
cost a
Cost drivers
Allocted 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 ......................................................................................
$1,577,592
933
0.00
42,717
25,921
25,542
127,655
$131,466
78
0.00
3,560
2,160
2,129
10,638
8.9
2.0
0.0
2.0
2.0
0.5
2.0
Total ....................................................................................................................
1,800,360
150,031
5.1
a The
Annual Cost includes figures rounded to the nearest dollar.
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 The
Below are additional details regarding
each of the line-item costs considered
by the Exchange to be related to offering
the market data feeds. 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
markets, MIAX and MIAX Emerald, in
their recent proposed fee changes for
options market data.31 This is because
31 See Securities Exchange Act Release Nos.
99736 (March 14, 2024), 89 FR 19929 (March 20,
2024) (SR–MIAX–2024–13) and 99737 (March 14,
2024), 89 FR 19915 (March 20, 2024) (SR–
EMERALD–2024–09). See also SR–MIAX–2024–25
(filed April 23, 2024) and SR–EMERALD–2024–15
(filed April 18, 2024). For example, the overall
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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, including that the
portion of Human Resource costs allocated in this
proposal is higher than the recent market data
proposals filed by MIAX and MIAX Emerald due to
their ability to leverage the same employees for
options market data because they trade the same
asset class, options. The Exchange is unable to do
the same because it trades a different asset class,
equities, which requires dedicated employees and
systems.
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Exchange, MIAX Pearl Options, and its
affiliates trade different asset classes.
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
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a percentage of time to every employee
and then allocate that time amongst the
Exchange and its affiliated markets to
determine 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 market data
feeds and performance thereof
(primarily the Exchange’s network
infrastructure team, which spends a
portion of their time performing
functions necessary to provide market
data). As described more fully above,
the Exchange’s parent company
allocates costs to the Exchange and its
affiliated markets and then a portion of
the Human Resources costs allocated to
the Exchange is then allocated to market
data. From that portion allocated to the
Exchange that applied to market data,
the Exchange then allocated a weighted
average of 9.1% of each employee’s time
from the above group to market 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 the market
data feeds 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
market data (a weighted average of
8.8%, 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 the
market data feeds, 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
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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
the market 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 a
weighted average of 9.1% of each of
their employee’s time assigned to the
Exchange for the market data feeds, as
stated above. Employees from these
departments perform numerous
functions to support the market data
feeds, such as the configuration and
maintenance of the hardware necessary
to support the market 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 market data
feeds and design, and support the
development and on-going maintenance
of internally-developed applications as
well as data capture and analysis, and
Equity 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 market, 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 market data feeds
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.)
The Connectivity cost driver includes
cabling and switches required to
generate and disseminate the market
data feeds and operate the Exchange.
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43473
The Connectivity cost driver is more
narrowly focused on technology used to
complete Equity Member subscriptions
to the market data feeds and the servers
used at the Exchange’s primary and
back-up data centers specifically for the
market data feeds. Further, as certain
servers are only partially utilized to
generate and disseminate the market
data feeds, only the percentage of such
servers devoted to generating and
disseminating the market data feeds was
included (i.e., the capacity of such
servers allocated to the market data
feeds).32
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 market data feeds.
Data Center
Data Center costs includes an
allocation of the costs the Exchange
incurs to provide the market data feeds
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 2.0%
to the applicable Data Center costs for
the market data feeds. The Exchange
believes it is reasonable to apply the
same proportionate percentage of Data
32 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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Center costs to that of the Connectivity
cost driver.
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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 market data feeds.33 Because
the hardware and software license fees
are correlated to the servers used by the
Exchange, the Exchange again applied
an allocation of 2.0% of its costs for
Hardware and Software Maintenance
and Licenses to the market data feeds.
The Exchange notes that this allocation
may differ from its affiliates because
MIAX Pearl Equities maintains software
licenses that are unique to its trading
platform and used only for the trading
of equity securities. The cost for these
licenses cannot be shared with MIAX
Pearl Equities’ affiliated options markets
because each of those platforms trade
only options, not equities. MIAX Pearl
Equities’ affiliates are able to share the
cost of many of their software licenses
among the multiple options platforms
(thus lowering the cost to each
individual options platform), whereas
MIAX Pearl Equities cannot share such
cost and, therefore, bears the entire cost.
depreciate with respect to the market
data feeds in the near-term. As with the
other allocated costs in the Exchange’s
updated Cost Analysis, the Depreciation
cost was therefore narrowly tailored to
depreciation related to the market data
feeds. As noted above, the Exchange
allocated 0.5% of its allocated
depreciation costs to providing the
market data feeds.
This allocation is also based on MIAX
Pearl Equities being a newer market and
having newer physical assets and
software subject to depreciation than its
affiliate options exchanges. The
Exchange’s affiliate options exchanges
are older markets that have more
software and equipment that have been
fully depreciated when compared to the
newer software and hardware currently
being depreciated by MIAX Pearl
Equities at higher rates.
Allocated Shared Expenses
Depreciation
All physical assets, software, and
hardware used to provide the market
data feeds, 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 market
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
Finally, as with other exchange
products and services, a portion of
general shared expenses was allocated
to the provision of the market data
feeds. These general shared costs are
integral to exchange operations,
including its ability to provide the
market data feeds. 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.34 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 the
market data feeds pursuant to its multilayered 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
33 This expense may differ from the Exchange’s
affiliated markets. 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.
34 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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market data. Then, these costs were
further allocated to sub-categories
within the final categories, i.e., the
market data feeds as sub-categories of
market data. In determining the
percentage of general shared expenses
allocated to market data that ultimately
apply to the market data feeds, 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
the market data feeds. 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 the market data feeds.
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 2.0% of the portion
allocated to market data. The Exchange
believes this allocation percentage is
reasonable because, while the overall
dollar amount may be higher than other
cost drivers, the 2.0% is based on and
in line with the percentage allocations
of each of the Exchange’s other cost
drivers. The percentage allocated to the
market data feeds 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 the market data feeds are main
contributors.
*
*
*
*
*
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
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applicable cost drivers across its core
services and used the same Cost
Analysis to form the basis of this
proposal and the filings the Exchange
recently submitted proposing fees for
certain connectivity and ports offered by
the Exchange. For instance, in
calculating the Human Resources
expenses to be allocated to market data
based upon the above described
methodology, the Exchange has a team
of employees dedicated to network
infrastructure and with respect to such
employees the Exchange allocated
network infrastructure personnel with a
high percentage of the cost of such
personnel (9.1%) given their focus on
functions necessary to provide market
data and the remaining 90.9% was
allocated to 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 8.8% for the
market data feeds of the cost associated
with certain specified personnel who
work closely with and support network
infrastructure personnel.
In total, the Exchange allocated 8.9%
of its personnel costs (Human
Resources) to providing the market data
feeds. In turn, the Exchange allocated
the remaining 91.1% of its Human
Resources expense to membership
services, transaction services,
connectivity services, and port services.
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 the market
data feeds to its Equity Members and
their customers. However, the Exchange
did not allocate all of the depreciation
and amortization expense toward the
cost of providing the market data feeds,
but instead allocated approximately
0.5% of the Exchange’s overall
depreciation and amortization expense
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to the market data feeds combined. The
Exchange allocated the remaining
depreciation and amortization expense
(99.5%) toward the cost of providing
transaction services, membership
services, connectivity services, and port
services.
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
the market data feeds, the Exchange will
have to be successful in retaining
existing clients that wish to maintain
subscriptions to those market data feeds
or in obtaining new clients that will
purchase such services. Similarly, the
Exchange will have to be successful in
retaining a positive net capture on
transaction fees in order to realize the
anticipated revenue from transaction
pricing.
The Exchange notes that the Cost
Analysis is based on the Exchange’s
2024 fiscal year of operations and
projections. It is possible, however, that
actual costs may be higher or lower. To
the extent the Exchange sees growth in
use of market data services it will
receive additional revenue to offset
future cost increases. However, if use of
market data services is static or
decreases, the Exchange might not
realize the revenue that it anticipates or
needs in order to cover applicable costs.
Accordingly, the Exchange is
committing to conduct a one-year
review after implementation of these
fees. The Exchange expects that it may
propose to adjust fees at that time, to
increase fees in the event that revenues
fail to cover costs and a reasonable
mark-up of such costs. Similarly, the
Exchange may propose to decrease fees
in the event that revenue materially
exceeds our current projections. In
addition, the Exchange will periodically
conduct a review to inform its decision
making on whether a fee change is
appropriate (e.g., to monitor for costs
increasing/decreasing or Distributors or
Users 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
PO 00000
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43475
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 35
The proposed fees will allow the
Exchange to cover certain costs incurred
by the Exchange associated with
creating, generating, and disseminating
the market 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
Distributors and Users. Distributors,
particularly those of the market data
feeds, 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 the
market data feeds will equal $1,800,360.
Based on the projected number of
Distributors and Users, the Exchange
would generate annual revenue of
approximately $1,962,000 for the market
data feeds. The Exchange believes this
represents a modest profit of 8.2% when
compared to the cost of providing the
market data feeds, which the Exchange
believes is fair and reasonable after
taking into account the costs related to
creating, generating, and disseminating
the market data feeds and the fact that
the Exchange will need to fund future
expenditures (increased costs,
improvements, etc.). To determine the
35 To estimate the potential number of
Distributors and their anticipated use after the
proposed fees are implemented, the Exchange
surveyed and reviewed its current Distributor base,
considered the number of current potential
Distributors who may unsubscribe due to the
proposed fees being implemented, and sought
informal feedback from Equity Members and other
Distributors.
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projected number of Distributors and
Users, the Exchange reviewed its
Distributor population from February
2024, the month preceding when the
Exchange filed its proposal to
implement fees for the market data
products, and assumed a 5% attrition
rate. The 5% attrition rate was based on
surveying the current Distributor
population when socializing the
proposed fee structure with market
participants. The Exchange also
reviewed Distributor disclosures
submitted to the Exchange to see how
Distributors were using the market data,
e.g., for a Trading Platform, internal
distribution, firm size, etc., and to
which fee(s) they may be subject to
under the proposed structure.
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 the
market data feeds versus the total
projected revenue also associated with
those market data feeds.
The Exchange did not charge any fees
for the market data feeds since its
inception in September 2020 and its
allocation of costs to the market data
feeds 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 SRO, in their recent
non-transaction fee filings allocate the
entire amount of that same cost to a
single SRO. This can result in lower
profit margins for the non-transaction
fees proposed by IEX and MEMX
because the single allocated cost does
not experience the efficiencies and
synergies that result from sharing costs
across multiple platforms.36 The
36 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 its recent filing to adopt market data fees. See
Securities Exchange Act Release No. 97130 (March
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Exchange and its affiliated markets often
share a single cost, which results in cost
efficiencies that can cause a broader gap
between the allocated cost amount and
projected revenue, even though the fee
levels being proposed are lower or
competitive with competing markets (as
described above). To the extent that the
application of a cost-based standard
results in Commission Staff making
determinations as to the appropriateness
of certain profit margins, the
Commission Staff should consider
whether the proposed fee level is
comparable to, or competitive with, the
same fee charged by competing
exchanges and how different cost
allocation methodologies (such as across
multiple markets) may result in
different profit margins for comparable
fee levels. If Commission Staff is making
determinations as to appropriate profit
margins, the Exchange believes that the
Commission should be clear to all
market participants as to what they have
determined is an appropriate profit
margin and should apply such
determinations consistently and, in the
case of certain legacy exchanges,
retroactively, if such standards are to
avoid having a discriminatory effect.
Further, the proposal reflects the
Exchange’s efforts to control its costs,
which the Exchange does on an ongoing
basis as a matter of good business
practice. A potential profit margin
should not be judged alone based on its
size, but is also indicative of costs
management and whether the ultimate
fee reflects the value of the services
provided. For example, a profit margin
on one exchange should not be deemed
excessive where that exchange has been
successful in controlling its costs, but
not excessive where on another
exchange where that exchange is
charging comparable fees but has a
lower profit margin due to higher costs.
Doing so could have the perverse effect
of not incentivizing cost control where
higher costs alone are used to justify
fees increases.
Accordingly, while the Exchange is
supportive of transparency around costs
and potential margins (applied across
all exchanges), as well as periodic
review of revenues and applicable costs
(as discussed below), the Exchange does
not believe that these estimates should
form the sole basis of whether or not a
proposed fee is reasonable or can be
adopted. Instead, the Exchange believes
that the information should be used
solely to confirm that an Exchange is
not earning—or seeking to earn—supracompetitive profits, the standard set
13, 2023), 88 FR 16491 (March 17, 2023) (SR–
MEMX–2023–04).
PO 00000
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forth in the Staff Guidance. The
Exchange believes the Cost Analysis and
related projections in this filing
demonstrate this fact.
The Proposed Fees Are Reasonable and
Comparable to the Fees Charged By
Other Exchanges for Similar Data
Products
Overall. Among other things, the
Exchange 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 market
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
the market data feeds with a reasonable
mark-up. As discussed above, the
Exchange estimates this fee filing will
result in annual revenue of
approximately $1,980,000, representing
a potential mark-up of just 9.1% over
the cost of providing market data feeds.
Accordingly, the Exchange believes that
this fee methodology is reasonable
because it allows the Exchange to
recoup all of its expenses for providing
the market data feeds (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 similar to or less than
the fees charged by competing equities
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 also believes the
proposed fees are reasonable when
compared to fees charged for
comparable products by other
exchanges, including comparable data
feeds priced significantly higher than
the Exchange’s proposed fees. Overall,
the Exchange’s proposed fees are
generally lower or similar to fees
charged by other exchanges.37 For this
37 See MEMX Fee Schedule, available at, https://
info.memxtrading.com/membership-fees/ (‘‘MEMX
Fee Schedule’’); Cboe BYX Fee Schedule, available
at, https://www.cboe.com/us/equities/membership/
fee_schedule/byx/; Cboe BZX Fee Schedule,
available at, https://www.cboe.com/us/equities/
membership/fee_schedule/bzx/; Cboe EDGA Fee
Schedule, available at, https://www.cboe.com/us/
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reason, the Exchange believes that the
proposed fees are consistent with the
Act generally, and Section 6(b)(5) 38 of
the Act in particular. The Exchange
believes that denying it the ability to
adopt the proposed fees that would
allow the Exchange to recoup its costs
with a reasonable margin in a manner
that is closer to parity with other
exchanges, in effect, impedes its ability
to compete, including in its pricing of
transaction fees and ability to invest in
competitive infrastructure and other
offerings.
Internal Distribution Fees. The
Exchange believes that it is reasonable
to charge fees to access the market data
feeds for Internal Distribution because
of the value of such data to Distributors
in their profit-generating activities. The
Exchange also believes that the
proposed monthly Internal Distribution
fees are reasonable because they are
similar to the amount charged by other
exchanges for comparable data
products. Specifically, the Exchange
proposes to charge a monthly fee of
$1,000.00 to Internal Distributors for the
ToM feed and $2,000.00 for the DoM
feed, both of which include last sale
information. MEMX, Cboe BZX, and
Cboe EDGX each charge Internal
Distributors a monthly fee of $750.00
per month for their top-of-book products
and $1,500.00 for their depth-of-book
products, and charges separately for last
sale information.39 The Exchange notes
that while its proposed fee for Internal
Distributors may be slightly higher than
these other exchanges, its other
proposed fees are either equal to or
significantly lower than other
exchanges, as discussed below.
External Distribution Fees. The
Exchange believes that it is reasonable
to charge External Distribution fees for
the market data feeds because vendors
receive value from redistributing the
data in their business products provided
to their customers. The Exchange
believes that charging External
Distribution fees is reasonable because
the vendors that would be charged such
fees profit by re-transmitting the
Exchange’s market data to their
customers. These fees would be charged
only once per month to each vendor
account that redistributes any of the
market data feeds, regardless of the
number of customers to which that
vendor redistributes the data.
The Exchange also believes that the
proposed monthly External Distribution
equities/membership/fee_schedule/edga/; and Cboe
EDGX Fee Schedule, available at, https://
www.cboe.com/us/equities/membership/fee_
schedule/edgx/.
38 15 U.S.C. 78f(b)(5).
39 See MEMX Fee Schedule, supra note 37.
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fees are reasonable because they are
equal to or lower than the amount
charged by other exchanges for
comparable data products. Specifically,
the Exchange proposes to charge a
monthly fee of $2,000.00 to External
Distributor for the ToM feed and
$2,500.00 for the DoM feed. The
Exchange’s proposed External
Distribution fee for ToM is equal to or
lower than the fees charged by MEMX,
Cboe BZX, and Cboe EDGX to External
Distributors of their depth-of-book
products, who each charge $2,000.00,
$2,500.00, and $2,250.00,
respectively.40 Meanwhile, the
Exchange’s proposed External
Distribution fee for DoM is equal to the
fees charged by MEMX, Cboe BYX, Cboe
EDGA, and Cboe EDGX to External
Distributors of their depth-of-book
products.41 Meanwhile, the Exchange’s
proposed External Distribution fee for
DoM is lower than the $5,000.00 fee
charged by Cboe BZX to External
Distributors of its depth-of-book
product.42
User Fees. The Exchange believes that
having separate Professional and NonProfessional User fees for the market
data feeds is reasonable because it will
make the product more affordable and
result in greater availability to
Professional and Non-Professional
Users. Setting a modest NonProfessional User fee is reasonable
because it provides an additional
method for Non-Professional Users to
access the market data feeds by
providing the same data that is available
to Professional Users. The proposed
monthly Professional User and NonProfessional User fees are reasonable
because they equal to or are lower than
the fees charged by other exchanges for
comparable data products. For example,
the Exchange’s proposed Professional
User fees of $2.00 for ToM and $30.00
for DoM is lower than the same fee
charged by Cboe BZX and Cboe EDGX,
who each charge $4.00 for their top-ofbook products and $40.00 for their
depth-of-book products.43 The
Exchange’s proposed Non-Professional
User fees of $0.10 for ToM is equal to
the same fee charged by Cboe BZX and
Cboe EDGX.44
Meanwhile, the Exchange’s proposed
Non-Professional User fees of $3.00 for
40 See MEMX Fee Schedule, Cboe BZX Fee
Schedule, and Cboe EDGX Fee Schedule, supra
note 43.
41 See MEMX Fee Schedule, Cboe BYX Fee
Schedule, Cboe EDGA Fee Schedule, and Cboe
EDGX Fee Schedule, id.
42 See Cboe BZX Fee Schedule, id.
43 See Cboe BZX Fee Schedule and Cboe EDGX
Fee Schedule, id.
44 Id.
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43477
DoM is equal to the same fee charged by
MEMX and lower than the same fee
charged by Cboe BZX and Cboe EDGX,
who each charge $5.00 for their depthof-book products.45
The Exchange also believes that the
proposal to require reporting of
individual Users, but not devices, is
reasonable as this too will eliminate
unnecessary audit risk that can arise
when recipients are required to apply
complex counting rules such as whether
or not to count devices or whether an
individual accessing the same data
through multiple devices should be
counted once or multiple times.
The Exchange also believes it is
reasonable to adopt an Enterprise Fee
because this would allow a market
participant to disseminate such data
feeds to an unlimited number of Users
without the necessity of counting such
Users. As this is an optional
subscription, a data recipient is able to
determine whether it prefers to count
Users and report such Users to the
Exchange or not, and also whether it is
more economically advantageous to
count and pay for specific Users or to
subscribe to the Enterprise Fee. The
Exchange also notes that only a market
participant with a substantial number of
Users would likely choose to subscribe
for and pay the Enterprise Fee.
The proposed monthly Enterprise fees
are reasonable because they equal to or
are lower than the fees charged by other
exchanges for comparable data
products. For example, the Exchange’s
proposed Enterprise fee of $15,000.00
per month for ToM equals the same fee
charged by Cboe BZX and Cboe EDGX.46
However, the Exchange’s proposed
Enterprise fee of $25,000.00 per month
for DoM is much lower than the same
fee charged by Cboe BZX and Cboe
EDGX, who each charge $100,000.00 per
month.47
Non-Display Use Fees. The Exchange
believes the proposed Non-Display
Usage fees are reasonable because they
reflect the value of the data to the data
recipients in their profit-generating
activities and do not impose the burden
of counting non-display devices.
The Exchange believes that the
proposed Non-Display Usage fees reflect
the significant value of the non-display
data use to data recipients, whom
purchase such data on a voluntary basis.
Non-display data can be used by data
recipients for a wide variety of profitgenerating purposes, including
45 See MEMX Fee Schedule, Cboe BZX Fee
Schedule, and Cboe EDGX Fee Schedule, supra
note 43.
46 See Cboe BZX Fee Schedule and Cboe EDGX
Fee Schedule, id.
47 Id.
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proprietary and agency trading and
smart order routing, as well as by data
recipients that operate Trading
Platforms that compete directly with the
Exchange for order flow. The data also
can be used for a variety of non-trading
purposes that indirectly support trading,
such as risk management and
compliance. Although some of these
non-trading uses do not directly
generate revenues, they can nonetheless
substantially reduce a recipient’s costs
by automating such functions so that
they can be carried out in a more
efficient and accurate manner and
reduce
s and labor costs, thereby benefiting
recipients. The Exchange believes that
charging for non-trading uses is
reasonable because data recipients can
derive substantial value from such uses,
for example, by automating tasks so that
can be performed more quickly and
accurately and less expensively than if
they were performed manually.
Previously, the non-display use data
pricing policies of many exchanges
required customers to count, and the
exchanges to audit the count of, the
number of non-display devices used by
a customer. As non-display use grew
more prevalent and varied, however,
exchanges received an increasing
number of complaints about the
impracticality and administrative
burden associated with that approach.
In response, several exchanges
developed a non-display use pricing
structure that does not require nondisplay devices to be counted or those
counts to be audited, and instead
categorizes different types of use. The
Exchange proposes to distinguish
between non-display use for the
operation of a Trading Platform and
other non-display use, which is similar
to exchanges such as MEMX, BZX, and
EDGX,48 while other exchanges
maintain additional categories and in
many cases charge multiple times for
different types of non-display use or the
operation of multiple Trading
Platforms.49
The Exchange believes that it is
reasonable to segment the fee for nondisplay use into these two categories. As
noted above, the uses to which
customers can put the market data feeds
are numerous and varied, and the
Exchange believes that charging
separate fees for these separate
48 See Cboe BZX Fee Schedule and Cboe EDGX
Fee Schedule, id.
49 See NYSE Proprietary Market Data Pricing
Guide, dated May 4, 2022, available at https://
www.nyse.com/publicdocs/nyse/data/NYSE_
Market_Data_Pricing.pdf, and the Nasdaq Global
Data Products pricing list, available at https://
nasdaqtrader.com/Trader.aspx?id=DPUSdata.
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categories of use is reasonable because
it reflects the actual value the customer
derives from the data, based upon how
the customer makes use of the data.
The Exchange believes that the
proposed fees for Non-Display Usage for
ToM are reasonable because the
Exchange’s proposed fee of $1,000.00
per month is less than the amounts
charged by several other exchanges for
comparable data products.50 The
Exchange also believes that the
proposed fees for Non-Display Usage for
DoM are reasonable because the
Exchange’s proposed fee of $2,500.00
per month for DoM equals the same fee
charged by MEMX for its depth-of-book
product.51 The proposed fees are also
significantly less than the amounts
charged by several other exchanges for
comparable data products.52 In fact, the
Exchange’s proposed fees for NonDisplay Usage fee may be even lower
because the Exchange would allow
Distributors to the DoM feed to also
receive the ToM feed for no additional
charge. The Exchange believes that the
proposed fees directly and appropriately
reflect the significant value of using data
on a non-display basis in a wide range
of computer-automated functions
relating to both trading and non-trading
activities and that the number and range
of these functions continue to grow
through innovation and technology
developments. Further, the Exchange
benefits from other non-display use by
market participants (including the fact
that the Exchange receives orders
resulting from algorithms and routers)
and both the Exchange and other
participants benefit from other nondisplay use by market participants when
such use is to support more broadly
beneficial functions such as risk
management and compliance.
The Exchange believes that the
proposed fees for Non-Display Usage for
ToM are reasonable because the
Exchange’s proposed fee of $2,500.00
per month is less than the amounts
charged by several other exchanges for
comparable data products,53 which also
charge per Trading Platform operated by
a data Distributor subject to a cap in
most cases, rather than charging per
Distributor, as proposed by the
Exchange.54 The Exchange also believes
that it is reasonable to charge the
proposed fees for non-display use for
operation of a Trading Platform of the
DoM feed because its proposed fee of
50 Id.
51 See
52 See
MEMX Fee Schedule, supra note 37.
supra note 49.
53 Id.
54 See supra note 49. The Exchange notes that
MEMX also charges per Distributor, as proposed
herein. See MEMX Fee Schedule supra note 37.
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$2,500.00 per month equals the same fee
charged by MEMX for its depth-of-book
product.55 The proposed fees are also
significantly less than the amounts
charged by Cboe BZX and Cboe EDGA,
who each charge $5,000.00 per month,
for comparable data products.56 In fact,
the Exchange’s proposed fees for NonDisplay Usage fee for Trading Platform
may be even lower because the
Exchange would allow Distributors to
the DoM feed to also receive the ToM
feed for no additional charge. The
proposed fee is also significantly less
than the amounts charged by several
other exchanges for comparable data
products, which also charge per Trading
Platform operated by a data Distributor
subject to a cap in most cases, rather
than charging per Distributor, as
proposed by the Exchange.57 With
respect to alternative trading systems, or
ATSs, such platforms can utilize the
Exchange Data Feeds to form prices for
trading on such platforms but are not
required to do so and can instead utilize
SIP data. Currently, no ATS approved to
trade NMS stocks subscribes to the
Exchange’s market data feeds.58 With
respect to other exchanges, which may
choose to use the market data feeds for
Regulation NMS compliance and order
routing, the Exchange notes that several
exchange competitors of the Exchange
have not subscribed to any of the market
data feeds and instead utilize SIP data
for such purposes.59 Accordingly, both
ATSs and other exchanges clearly have
a choice whether to subscribe to the
Exchange’s market data feeds.
The proposed Non-Display Usage fees
are also reasonable because they take
into account the extra value of receiving
the data for Non-Display Usage that
includes a rich set of information
including top of book quotations, depthof-book quotations, executions and
other information. The Exchange
believes that the proposed fees directly
and appropriately reflect the significant
value of using the market data feeds on
55 Id.
56 See Cboe BZX Fee Schedule and Cboe EDGX
Fee Schedule, supra note 37. See also supra note
49.
57 See supra note 49. The Exchange notes that
MEMX also charges per Distributor, as proposed
herein. See MEMX Fee Schedule supra note 37.
58 MIAX Pearl Equities internal data regarding
non-display use by Trading Platforms. As of March
15, 2024, there were currently 32 ATSs that had
filed an effective Form ATS–N with the
Commission to trade NMS stocks. See https://
www.sec.gov/divisions/marketreg/form-ats-nfilings.htm#ats-n.
59 See, e.g., BZX Rule 11.26, EDGA Rule 13.4,
EDGX Rule 13.4, and Long Term Stock Exchange,
Inc. Rule 11.4010(a), each of which discloses the
data feeds used by each respective exchange and
state that SIP products are used with respect to
MIAX Pearl Equities.
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a non-display basis in a wide range of
computer-automated functions relating
to both trading and non-trading
activities and that the number and range
of these functions continue to grow
through innovation and technology
developments.60
*
*
*
*
*
For all of the foregoing reasons, the
Exchange believes that the proposed
fees for the market data feeds are
reasonable.
Equitable Allocation
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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 market 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 market data feeds. Any market
participant that chooses to subscribe to
the market 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
market data feeds is based on objective
differences in usage of market data feeds
among different Equity Members, which
are still ultimately in the control of any
particular Equity Member. The
Exchange believes the proposed pricing
of the market 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 Distributor Fees. The
Exchange believes the proposed
monthly fees for Internal Distributors of
the market data feeds are equitably
allocated because they would be
charged on an equal basis to all data
recipients that receive the market data
feeds for internal distribution,
60 See also Exchange Act Release No. 69157
(March 18, 2013), 78 FR 17946, 17949 (March 25,
2013) (SR–CTA/CQ–2013–01) (‘‘[D]ata feeds have
become more valuable, as recipients now use them
to perform a far larger array of non-display
functions. Some firms even base their business
models on the incorporation of data feeds into black
boxes and application programming interfaces that
apply trading algorithms to the data, but that do not
require widespread data access by the firm’s
employees. As a result, these firms pay little for
data usage beyond access fees, yet their data access
and usage is critical to their businesses.’’).
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regardless of what type of business they
operate.
External Distributor Fees. The
Exchange believes the proposed
monthly fees for External Distributors of
the market 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 market 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 Distributors are
equitably allocated when compared to
lower proposed fees for Internal
Distributors because data recipients that
are externally distributing market data
feeds are able to monetize such
distribution and spread such costs
amongst multiple third party data
recipients, whereas the Internal
Distributor fee is applicable to use by a
single data recipient (and its affiliates).
The Exchange believes that it is
reasonable and equitable discriminatory
to assess Internal Distributors fees that
are less than the fees assessed for
External Distributors for subscriptions
to the market 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 Equity
Members and non-Equity Members that
decide to receive any market data feed
of the Exchange must first execute,
among other things, the MIAX Exchange
Group Exchange Data Agreement (the
‘‘Exchange Data Agreement’’).61
Pursuant to the Exchange Data
Agreement, Internal Distributors are
restricted to the ‘‘internal use’’ of any
market data they receive. This means
that Internal Distributors may only
distribute the Exchange’s market data to
the recipient’s officers and employees
and its affiliates.62 External Distributors
may distribute the Exchange’s market
data to persons who are not officers,
employees or affiliates of the External
Distributor,63 and may charge their own
fees for the redistribution of such
market data. External Distributors may
monetize their receipt of the market data
feeds by charging their customers fees
for receipt of the Exchange’s market data
feeds. Internal Distributors do not have
the same ability to monetize the
Exchange’s market data feeds.
Accordingly, the Exchange believes it is
61 See Exchange Data Agreement, available at
https://www.miaxglobal.com/markets/us-equities/
pearl-equities/market-data-vendor-agreements.
62 See id.
63 See id.
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43479
fair, reasonable and not unfairly
discriminatory to assess External
Distributors a higher fee for the
Exchange’s market data feeds as
External Distributors have greater usage
rights to commercialize such market
data and can adjust their own fee
structures if necessary.
The Exchange also utilizes more
resources to support External
Distributors versus Internal Distributors,
as External Distributors have reporting
and monitoring obligations that Internal
Distributors do not have, thus requiring
additional time and effort of Exchange
staff. For example, External Distributors
have monthly reporting requirements
under the Exchange’s Market Data
Policies.64 Exchange staff must then, in
turn, process and review information
reported by External Distributors to
ensure the External Distributors are
redistributing the market data feeds in
compliance with the Exchange’s Market
Data Agreement and Policies.
The Exchange believes the proposed
fees are equitable because the fee level
results in a reasonable and equitable
allocation of fees amongst Distributors
for similar services, depending on
whether the Distributor 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 market data feeds.
User Fees. The Exchange believes that
the fee structure differentiating
Professional User fees from NonProfessional User fees for display use is
equitable. This structure has long been
used by other exchanges and the SIPs to
reduce the price of data to NonProfessional Users and make it more
broadly available.65 Offering the market
data feeds to Non-Professional Users at
a lower cost than Professional Users
results in greater equity among data
recipients, as Professional Users are
64 See Section 6 of the Exchange’s Market Data
Agreement, supra note 61.
65 See, e.g., Securities Exchange Act Release No.
59544 (March 9, 2009), 74 FR 11162 (March 16,
2009) (SR–NYSE–2008–131) (establishing the $15
Non-Professional User Fee (Per User) for NYSE
OpenBook); Securities Exchange Act Release No.
20002, File No. S7–433 (July 22, 1983), 48 FR 34552
(July 29, 1983) (establishing Non-Professional fees
for CTA data); NASDAQ BX Equity 7 Pricing
Schedule, Section 123.
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categorized as such based on their
employment and participation in
financial markets, and thus, are
compensated to participate in the
markets. While Non-Professional Users
too can receive significant financial
benefits through their participation in
the markets, the Exchange believes it is
reasonable to charge more to those Users
who are more directly engaged in the
markets.
The Exchange believes it is equitable
to adopt User fees for the DoM feed that
are higher than the User fees for the
ToM feed because, as described above,
DoM contains significantly more data
than the ToM feed. The Exchange
believes it is equitable to have pricing
based, in part, upon the amount of
information contained in each data feed
and the value of that information to
market participants.
The Exchange also believes it is
equitable to adopt an Enterprise Fee
because this would allow a Distributors
to disseminate such data feeds to an
unlimited number of Users without the
necessity of counting such Users. As
this is an optional subscription, a data
recipient is able to determine whether it
prefers to count Users and report such
Users to the Exchange or not, and also
whether it is more economically
advantageous to count and pay for
specific Users or to subscribe to the
Enterprise Fee.
Non-Display Usage Fees. The
Exchange believes the proposed NonDisplay Usage fees are equitably
allocated because they would require
Distributors to pay fees only for the uses
they actually make of the data. As noted
above, non-display data can be used by
data recipients for a wide variety of
profit-generating purposes (including
trading and order routing) as well as
purposes that do not directly generate
revenues (such as risk management and
compliance) but nonetheless
substantially reduce the recipient’s costs
by automating certain functions. The
Exchange believes that it is equitable to
charge non-display data Distributors
that use the market data feeds for
purposes other than operation of a
Trading Platform as proposed because
all such Distributors would have the
ability to use such data for as many nondisplay uses as they wish for one low
fee. As noted above, this structure is
comparable to that in place for the BZX
Depth feed but several other exchanges
charge multiple non-display fees to the
same client to the extent they use a data
feed in several different trading
platforms or for several types of nondisplay use.66
66 See
supra note 49.
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The Exchange further believes that the
fees for non-display use for operation of
a Trading Platform and for non-display
use other than operation of a Trading
Platform are equitable because the
Exchange is imposing the same flat fee
for each category of non-display use.
The Exchange believes that it is
equitable to charge a single fee per
Distributor rather than multiple fees for
a Distributor that operates more than
one Trading Platform because operators
of Trading Platforms are many times
viewed as a single competing venue or
group, even if there are multiple
liquidity pools operated by the same
competitor.
*
*
*
*
*
For all of the foregoing reasons, the
Exchange believes that the proposed
fees for the market data feeds are
equitably allocated.
The Proposed Fees Are Not Unfairly
Discriminatory
The Exchange believes the proposed
fees are not unfairly discriminatory
because any differences in the
application of the fees are based on
meaningful distinctions between
customers, and those meaningful
distinctions are not unfairly
discriminatory between customers.
Overall. The Exchange believes that
the proposed fees are not unfairly
discriminatory because they would
apply to all data recipients that choose
to subscribe to the same market data
feed(s). Any market participant,
including market data vendors, that
chooses to subscribe to the market data
feeds is subject to the same Fee
Schedule, regardless of what type of
business they operate. Because the
proposed fees for DoM are higher,
market participants seeking lower cost
options may instead choose to receive
data from the SIPs or through the ToM
feed for a lower cost. Alternatively,
market participants can choose to pay
for the DoM feed to receive data in a
single feed with depth-of-book
information if such information is
valuable to such market participants.
The Exchange notes that market
participants can also choose to
subscribe to a combination of data feeds
for redundancy purposes or to use
different feeds for different purposes. In
sum, each market participant has the
ability to choose the best business
solution for itself. The Exchange does
not believe it is unfairly discriminatory
to base pricing upon the amount of
information contained in each data feed
and the value of that information to
market participants. As described above,
the ToM feed can be utilized to trade on
the Exchange but contain less
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Sfmt 4703
information than that is available on the
DoM feed (i.e., even for a Distributor
who takes both feeds, such feeds do not
contain depth-of-book information).
Thus, the Exchange believes it is not
unfairly discriminatory for the products
to be priced as proposed, with ToM
having the lowest price and DoM a
higher price.
Internal Distributor Fees. The
Exchange believes the proposed
monthly fees for Internal Distributors
are not unfairly discriminatory because
they would be charged on an equal basis
to all data recipients that receive the
same market data feed(s) for internal
distribution, regardless of what type of
business they operate.
External Distributor Fees. The
Exchange believes the proposed
monthly fees for redistributing the
market data feeds are not unfairly
discriminatory because they would be
charged on an equal basis to all data
recipients that receive the same market
data feed(s) that choose to redistribute
the feed(s) externally. The Exchange
also believes that having higher monthly
fees for External Distributors than
Internal Distributors is not unfairly
discriminatory because data recipients
that are externally distributing the
market data feeds are able to monetize
such distribution and spread such costs
amongst multiple third party data
recipients, whereas the Internal
Distributor fee is applicable to use by a
single data recipient (and its affiliates).
User Fees. The Exchange believes that
the fee structure differentiating
Professional User fees from NonProfessional User fees for display use is
not unfairly discriminatory. This
structure has long been used by other
exchanges and the SIPs to reduce the
price of data to Non-Professional Users
and make it more broadly available.67
Offering the market data feeds to NonProfessional Users with the same data as
is available to Professional Users, albeit
at a lower cost, results in greater equity
among data recipients. These User fees
would be charged uniformly to all
individuals that have access to the
market data feeds based on the category
of User.
The Exchange also believes the
proposed User fees for DoM are not
unfairly discriminatory, with higher fees
for Professional Users than NonProfessional Users, because NonProfessional Users may have less ability
to pay for such data than Professional
Users as well as less opportunity to
profit from their usage of such data. The
Exchange also believes the proposed
User fees for DoM are not unfairly
67 See
E:\FR\FM\17MYN1.SGM
supra note 65.
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discriminatory, even though
substantially higher than the proposed
User fees for ToM because, as described
above, DoM has significantly more
information than ToM and is thus
potentially more valuable to such Users.
The Exchange further believes that its
proposal to adopt an Enterprise Fee is
not unfairly discriminatory because this
optional alternatives to counting and
paying for specific Users will provide
market participants the ability to
provide information from the market
data feeds to large numbers of Users
without counting and paying for each
individual User.
Non-Display Use Fees. The Exchange
believes the proposed Non-Display
Usage fees are not unfairly
discriminatory because they would
require Distributors for non-display use
to pay fees depending on their use of the
data, either for operation of a Trading
Platform or not, but would not impose
multiple fees to the extent a Distributor
operates multiple Trading Platforms or
has multiple different types of nondisplay use. As noted above, nondisplay data can be used by data
recipients for a wide variety of profitgenerating purposes as well as purposes
that do not directly generate revenues
but nonetheless substantially reduce the
recipient’s costs by automating certain
functions. This segmented fee structure
is not unfairly discriminatory because
no Distributor of non-display data
would be charged a fee for a category of
use in which it did not actually engage.
The Exchange believes that it is not
unreasonably discriminatory to charge a
single fee for an operator of Trading
Platforms that operates more than one
Trading Platform because operators of
Trading Platforms are many times
viewed as a single competing venue or
group, even if there a multiple liquidity
pools operated by the same competitor.
The Exchange again notes that certain
competitors to the Exchange charge for
non-display usage per Trading
Platform,68 in contrast to the Exchange’s
proposal. In turn, to the extent they
subscribe to the market data feeds, these
same competitors will benefit from the
Exchange’s pricing model to the extent
they operate multiple Trading Platforms
(as most do) by paying a single fee
rather than paying for each Trading
Platform that they operate that
consumes the market data feeds.
*
*
*
*
*
For all of the foregoing reasons, the
Exchange believes that the proposed
fees for the Exchange’s market data
feeds are not unfairly discriminatory.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,69 the Exchange does not believe
that the proposed rule change would
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
Intra-Market Competition
The Exchange does not believe that
the proposed fees place certain market
participants at a relative disadvantage to
other market participants because, as
noted above, the proposed fees are
associated with usage of the data feed by
each market participant based on
whether the market participant
internally or externally distributes the
Exchange data, which are still
ultimately in the control of any
particular Equity Member, and such fees
do not impose a barrier to entry to
smaller participants. Accordingly, the
proposed fees do not favor certain
categories of market participants in a
manner that would impose a burden on
competition; rather, the allocation of the
proposed fees reflects the types of data
consumed by various market
participants and their usage thereof.
Inter-Market Competition
The Exchange does not believe the
proposed fees place an undue burden on
competition on other SROs that is not
necessary or appropriate. In particular,
market participants are not forced to
subscribe to either data feed, as
described above. Additionally, other
exchanges have similar market data fees
with comparable rates in place for their
participants.70 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.
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
69 15
68 See
supra note 49.
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17:20 May 16, 2024
U.S.C. 78f(b)(8).
supra note 37.
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19(b)(3)(A)(ii) of the Act,71 and Rule
19b–4(f)(2) 72 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
PEARL–2024–22 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–PEARL–2024–22. 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
71 15
70 See
72 17
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U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
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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–PEARL–2024–22 and should be
submitted on or before June 7, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.73
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–10820 Filed 5–16–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100124; File No. SR–
CboeEDGX–2024–024]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Its
Fee Schedule
May 13, 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 May 1,
2024, Cboe EDGX Exchange, Inc.
(‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) proposes to
amend its Fee Schedule. The text of the
proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
17:20 May 16, 2024
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
Fee Schedule applicable to its equities
trading platform (‘‘EDGX Equities’’) by:
(1) modifying the Cross Asset Tier; (2)
modifying Non-Displayed Add Volume
Tier 1; and (3) modifying Retail Volume
Tier 1. The Exchange proposes to
implement these changes effective May
1, 2024.
The Exchange first notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
16 registered equities exchanges, as well
as a number of alternative trading
systems and other off-exchange venues
that do not have similar self-regulatory
responsibilities under the Securities
Exchange Act of 1934 (the ‘‘Act’’), to
which market participants may direct
their order flow. Based on publicly
available information,3 no single
registered equities exchange has more
than 16% of the market share. Thus, in
such a low-concentrated and highly
competitive market, no single equities
exchange possesses significant pricing
power in the execution of order flow.
The Exchange in particular operates a
‘‘Maker-Taker’’ model whereby it pays
rebates to members that add liquidity
and assesses fees to those that remove
liquidity. The Exchange’s Fee Schedule
sets forth the standard rebates and rates
applied per share for orders that provide
and remove liquidity, respectively.
Currently, for orders in securities priced
at or above $1.00, the Exchange
3 See Cboe Global Markets, U.S. Equities Market
Volume Summary, Month-to-Date (April 26, 2024),
available at https://www.cboe.com/us/equities/
market_statistics/.
73 17
VerDate Sep<11>2014
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.
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provides a standard rebate of $0.00160
per share for orders that add liquidity
and assesses a fee of $0.0030 per share
for orders that remove liquidity.4 For
orders in securities priced below $1.00,
the Exchange provides a standard rebate
of $0.00003 per share for orders that add
liquidity and assesses a fee of 0.30% of
the total dollar value for orders that
remove liquidity.5 Additionally, in
response to the competitive
environment, the Exchange also offers
tiered pricing which provides Members
opportunities to qualify for higher
rebates or reduced fees where certain
volume criteria and thresholds are met.
Tiered pricing provides an incremental
incentive for Members to strive for
higher tier levels, which provides
increasingly higher benefits or discounts
for satisfying increasingly more
stringent criteria.
Cross Asset Tier
Under footnote 1 of the Fee Schedule,
the Exchange currently offers various
Add/Remove Volume Tiers that provide
enhanced rebates for orders yielding fee
codes B,6 V,7 Y,8 3,9 and 4.10 In
particular, the Exchange offers a Cross
Asset Tier that is designed to
incentivize Members to achieve certain
levels of participation on both the
Exchange’s equities and options
platform (‘‘EDGX Options’’). Now, the
Exchange proposes to modify the
second prong of criteria associated with
the Cross Asset Tier. The current criteria
is as follows:
• The Cross Asset Tier provides a
rebate of $0.0029 per share for securities
priced above $1.00 for qualifying orders
(i.e., orders yielding fee codes B, V, Y,
3, or 4) where (1) Member has a Tape
B & C ADAV 11 ≥ 6,000,000; and (2)
Member has an Add ADV 12 on EDGX
Options ≥ 300,000 in SPY.
The proposed criteria is as follows:
4 See EDGX Equities Fee Schedule, Standard
Rates.
5 Id.
6 Fee code B is appended to orders that add
liquidity to EDGX in Tape B securities.
7 Fee code V is appended to orders that add
liquidity to EDGX in Tape A securities.
8 Fee code Y is appended to orders that add
liquidity to EDGX in Tape C securities.
9 Fee code 3 is appended to orders that add
liquidity to EDGX in Tape A or Tape C securities
during the pre and post market.
10 Fee code 4 is appended to orders that add
liquidity to EDGX in Tape B securities during the
pre and post market.
11 ADAV means average daily added volume
calculated as the number of shares added per day.
ADAV is calculated on a monthly basis.
12 ADV means average daily volume calculated as
the number of shares added to, removed from, or
routed by, the Exchange, or any combination or
subset thereof, per day. ADV is calculated on a
monthly basis.
E:\FR\FM\17MYN1.SGM
17MYN1
]]>Agencies
[Federal Register Volume 89, Number 97 (Friday, May 17, 2024)]
[Notices]
[Pages 43467-43482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-10820]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100109; File No. SR-PEARL-2024-22]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
Pearl Equities Exchange Fee Schedule To Establish Market Data Fees
May 13, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 30, 2024, MIAX PEARL, LLC (``MIAX Pearl'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the 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 Pearl Equities
Exchange Fee Schedule (the ``Fee Schedule'') to adopt fees for the
Exchange's proprietary market data feeds.\3\
---------------------------------------------------------------------------
\3\ All references to the ``Exchange'' in this filing refer to
MIAX Pearl Equities. Any references to the options trading facility
of MIAX PEARL, LLC will specifically be referred to as ``MIAX Pearl
Options.''
---------------------------------------------------------------------------
[[Page 43468]]
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings, at MIAX Pearl'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
MIAX Pearl Equities provided its proprietary market data for free
to subscribers for over three and half years since it commenced
operations in September 2020.\4\ Prior to the initial proposal to adopt
market data fees, the Exchange solely and entirely absorbed all costs
associated with compiling and disseminating its proprietary market
data. The Exchange offers two standard proprietary market data
products, the Top of Market (``ToM'') feed and the Depth of Market
(``DoM'') feed (collectively, the ``market data feeds''). Each of these
proprietary market data products are described in Exchange Rule 2625.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 90651 (December 11,
2020), 85 FR 81971 (December 17, 2020) (SR-PEARL-2020-33).
---------------------------------------------------------------------------
Exchange Rule 2625(a) provides that the DoM feed is a data feed
that contains the displayed price and size of each order in an equity
security entered in the System,\5\ as well as order execution
information, order cancellations, order modifications, order
identification numbers, and administrative messages. Exchange Rule
2625(b) provides that the ToM feed is a data feed that contains the
price and aggregate size of displayed top of book quotations, order
execution information, and administrative messages for equity
securities entered into the System. Section 3 of the Fee Schedule
entitled, Market Data Fees, specifically provides that fees for both
the ToM and DoM feeds are waived for the Waiver Period.\6\ As described
in more detail below, the Exchange proposes to remove this waiver
language and adopt fees for the ToM and DoM feeds to recoup its ongoing
costs going forward.\7\
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\5\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\6\ The term ``Waiver Period'' means, for each applicable fee,
the period of time from the initial effective date of the MIAX Pearl
Equities Fee Schedule until such time that MIAX Pearl has an
effective fee filing establishing the applicable fee. MIAX Pearl
Equities will issue a Regulatory Circular announcing the
establishment of an applicable fee that was subject to a Waiver
Period at least fifteen (15) days prior to the termination of the
Waiver Period and effective date of any such applicable fee. See the
Definitions section of the Fee Schedule.
\7\ The Exchange initially filed the proposed fee change on
March 26, 2024 for effectiveness on April 1, 2024. See Securities
Exchange Act Release No. 99907 (April 4, 2024), 89 FR 25293 (April
10, 2024) (SR-PEARL-2024-15) (the ``Initial Proposal''). The
Exchange withdrew SR-PEARL-2024-15 on April 30, 2024 and replaced it
with this filing. The Exchange notes this filing proposes a reduced
fee for Non-Display Usage by Trading Platforms for the ToM feed from
$2,500 per month in the Initial Proposal to $1,000 per month. The
reduced fee for Non-Display Usage by Trading Platforms will be
effective May 1, 2024. All other proposed fees remain the same from
the Initial Proposal. See Fee Change Alert--MIAX Pearl Equities
Exchange--May 1, 2024, available at https://www.miaxglobal.com/alert/2024/04/30/miax-pearl-equities-exchange-may-1-2024-fee-changes.
---------------------------------------------------------------------------
The Exchange notes that there is no requirement that any Equity
Member \8\ or market participant subscribe to the ToM or DoM feeds
offered by the Exchange. Instead, an Equity Member may choose to
maintain subscriptions to the ToM or DoM feeds based on their own
business needs and trading models. The proposed fees will not apply
differently based upon the size or type of firm, but rather based upon
the subscriptions that each firm elects to purchase.
---------------------------------------------------------------------------
\8\ The term ``Equity Member'' is a Member authorized by the
Exchange to transact business on MIAX Pearl Equities. See Exchange
Rule 1901.
---------------------------------------------------------------------------
The Exchange commenced operations in September 2020 and expressly
waived fees for both the ToM and DoM data feeds since that time to
incentivize market participants to subscribe and make the Exchange's
market data more widely available.\9\ In the three and a half years
since the Exchange launched operations, its market share has grown from
0% to approximately 2.0% for the month of March 2024.\10\ One of the
primary objectives of the Exchange is to provide competition and to
provide low cost options to the industry. Consistent with this
objective, the Exchange believes that this proposal reflects a simple,
competitive, reasonable, and equitable pricing structure.
---------------------------------------------------------------------------
\9\ See supra note 4.
\10\ See the ``Market Share'' section of the Exchange's website,
available at https://www.miaxglobal.com/.
---------------------------------------------------------------------------
The Exchange believes that exchanges, in setting fees of all types,
should meet very high standards of transparency to demonstrate why each
new fee or fee increase meets the requirements of the Act that fees be
reasonable, equitably allocated, not unfairly discriminatory, and not
create an undue burden on competition among Equity Members and markets.
The Exchange believes this high standard is especially important when
an exchange imposes various fees for market participants to access an
exchange's market data. The Exchange believes that it is important to
demonstrate that these fees are based on its costs and reasonable
business needs. Accordingly, the Exchange included a cost analysis
below in connection with the proposed market data fees and the costs
associated with compiling and providing the ToM and DoM feeds (``Cost
Analysis'').
The Exchange believes the proposed fees will allow the Exchange to
offset the expenses \11\ the Exchange has and will continue to incur
associated with compiling and disseminating the ToM and DoM feeds.
Further, the Exchange believes it provided sufficient transparency in
the Cost Analysis provided below, which provides a basis for how the
Exchange determined to charge such fees. The Exchange's proposal is
described below.
---------------------------------------------------------------------------
\11\ For the avoidance of doubt, all references to expense or
costs in this filing, including the cost categories discussed below,
refer to costs incurred by MIAX Pearl Equities only and not MIAX
Pearl Options, the options trading facility.
---------------------------------------------------------------------------
Definitions
The Exchange proposes to include a Definitions section at the
beginning of Section 3 of the Fee Schedule. The purpose of the
Definitions section is to provide market participants greater clarity
and transparency regarding the applicability of fees by defining
certain terms used in connection with market data feeds within the Fee
Schedule in a single location related to the Exchange's market data
products. The Exchange notes that other equities exchanges include
similar Definitions in their respective fee schedules,\12\ and that
each of the Exchange's proposed definitions are based on those
exchanges. The
[[Page 43469]]
Exchange believes that including a Definitions section for market data
products makes the Fee Schedule more user-friendly and comprehensive.
---------------------------------------------------------------------------
\12\ See the market data sections of the fee schedules for the
Cboe BZX Exchange, Inc. (``Cboe BZX''); Cboe BYX Exchange, Inc.
(``Cboe BYX''); Cboe EDGA Exchange, Inc. (``Cboe EDGA''); and Cboe
EDGX Exchange, Inc. (``Cboe EDGX''). See also the market data
definition section of the MEMX LLC's (``MEMX'') fee schedule; and
Securities Exchange Act Release No. 97130 (March 13, 2023), 88 FR
16491 (March 17, 2023) (SR-MEMX-2023-04) (``MEMX Market Data Fee
Proposal'').
---------------------------------------------------------------------------
The Exchange proposes to define the following terms in Section 3 of
the Fee Schedule:
Distributor. Any entity that receives the Exchange data
product directly from the Exchange or indirectly through another entity
and then distributes it internally or externally to a third party.
External Distributor. A Distributor that receives the
Exchange data product and then distributes that data to a third party
or one or more Users outside the Distributor's own entity.
Internal Distributor. A Distributor that receives the
Exchange data product and then distributes that data to one or more
Users within the Distributor's own entity.
[cir] The Exchange notes that it proposes to use the phrase ``own
entity'' in the definition of Internal Distributor and External
Distributor because a Distributor would be permitted to share data
received from an exchange data product to other legal entities
affiliated with the Distributor's entity that have been disclosed to
the Exchange without such distribution being considered external to a
third party. For instance, if a company has multiple affiliated broker-
dealers under the same holding company, that company could have one of
the broker-dealers or a non-broker-dealer affiliate subscribe to an
exchange data product and then share the data with other affiliates
that have a need for the data. This sharing with affiliates would not
be considered external distribution to a third party but instead would
be considered internal distribution to data recipients within the
Distributor's own entity.
Non-Display Usage. Any method of accessing an Exchange
data product that involves access or use by a machine or automated
device without access or use of a display by a natural person or
persons.
Non-Professional User. A natural person or qualifying
trust that uses Exchange data only for personal purposes and not for
any commercial purpose and, for a natural person who works in the
United States, is not: (i) registered or qualified in any capacity with
the Securities and Exchange Commission, the Commodities Futures Trading
Commission, any state securities agency, any securities exchange or
association, or any commodities or futures contract market or
association; (ii) engaged as an ``investment adviser'' as that term is
defined in Section 202(a)(11) of the Investment Advisors Act of 1940
(whether or not registered or qualified under that Act); or (iii)
employed by a bank or other organization exempt from registration under
federal or state securities laws to perform functions that would
require registration or qualification if such functions were performed
for an organization not so exempt; or, for a natural person who works
outside of the United States, does not perform the same functions as
would disqualify such person as a Non-Professional User if he or she
worked in the United States.
Professional User. Any User other than a Non-Professional
User.
Trading Platform. Any execution platform operated as or by
a registered National Securities Exchange (as defined in Section
3(a)(1) of the Exchange Act), an Alternative Trading System (as defined
in Rule 300(a) of Regulation ATS), or an Electronic Communications
Network (as defined in Rule 600(b)(23) of Regulation NMS).
User. A Professional User or Non-Professional User.
Proposed Market Data Pricing
As described above, the ToM feed is a data feed that contains the
price and aggregate size of displayed top of book quotations, order
execution information, and administrative messages for equity
securities entered into the System. The DoM feed is a data feed that
contains the displayed price and size of each order in an equity
security entered in the System, as well as order execution information,
order cancellations, order modifications, order identification numbers,
and administrative messages. The Exchange proposes to charge the below
fees for the ToM and DoM data feeds, which, the Exchange believes are
generally similar to or lower than market data fees charged by other
similarly situated equities exchanges. Each of the below capitalized
terms are defined above and would be included under the proposed
Definitions section under Section 3, Market Data Fees, of the Fee
Schedule.
1. Internal Distributor Fee. The Exchange proposes to charge
Internal Distributors a monthly fee of $1,000.00 for the ToM feed and
$2,000.00 for the DoM feed. The proposed Internal Distributor fees
would only be charged once per month per Distributor.
2. External Distributor Fee. The Exchange proposes to charge
External Distributors a monthly fee of $2,000.00 for the ToM feed and
$2,500.00 for the DoM feed. The proposed External Distributor fees
would only be charged once per month per Distributor.
3. User Fees. For the ToM feed, the Exchange proposes to charge a
monthly fee of $2.00 for each Professional User and $0.10 for each Non-
Professional User. For the DoM feed, the Exchange proposes to charge a
monthly fee of $30.00 for each Professional User and $3.00 for each
Non-Professional User. The proposed User fees would apply to each
person that has access to the ToM or DoM feed that is provided by a
Distributor (either Internal or External) for displayed usage. Each
Distributor's User count would include every individual that accesses
the data regardless of the purpose for which the individual uses the
data. Distributors of the ToM or DoM feed would be required to report
all Professional and Non-Professional Users in accordance with the
following:
In connection with a Distributor's distribution of the ToM
or DoM feed, the Distributor must count as one User each unique User
that the Distributor has entitled to have access to the ToM or DoM
feed.
Distributors must report each unique individual person who
receives access through multiple devices or multiple methods (e.g., a
single User has multiple passwords and user identifications) as one
User.
If a Distributor entitles one or more individuals to use
the same device, the Distributor must include only the individuals, and
not the device, in the count. Thus, Distributors would not be required
to report User device counts associated with a User's display use of
the data feed.
4. Enterprise Fee. As an alternative to User fees, Distributors may
purchase a monthly Enterprise license to receive ToM or DoM feeds for
distribution to an unlimited number of Professional and Non-
Professional Users. This provision would be codified under footnote
``a'' under the description of each the ToM and DoM feed in the Fee
Schedule. The Exchange proposes to establish a monthly Enterprise fee
of $15,000.00 for ToM and $25,000.00 for the DoM feed.
5. Non-Display Usage Fees. For both the ToM and DoM feeds, the
Exchange proposes to establish separate Non-Display Usage fees for
usage by Trading Platforms and other Users (i.e., not by Trading
Platforms).
Non-Display Usage. For Non-Display Usage, the Exchange
proposes to establish a monthly fee of $1,000.00 for the ToM feed and
$2,500.00 for the DoM feed.\13\
---------------------------------------------------------------------------
\13\ Non-Display Usage would include trading uses such as high
frequency or algorithmic trading as well as any trading in any asset
class, automated order or quote generation and/or order pegging,
price referencing for smart order routing, operations control
programs, investment analysis, order verification, surveillance
programs, risk management, compliance, and portfolio management.
---------------------------------------------------------------------------
[[Page 43470]]
Distributors of Non-Display Usage for both the ToM and DoM
feed will only be subject to the Non-Display Usage fee for the DoM
feed. In other words, such Distributors would receive both the ToM and
DoM feeds but only be charged the Non-Display Usage fee of $2,500.00
for the DoM feed. This provision would be codified under footnote ``b''
under the description of each the ToM and DoM feed in the Fee Schedule.
Non-Display Usage by Trading Platforms. For Non-Display
Usage by Trading Platforms, the Exchange proposes to establish a
monthly fee of $1,000.00 for the ToM feed and $2,500.00 for the DoM
feed. The Non-Displayed Usage by Trading Platform fee would only be
charged per Distributor that uses the data within a Trading Platform.
Distributors of Non-Display Usage by Trading Platforms for
both the ToM and DoM feed will only be subject to the Non-Display Usage
by Trading Platforms fee for the DoM feed. In other words, such
Distributors would receive both the ToM and DoM feeds but only be
charged the Non-Display Usage by Trading Platforms fee of $2,500.00 for
the DoM feed. This provision would be codified under footnote ``c''
under the description of each the ToM and DoM feed in the Fee Schedule.
The fee would also represent the maximum charge per
Distributor regardless of the number of Trading Platforms operated by
the Distributor that receives the data for Non-Display Usage. This
provision would be codified under footnote ``d'' under the description
of each the ToM and DoM feed in the Fee Schedule.
Miscellaneous. The proposed fees for Non-Display Usage
would only be charged once per category per Distributor. In other
words, with respect to Non-Display Usage Fees, a Distributor that uses
the ToM feed for: (i) non-display purposes but not to operate a Trading
Platform would pay $1,000.00 per month; (ii) a Distributor that uses
the ToM feed in connection with the operation of one or more Trading
Platforms (but not for other purposes) would pay $2,500.00 per month;
and (iii) a Distributor that uses the ToM feed for non-display purposes
other than operating a Trading Platform and for the operation of one or
more Trading Platforms would pay $3,500.00 per month.
Implementation
The Exchange issued alerts publicly announcing the proposed fees on
January 31, 2024 and March 15, 2024.\14\ The Exchange issued a
Regulatory Circular on March 15, 2024 announcing the establishment of
the proposed market data fees to satisfy the required fifteen (15) day
notice period, as described in the Definitions Section of the Fee
Schedule for termination of the Waiver Period.\15\
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\14\ See Fee Change Alert, MIAX Pearl Equities Exchange--April
1, 2024 Market Data Fee Changes, available at https://www.miaxglobal.com/alert/2024/01/31/miax-pearl-equities-exchange-april-1-2024-market-data-fee-changes; see also Fee Change Alert,
MIAX Pearl Equities Exchange--Update: April 1, 2024 Market Data Fee
Changes, available at https://www.miaxglobal.com/alert/2024/03/15/miax-pearl-equities-exchange-update-april-1-2024-market-data-fee-changes.
\15\ See MIAX Pearl Equities Regulatory Circular 2024-06,
Termination of Waiver Period for Market Data Fees and Establishment
of Fee Amounts, dated March 15, 2024, available at
Pearl_Equities_RC_2024_06.pdf (miaxglobal.com).
---------------------------------------------------------------------------
The proposed reduced monthly fee for ToM for Non-Display Usage by
Trading Platform will be effective beginning May 1, 2024. The remaining
fees subject to this proposal are immediately effective.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) \16\ of the Act in general, and
furthers the objectives of Section 6(b)(4) \17\ 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 Equity
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) \18\ 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.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f.
\17\ 15 U.S.C. 78f(b)(4).
\18\ 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'').\19\ 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.\20\ 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.
---------------------------------------------------------------------------
\19\ 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.
\20\ Id.
---------------------------------------------------------------------------
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 Equity Members--both generally and in relation to other
Equity Members--to ensure the fees will not create a financial burden
on any participant and
[[Page 43471]]
will not have an undue impact in particular on smaller Equity Members
and competition among Equity 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,\21\ and Rule 19b-4
thereunder,\22\ with respect to the types of information SROs should
provide when filing fee changes, and Section 6(b) of the Act,\23\ which
requires, among other things, that exchange fees be reasonable and
equitably allocated,\24\ not designed to permit unfair
discrimination,\25\ and that they not impose a burden on competition
not necessary or appropriate in furtherance of the purposes of the
Act.\26\ This proposal addresses those requirements, and the analysis
and data in this section are designed to clearly and comprehensively
show how they are met.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78s(b)(1).
\22\ 17 CFR 240.19b-4.
\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(4).
\25\ 15 U.S.C. 78f(b)(5).
\26\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
In 2020, the Exchange completed a study of its aggregate costs to
produce market data and connectivity, defined above as its Cost
Analysis.\27\ The Cost Analysis required a detailed analysis of the
Exchange's aggregate baseline costs, including a determination and
allocation of costs for core services provided by the Exchange--
transaction execution, market data, membership services, physical
connectivity, and port access (which provide order entry, cancellation
and modification functionality, risk functionality, the ability to
receive drop copies, and other functionality). The Exchange separately
divided its costs between those costs necessary to deliver each of
these core services, including infrastructure, software, human
resources (i.e., personnel), and certain general and administrative
expenses (``cost drivers'').
---------------------------------------------------------------------------
\27\ 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 \28\ 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,\29\ storage needs,
dedicated infrastructure versus shared infrastructure allocated per
platform based on the resources required to support each platform,
number of available connections, and employees allocated time. All of
these factors result in different allocation percentages among the
Exchange and its affiliated markets, i.e., the different percentages of
the overall cost driver allocated to the Exchange and its affiliated
markets will cause the dollar amount of the overall cost allocated
among the Exchange and its affiliated markets to also differ. Because
the Exchange's parent company currently owns and operates four separate
and distinct marketplaces, the Exchange must determine the costs
associated with each actual market--as opposed to the Exchange's parent
company simply concluding that all costs drivers are the same at each
individual marketplace and dividing total cost by four (4) (evenly for
each marketplace). Rather, the Exchange's parent company determines an
accurate cost for each marketplace, which results in different
allocations and amounts across exchanges for the same cost drivers, due
to the unique factors of each marketplace as described above. This
allocation methodology also ensures that no cost would be allocated
twice or double-counted between the Exchange and its affiliated
markets. MIAX PEARL, LLC further confirms that there is no double
counting of expenses between the options and equities platform of MIAX
PEARL, LLC. 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.
---------------------------------------------------------------------------
\28\ The affiliated markets include Miami International
Securities Exchange, LLC (``MIAX''); separately, the options and
equities markets of MIAX Pearl; and MIAX Emerald, LLC (``MIAX
Emerald'').
\29\ 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, 60.1% of the
data center total expense amount is allocated to 10Gb ULL
connectivity), with smaller allocations to ToM and DoM (2.0% combined),
and the remainder to the provision of other connectivity, ports,
transaction execution, and membership services (37.9%). 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.\30\ 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.
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\30\ The Exchange only offers two market data feeds, ToM and
DoM. Therefore each cost allocation described below applies to
market data generally since they are the only two data feeds the
Exchange offers and are the subject of this proposal.
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[[Page 43472]]
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
Equity Members and parties that they sponsor to participate directly on
the Exchange may submit orders to the Exchange; many Equity 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 market data feeds, and, if
such expense did so relate, what portion (or percentage) of such
expense actually supports the provision of market data feeds, and thus
bears a relationship that is, ``in nature and closeness,'' directly
related to market 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 the market data feeds is $150,031
(the Exchange divided the annual cost for each market data feed by 12
months, then added both numbers together), as further detailed below.
Costs Related to Offering the Market Data Feeds
The following chart details the individual line-item (annual) costs
considered by the Exchange to be related to offering the market data
feeds to its Equity 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 8.9% of its overall Human Resources cost to offering the
market data feeds).
----------------------------------------------------------------------------------------------------------------
Allocated annual Allocted monthly
Cost drivers cost \a\ cost \b\ % of all
----------------------------------------------------------------------------------------------------------------
Human Resources........................................ $1,577,592 $131,466 8.9
Connectivity (external fees, cabling, switches, etc.).. 933 78 2.0
Internet Services and External Market Data............. 0.00 0.00 0.0
Data Center............................................ 42,717 3,560 2.0
Hardware and Software Maintenance & Licenses........... 25,921 2,160 2.0
Depreciation........................................... 25,542 2,129 0.5
Allocated Shared Expenses.............................. 127,655 10,638 2.0
--------------------------------------------------------
Total.............................................. 1,800,360 150,031 5.1
----------------------------------------------------------------------------------------------------------------
\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 the market data
feeds. 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 markets, MIAX and MIAX Emerald, in their recent
proposed fee changes for options market data.\31\ 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, including that the Exchange, MIAX Pearl
Options, and its affiliates trade different asset classes.
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\31\ See Securities Exchange Act Release Nos. 99736 (March 14,
2024), 89 FR 19929 (March 20, 2024) (SR-MIAX-2024-13) and 99737
(March 14, 2024), 89 FR 19915 (March 20, 2024) (SR-EMERALD-2024-09).
See also SR-MIAX-2024-25 (filed April 23, 2024) and SR-EMERALD-2024-
15 (filed April 18, 2024). For example, the overall portion of Human
Resource costs allocated in this proposal is higher than the recent
market data proposals filed by MIAX and MIAX Emerald due to their
ability to leverage the same employees for options market data
because they trade the same asset class, options. The Exchange is
unable to do the same because it trades a different asset class,
equities, which requires dedicated employees and systems.
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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
[[Page 43473]]
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 market data feeds and performance thereof
(primarily the Exchange's network infrastructure team, which spends a
portion of their time performing functions necessary to provide market
data). As described more fully above, the Exchange's parent company
allocates costs to the Exchange and its affiliated markets and then a
portion of the Human Resources costs allocated to the Exchange is then
allocated to market data. From that portion allocated to the Exchange
that applied to market data, the Exchange then allocated a weighted
average of 9.1% of each employee's time from the above group to market
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 the
market data feeds 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 market data (a weighted average
of 8.8%, 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 the market data
feeds, 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 the market 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 a weighted average of 9.1% of each of their employee's time
assigned to the Exchange for the market data feeds, as stated above.
Employees from these departments perform numerous functions to support
the market data feeds, such as the configuration and maintenance of the
hardware necessary to support the market 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 market data feeds and design, and
support the development and on-going maintenance of internally-
developed applications as well as data capture and analysis, and Equity
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 market,
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 market data feeds 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.)
The Connectivity cost driver includes cabling and switches required
to generate and disseminate the market data feeds and operate the
Exchange. The Connectivity cost driver is more narrowly focused on
technology used to complete Equity Member subscriptions to the market
data feeds and the servers used at the Exchange's primary and back-up
data centers specifically for the market data feeds. Further, as
certain servers are only partially utilized to generate and disseminate
the market data feeds, only the percentage of such servers devoted to
generating and disseminating the market data feeds was included (i.e.,
the capacity of such servers allocated to the market data feeds).\32\
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\32\ 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 market data feeds.
Data Center
Data Center costs includes an allocation of the costs the Exchange
incurs to provide the market data feeds 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 2.0% to the applicable Data Center costs for the market data
feeds. The Exchange believes it is reasonable to apply the same
proportionate percentage of Data
[[Page 43474]]
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 market data feeds.\33\ Because the hardware and
software license fees are correlated to the servers used by the
Exchange, the Exchange again applied an allocation of 2.0% of its costs
for Hardware and Software Maintenance and Licenses to the market data
feeds. The Exchange notes that this allocation may differ from its
affiliates because MIAX Pearl Equities maintains software licenses that
are unique to its trading platform and used only for the trading of
equity securities. The cost for these licenses cannot be shared with
MIAX Pearl Equities' affiliated options markets because each of those
platforms trade only options, not equities. MIAX Pearl Equities'
affiliates are able to share the cost of many of their software
licenses among the multiple options platforms (thus lowering the cost
to each individual options platform), whereas MIAX Pearl Equities
cannot share such cost and, therefore, bears the entire cost.
---------------------------------------------------------------------------
\33\ This expense may differ from the Exchange's affiliated
markets. 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 the
market data feeds, 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 market 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 the
market data feeds in the near-term. As with the other allocated costs
in the Exchange's updated Cost Analysis, the Depreciation cost was
therefore narrowly tailored to depreciation related to the market data
feeds. As noted above, the Exchange allocated 0.5% of its allocated
depreciation costs to providing the market data feeds.
This allocation is also based on MIAX Pearl Equities being a newer
market and having newer physical assets and software subject to
depreciation than its affiliate options exchanges. The Exchange's
affiliate options exchanges are older markets that have more software
and equipment that have been fully depreciated when compared to the
newer software and hardware currently being depreciated by MIAX Pearl
Equities at higher rates.
Allocated Shared Expenses
Finally, as with other exchange products and services, a portion of
general shared expenses was allocated to the provision of the market
data feeds. These general shared costs are integral to exchange
operations, including its ability to provide the market data feeds.
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.\34\
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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\34\ 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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The Exchange employed a process to determine a reasonable
percentage to allocate general shared expenses to the market data feeds
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., the market data feeds as sub-
categories of market data. In determining the percentage of general
shared expenses allocated to market data that ultimately apply to the
market data feeds, 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 the market data feeds. 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 the
market data feeds.
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 2.0% of the portion
allocated to market data. The Exchange believes this allocation
percentage is reasonable because, while the overall dollar amount may
be higher than other cost drivers, the 2.0% is based on and in line
with the percentage allocations of each of the Exchange's other cost
drivers. The percentage allocated to the market data feeds 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 the market data feeds are main contributors.
* * * * *
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
[[Page 43475]]
applicable cost drivers across its core services and used the same Cost
Analysis to form the basis of this proposal and the filings the
Exchange recently submitted proposing fees for certain connectivity and
ports offered by the Exchange. For instance, in calculating the Human
Resources expenses to be allocated to market data based upon the above
described methodology, the Exchange has a team of employees dedicated
to network infrastructure and with respect to such employees the
Exchange allocated network infrastructure personnel with a high
percentage of the cost of such personnel (9.1%) given their focus on
functions necessary to provide market data and the remaining 90.9% was
allocated to 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 8.8% for the market
data feeds of the cost associated with certain specified personnel who
work closely with and support network infrastructure personnel.
In total, the Exchange allocated 8.9% of its personnel costs (Human
Resources) to providing the market data feeds. In turn, the Exchange
allocated the remaining 91.1% of its Human Resources expense to
membership services, transaction services, connectivity services, and
port services. 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 the market data feeds to its Equity Members and their
customers. However, the Exchange did not allocate all of the
depreciation and amortization expense toward the cost of providing the
market data feeds, but instead allocated approximately 0.5% of the
Exchange's overall depreciation and amortization expense to the market
data feeds combined. The Exchange allocated the remaining depreciation
and amortization expense (99.5%) toward the cost of providing
transaction services, membership services, connectivity services, and
port services.
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 the market data feeds, the Exchange will have to
be successful in retaining existing clients that wish to maintain
subscriptions to those market data feeds or in obtaining new clients
that will purchase such services. Similarly, the Exchange will have to
be successful in retaining a positive net capture on transaction fees
in order to realize the anticipated revenue from transaction pricing.
The Exchange notes that the Cost Analysis is based on the
Exchange's 2024 fiscal year of operations and projections. It is
possible, however, that actual costs may be higher or lower. To the
extent the Exchange sees growth in use of market data services it will
receive additional revenue to offset future cost increases. However, if
use of market data services is static or decreases, the Exchange might
not realize the revenue that it anticipates or needs in order to cover
applicable costs. Accordingly, the Exchange is committing to conduct a
one-year review after implementation of these fees. The Exchange
expects that it may propose to adjust fees at that time, to increase
fees in the event that revenues fail to cover costs and a reasonable
mark-up of such costs. Similarly, the Exchange may propose to decrease
fees in the event that revenue materially exceeds our current
projections. In addition, the Exchange will periodically conduct a
review to inform its decision making on whether a fee change is
appropriate (e.g., to monitor for costs increasing/decreasing or
Distributors or Users 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 \35\
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\35\ To estimate the potential number of Distributors and their
anticipated use after the proposed fees are implemented, the
Exchange surveyed and reviewed its current Distributor base,
considered the number of current potential Distributors who may
unsubscribe due to the proposed fees being implemented, and sought
informal feedback from Equity Members and other Distributors.
---------------------------------------------------------------------------
The proposed fees will allow the Exchange to cover certain costs
incurred by the Exchange associated with creating, generating, and
disseminating the market 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 Distributors and Users. Distributors, particularly
those of the market data feeds, 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
the market data feeds will equal $1,800,360. Based on the projected
number of Distributors and Users, the Exchange would generate annual
revenue of approximately $1,962,000 for the market data feeds. The
Exchange believes this represents a modest profit of 8.2% when compared
to the cost of providing the market data feeds, which the Exchange
believes is fair and reasonable after taking into account the costs
related to creating, generating, and disseminating the market data
feeds and the fact that the Exchange will need to fund future
expenditures (increased costs, improvements, etc.). To determine the
[[Page 43476]]
projected number of Distributors and Users, the Exchange reviewed its
Distributor population from February 2024, the month preceding when the
Exchange filed its proposal to implement fees for the market data
products, and assumed a 5% attrition rate. The 5% attrition rate was
based on surveying the current Distributor population when socializing
the proposed fee structure with market participants. The Exchange also
reviewed Distributor disclosures submitted to the Exchange to see how
Distributors were using the market data, e.g., for a Trading Platform,
internal distribution, firm size, etc., and to which fee(s) they may be
subject to under the proposed structure.
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 the market data feeds versus the total
projected revenue also associated with those market data feeds.
The Exchange did not charge any fees for the market data feeds
since its inception in September 2020 and its allocation of costs to
the market data feeds 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 SRO, in their recent non-transaction fee filings
allocate the entire amount of that same cost to a single SRO. This can
result in lower profit margins for the non-transaction fees proposed by
IEX and MEMX because the single allocated cost does not experience the
efficiencies and synergies that result from sharing costs across
multiple platforms.\36\ 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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\36\ 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 its recent filing to adopt market
data fees. See Securities Exchange Act Release No. 97130 (March 13,
2023), 88 FR 16491 (March 17, 2023) (SR-MEMX-2023-04).
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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.
The Proposed Fees Are Reasonable and Comparable to the Fees Charged By
Other Exchanges for Similar Data Products
Overall. Among other things, the Exchange 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 market 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 the market data feeds with a reasonable mark-up. As
discussed above, the Exchange estimates this fee filing will result in
annual revenue of approximately $1,980,000, representing a potential
mark-up of just 9.1% over the cost of providing market data feeds.
Accordingly, the Exchange believes that this fee methodology is
reasonable because it allows the Exchange to recoup all of its expenses
for providing the market data feeds (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 similar to or less than the fees
charged by competing equities 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 also believes the proposed fees are reasonable when
compared to fees charged for comparable products by other exchanges,
including comparable data feeds priced significantly higher than the
Exchange's proposed fees. Overall, the Exchange's proposed fees are
generally lower or similar to fees charged by other exchanges.\37\ For
this
[[Page 43477]]
reason, the Exchange believes that the proposed fees are consistent
with the Act generally, and Section 6(b)(5) \38\ of the Act in
particular. The Exchange believes that denying it the ability to adopt
the proposed fees that would allow the Exchange to recoup its costs
with a reasonable margin in a manner that is closer to parity with
other exchanges, in effect, impedes its ability to compete, including
in its pricing of transaction fees and ability to invest in competitive
infrastructure and other offerings.
---------------------------------------------------------------------------
\37\ See MEMX Fee Schedule, available at, https://info.memxtrading.com/membership-fees/ (``MEMX Fee Schedule''); Cboe
BYX Fee Schedule, available at, https://www.cboe.com/us/equities/membership/fee_schedule/byx/; Cboe BZX Fee Schedule, available at,
https://www.cboe.com/us/equities/membership/fee_schedule/bzx/; Cboe
EDGA Fee Schedule, available at, https://www.cboe.com/us/equities/membership/fee_schedule/edga/; and Cboe EDGX Fee Schedule, available
at, https://www.cboe.com/us/equities/membership/fee_schedule/edgx/.
\38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Internal Distribution Fees. The Exchange believes that it is
reasonable to charge fees to access the market data feeds for Internal
Distribution because of the value of such data to Distributors in their
profit-generating activities. The Exchange also believes that the
proposed monthly Internal Distribution fees are reasonable because they
are similar to the amount charged by other exchanges for comparable
data products. Specifically, the Exchange proposes to charge a monthly
fee of $1,000.00 to Internal Distributors for the ToM feed and
$2,000.00 for the DoM feed, both of which include last sale
information. MEMX, Cboe BZX, and Cboe EDGX each charge Internal
Distributors a monthly fee of $750.00 per month for their top-of-book
products and $1,500.00 for their depth-of-book products, and charges
separately for last sale information.\39\ The Exchange notes that while
its proposed fee for Internal Distributors may be slightly higher than
these other exchanges, its other proposed fees are either equal to or
significantly lower than other exchanges, as discussed below.
---------------------------------------------------------------------------
\39\ See MEMX Fee Schedule, supra note 37.
---------------------------------------------------------------------------
External Distribution Fees. The Exchange believes that it is
reasonable to charge External Distribution fees for the market data
feeds because vendors receive value from redistributing the data in
their business products provided to their customers. The Exchange
believes that charging External Distribution fees is reasonable because
the vendors that would be charged such fees profit by re-transmitting
the Exchange's market data to their customers. These fees would be
charged only once per month to each vendor account that redistributes
any of the market data feeds, regardless of the number of customers to
which that vendor redistributes the data.
The Exchange also believes that the proposed monthly External
Distribution fees are reasonable because they are equal to or lower
than the amount charged by other exchanges for comparable data
products. Specifically, the Exchange proposes to charge a monthly fee
of $2,000.00 to External Distributor for the ToM feed and $2,500.00 for
the DoM feed. The Exchange's proposed External Distribution fee for ToM
is equal to or lower than the fees charged by MEMX, Cboe BZX, and Cboe
EDGX to External Distributors of their depth-of-book products, who each
charge $2,000.00, $2,500.00, and $2,250.00, respectively.\40\
Meanwhile, the Exchange's proposed External Distribution fee for DoM is
equal to the fees charged by MEMX, Cboe BYX, Cboe EDGA, and Cboe EDGX
to External Distributors of their depth-of-book products.\41\
Meanwhile, the Exchange's proposed External Distribution fee for DoM is
lower than the $5,000.00 fee charged by Cboe BZX to External
Distributors of its depth-of-book product.\42\
---------------------------------------------------------------------------
\40\ See MEMX Fee Schedule, Cboe BZX Fee Schedule, and Cboe EDGX
Fee Schedule, supra note 43.
\41\ See MEMX Fee Schedule, Cboe BYX Fee Schedule, Cboe EDGA Fee
Schedule, and Cboe EDGX Fee Schedule, id.
\42\ See Cboe BZX Fee Schedule, id.
---------------------------------------------------------------------------
User Fees. The Exchange believes that having separate Professional
and Non-Professional User fees for the market data feeds is reasonable
because it will make the product more affordable and result in greater
availability to Professional and Non-Professional Users. Setting a
modest Non-Professional User fee is reasonable because it provides an
additional method for Non-Professional Users to access the market data
feeds by providing the same data that is available to Professional
Users. The proposed monthly Professional User and Non-Professional User
fees are reasonable because they equal to or are lower than the fees
charged by other exchanges for comparable data products. For example,
the Exchange's proposed Professional User fees of $2.00 for ToM and
$30.00 for DoM is lower than the same fee charged by Cboe BZX and Cboe
EDGX, who each charge $4.00 for their top-of-book products and $40.00
for their depth-of-book products.\43\ The Exchange's proposed Non-
Professional User fees of $0.10 for ToM is equal to the same fee
charged by Cboe BZX and Cboe EDGX.\44\
---------------------------------------------------------------------------
\43\ See Cboe BZX Fee Schedule and Cboe EDGX Fee Schedule, id.
\44\ Id.
---------------------------------------------------------------------------
Meanwhile, the Exchange's proposed Non-Professional User fees of
$3.00 for DoM is equal to the same fee charged by MEMX and lower than
the same fee charged by Cboe BZX and Cboe EDGX, who each charge $5.00
for their depth-of-book products.\45\
---------------------------------------------------------------------------
\45\ See MEMX Fee Schedule, Cboe BZX Fee Schedule, and Cboe EDGX
Fee Schedule, supra note 43.
---------------------------------------------------------------------------
The Exchange also believes that the proposal to require reporting
of individual Users, but not devices, is reasonable as this too will
eliminate unnecessary audit risk that can arise when recipients are
required to apply complex counting rules such as whether or not to
count devices or whether an individual accessing the same data through
multiple devices should be counted once or multiple times.
The Exchange also believes it is reasonable to adopt an Enterprise
Fee because this would allow a market participant to disseminate such
data feeds to an unlimited number of Users without the necessity of
counting such Users. As this is an optional subscription, a data
recipient is able to determine whether it prefers to count Users and
report such Users to the Exchange or not, and also whether it is more
economically advantageous to count and pay for specific Users or to
subscribe to the Enterprise Fee. The Exchange also notes that only a
market participant with a substantial number of Users would likely
choose to subscribe for and pay the Enterprise Fee.
The proposed monthly Enterprise fees are reasonable because they
equal to or are lower than the fees charged by other exchanges for
comparable data products. For example, the Exchange's proposed
Enterprise fee of $15,000.00 per month for ToM equals the same fee
charged by Cboe BZX and Cboe EDGX.\46\ However, the Exchange's proposed
Enterprise fee of $25,000.00 per month for DoM is much lower than the
same fee charged by Cboe BZX and Cboe EDGX, who each charge $100,000.00
per month.\47\
---------------------------------------------------------------------------
\46\ See Cboe BZX Fee Schedule and Cboe EDGX Fee Schedule, id.
\47\ Id.
---------------------------------------------------------------------------
Non-Display Use Fees. The Exchange believes the proposed Non-
Display Usage fees are reasonable because they reflect the value of the
data to the data recipients in their profit-generating activities and
do not impose the burden of counting non-display devices.
The Exchange believes that the proposed Non-Display Usage fees
reflect the significant value of the non-display data use to data
recipients, whom purchase such data on a voluntary basis. Non-display
data can be used by data recipients for a wide variety of profit-
generating purposes, including
[[Page 43478]]
proprietary and agency trading and smart order routing, as well as by
data recipients that operate Trading Platforms that compete directly
with the Exchange for order flow. The data also can be used for a
variety of non-trading purposes that indirectly support trading, such
as risk management and compliance. Although some of these non-trading
uses do not directly generate revenues, they can nonetheless
substantially reduce a recipient's costs by automating such functions
so that they can be carried out in a more efficient and accurate manner
and reduce
s and labor costs, thereby benefiting recipients. The Exchange
believes that charging for non-trading uses is reasonable because data
recipients can derive substantial value from such uses, for example, by
automating tasks so that can be performed more quickly and accurately
and less expensively than if they were performed manually.
Previously, the non-display use data pricing policies of many
exchanges required customers to count, and the exchanges to audit the
count of, the number of non-display devices used by a customer. As non-
display use grew more prevalent and varied, however, exchanges received
an increasing number of complaints about the impracticality and
administrative burden associated with that approach. In response,
several exchanges developed a non-display use pricing structure that
does not require non-display devices to be counted or those counts to
be audited, and instead categorizes different types of use. The
Exchange proposes to distinguish between non-display use for the
operation of a Trading Platform and other non-display use, which is
similar to exchanges such as MEMX, BZX, and EDGX,\48\ while other
exchanges maintain additional categories and in many cases charge
multiple times for different types of non-display use or the operation
of multiple Trading Platforms.\49\
---------------------------------------------------------------------------
\48\ See Cboe BZX Fee Schedule and Cboe EDGX Fee Schedule, id.
\49\ See NYSE Proprietary Market Data Pricing Guide, dated May
4, 2022, available at https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf, and the Nasdaq Global Data Products
pricing list, available at https://nasdaqtrader.com/Trader.aspx?id=DPUSdata.
---------------------------------------------------------------------------
The Exchange believes that it is reasonable to segment the fee for
non-display use into these two categories. As noted above, the uses to
which customers can put the market data feeds are numerous and varied,
and the Exchange believes that charging separate fees for these
separate categories of use is reasonable because it reflects the actual
value the customer derives from the data, based upon how the customer
makes use of the data.
The Exchange believes that the proposed fees for Non-Display Usage
for ToM are reasonable because the Exchange's proposed fee of $1,000.00
per month is less than the amounts charged by several other exchanges
for comparable data products.\50\ The Exchange also believes that the
proposed fees for Non-Display Usage for DoM are reasonable because the
Exchange's proposed fee of $2,500.00 per month for DoM equals the same
fee charged by MEMX for its depth-of-book product.\51\ The proposed
fees are also significantly less than the amounts charged by several
other exchanges for comparable data products.\52\ In fact, the
Exchange's proposed fees for Non-Display Usage fee may be even lower
because the Exchange would allow Distributors to the DoM feed to also
receive the ToM feed for no additional charge. The Exchange believes
that the proposed fees directly and appropriately reflect the
significant value of using data on a non-display basis in a wide range
of computer-automated functions relating to both trading and non-
trading activities and that the number and range of these functions
continue to grow through innovation and technology developments.
Further, the Exchange benefits from other non-display use by market
participants (including the fact that the Exchange receives orders
resulting from algorithms and routers) and both the Exchange and other
participants benefit from other non-display use by market participants
when such use is to support more broadly beneficial functions such as
risk management and compliance.
---------------------------------------------------------------------------
\50\ Id.
\51\ See MEMX Fee Schedule, supra note 37.
\52\ See supra note 49.
---------------------------------------------------------------------------
The Exchange believes that the proposed fees for Non-Display Usage
for ToM are reasonable because the Exchange's proposed fee of $2,500.00
per month is less than the amounts charged by several other exchanges
for comparable data products,\53\ which also charge per Trading
Platform operated by a data Distributor subject to a cap in most cases,
rather than charging per Distributor, as proposed by the Exchange.\54\
The Exchange also believes that it is reasonable to charge the proposed
fees for non-display use for operation of a Trading Platform of the DoM
feed because its proposed fee of $2,500.00 per month equals the same
fee charged by MEMX for its depth-of-book product.\55\ The proposed
fees are also significantly less than the amounts charged by Cboe BZX
and Cboe EDGA, who each charge $5,000.00 per month, for comparable data
products.\56\ In fact, the Exchange's proposed fees for Non-Display
Usage fee for Trading Platform may be even lower because the Exchange
would allow Distributors to the DoM feed to also receive the ToM feed
for no additional charge. The proposed fee is also significantly less
than the amounts charged by several other exchanges for comparable data
products, which also charge per Trading Platform operated by a data
Distributor subject to a cap in most cases, rather than charging per
Distributor, as proposed by the Exchange.\57\ With respect to
alternative trading systems, or ATSs, such platforms can utilize the
Exchange Data Feeds to form prices for trading on such platforms but
are not required to do so and can instead utilize SIP data. Currently,
no ATS approved to trade NMS stocks subscribes to the Exchange's market
data feeds.\58\ With respect to other exchanges, which may choose to
use the market data feeds for Regulation NMS compliance and order
routing, the Exchange notes that several exchange competitors of the
Exchange have not subscribed to any of the market data feeds and
instead utilize SIP data for such purposes.\59\ Accordingly, both ATSs
and other exchanges clearly have a choice whether to subscribe to the
Exchange's market data feeds.
---------------------------------------------------------------------------
\53\ Id.
\54\ See supra note 49. The Exchange notes that MEMX also
charges per Distributor, as proposed herein. See MEMX Fee Schedule
supra note 37.
\55\ Id.
\56\ See Cboe BZX Fee Schedule and Cboe EDGX Fee Schedule, supra
note 37. See also supra note 49.
\57\ See supra note 49. The Exchange notes that MEMX also
charges per Distributor, as proposed herein. See MEMX Fee Schedule
supra note 37.
\58\ MIAX Pearl Equities internal data regarding non-display use
by Trading Platforms. As of March 15, 2024, there were currently 32
ATSs that had filed an effective Form ATS-N with the Commission to
trade NMS stocks. See https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm#ats-n.
\59\ See, e.g., BZX Rule 11.26, EDGA Rule 13.4, EDGX Rule 13.4,
and Long Term Stock Exchange, Inc. Rule 11.4010(a), each of which
discloses the data feeds used by each respective exchange and state
that SIP products are used with respect to MIAX Pearl Equities.
---------------------------------------------------------------------------
The proposed Non-Display Usage fees are also reasonable because
they take into account the extra value of receiving the data for Non-
Display Usage that includes a rich set of information including top of
book quotations, depth-of-book quotations, executions and other
information. The Exchange believes that the proposed fees directly and
appropriately reflect the significant value of using the market data
feeds on
[[Page 43479]]
a non-display basis in a wide range of computer-automated functions
relating to both trading and non-trading activities and that the number
and range of these functions continue to grow through innovation and
technology developments.\60\
---------------------------------------------------------------------------
\60\ See also Exchange Act Release No. 69157 (March 18, 2013),
78 FR 17946, 17949 (March 25, 2013) (SR-CTA/CQ-2013-01) (``[D]ata
feeds have become more valuable, as recipients now use them to
perform a far larger array of non-display functions. Some firms even
base their business models on the incorporation of data feeds into
black boxes and application programming interfaces that apply
trading algorithms to the data, but that do not require widespread
data access by the firm's employees. As a result, these firms pay
little for data usage beyond access fees, yet their data access and
usage is critical to their businesses.'').
---------------------------------------------------------------------------
* * * * *
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the market 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 market 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 market data feeds. Any market participant
that chooses to subscribe to the market 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 market data feeds is based
on objective differences in usage of market data feeds among different
Equity Members, which are still ultimately in the control of any
particular Equity Member. The Exchange believes the proposed pricing of
the market 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 Distributor Fees. The Exchange believes the proposed
monthly fees for Internal Distributors of the market data feeds are
equitably allocated because they would be charged on an equal basis to
all data recipients that receive the market data feeds for internal
distribution, regardless of what type of business they operate.
External Distributor Fees. The Exchange believes the proposed
monthly fees for External Distributors of the market 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
market 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 Distributors are equitably
allocated when compared to lower proposed fees for Internal
Distributors because data recipients that are externally distributing
market data feeds are able to monetize such distribution and spread
such costs amongst multiple third party data recipients, whereas the
Internal Distributor fee is applicable to use by a single data
recipient (and its affiliates).
The Exchange believes that it is reasonable and equitable
discriminatory to assess Internal Distributors fees that are less than
the fees assessed for External Distributors for subscriptions to the
market 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 Equity
Members and non-Equity Members that decide to receive any market data
feed of the Exchange must first execute, among other things, the MIAX
Exchange Group Exchange Data Agreement (the ``Exchange Data
Agreement'').\61\ Pursuant to the Exchange Data Agreement, Internal
Distributors are restricted to the ``internal use'' of any market data
they receive. This means that Internal Distributors may only distribute
the Exchange's market data to the recipient's officers and employees
and its affiliates.\62\ External Distributors may distribute the
Exchange's market data to persons who are not officers, employees or
affiliates of the External Distributor,\63\ and may charge their own
fees for the redistribution of such market data. External Distributors
may monetize their receipt of the market data feeds by charging their
customers fees for receipt of the Exchange's market data feeds.
Internal Distributors do not have the same ability to monetize the
Exchange's market 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 market data feeds as
External Distributors have greater usage rights to commercialize such
market data and can adjust their own fee structures if necessary.
---------------------------------------------------------------------------
\61\ See Exchange Data Agreement, available at https://www.miaxglobal.com/markets/us-equities/pearl-equities/market-data-vendor-agreements.
\62\ See id.
\63\ See id.
---------------------------------------------------------------------------
The Exchange also utilizes more resources to support External
Distributors versus Internal Distributors, as External Distributors
have reporting and monitoring obligations that Internal Distributors do
not have, thus requiring additional time and effort of Exchange staff.
For example, External Distributors have monthly reporting requirements
under the Exchange's Market Data Policies.\64\ Exchange staff must
then, in turn, process and review information reported by External
Distributors to ensure the External Distributors are redistributing the
market data feeds in compliance with the Exchange's Market Data
Agreement and Policies.
---------------------------------------------------------------------------
\64\ See Section 6 of the Exchange's Market Data Agreement,
supra note 61.
---------------------------------------------------------------------------
The Exchange believes the proposed fees are equitable because the
fee level results in a reasonable and equitable allocation of fees
amongst Distributors for similar services, depending on whether the
Distributor 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 market data feeds.
User Fees. The Exchange believes that the fee structure
differentiating Professional User fees from Non-Professional User fees
for display use is equitable. This structure has long been used by
other exchanges and the SIPs to reduce the price of data to Non-
Professional Users and make it more broadly available.\65\ Offering the
market data feeds to Non-Professional Users at a lower cost than
Professional Users results in greater equity among data recipients, as
Professional Users are
[[Page 43480]]
categorized as such based on their employment and participation in
financial markets, and thus, are compensated to participate in the
markets. While Non-Professional Users too can receive significant
financial benefits through their participation in the markets, the
Exchange believes it is reasonable to charge more to those Users who
are more directly engaged in the markets.
---------------------------------------------------------------------------
\65\ See, e.g., Securities Exchange Act Release No. 59544 (March
9, 2009), 74 FR 11162 (March 16, 2009) (SR-NYSE-2008-131)
(establishing the $15 Non-Professional User Fee (Per User) for NYSE
OpenBook); Securities Exchange Act Release No. 20002, File No. S7-
433 (July 22, 1983), 48 FR 34552 (July 29, 1983) (establishing Non-
Professional fees for CTA data); NASDAQ BX Equity 7 Pricing
Schedule, Section 123.
---------------------------------------------------------------------------
The Exchange believes it is equitable to adopt User fees for the
DoM feed that are higher than the User fees for the ToM feed because,
as described above, DoM contains significantly more data than the ToM
feed. The Exchange believes it is equitable to have pricing based, in
part, upon the amount of information contained in each data feed and
the value of that information to market participants.
The Exchange also believes it is equitable to adopt an Enterprise
Fee because this would allow a Distributors to disseminate such data
feeds to an unlimited number of Users without the necessity of counting
such Users. As this is an optional subscription, a data recipient is
able to determine whether it prefers to count Users and report such
Users to the Exchange or not, and also whether it is more economically
advantageous to count and pay for specific Users or to subscribe to the
Enterprise Fee.
Non-Display Usage Fees. The Exchange believes the proposed Non-
Display Usage fees are equitably allocated because they would require
Distributors to pay fees only for the uses they actually make of the
data. As noted above, non-display data can be used by data recipients
for a wide variety of profit-generating purposes (including trading and
order routing) as well as purposes that do not directly generate
revenues (such as risk management and compliance) but nonetheless
substantially reduce the recipient's costs by automating certain
functions. The Exchange believes that it is equitable to charge non-
display data Distributors that use the market data feeds for purposes
other than operation of a Trading Platform as proposed because all such
Distributors would have the ability to use such data for as many non-
display uses as they wish for one low fee. As noted above, this
structure is comparable to that in place for the BZX Depth feed but
several other exchanges charge multiple non-display fees to the same
client to the extent they use a data feed in several different trading
platforms or for several types of non-display use.\66\
---------------------------------------------------------------------------
\66\ See supra note 49.
---------------------------------------------------------------------------
The Exchange further believes that the fees for non-display use for
operation of a Trading Platform and for non-display use other than
operation of a Trading Platform are equitable because the Exchange is
imposing the same flat fee for each category of non-display use.
The Exchange believes that it is equitable to charge a single fee
per Distributor rather than multiple fees for a Distributor that
operates more than one Trading Platform because operators of Trading
Platforms are many times viewed as a single competing venue or group,
even if there are multiple liquidity pools operated by the same
competitor.
* * * * *
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the market data feeds are equitably allocated.
The Proposed Fees Are Not Unfairly Discriminatory
The Exchange believes the proposed fees are not unfairly
discriminatory because any differences in the application of the fees
are based on meaningful distinctions between customers, and those
meaningful distinctions are not unfairly discriminatory between
customers.
Overall. The Exchange believes that the proposed fees are not
unfairly discriminatory because they would apply to all data recipients
that choose to subscribe to the same market data feed(s). Any market
participant, including market data vendors, that chooses to subscribe
to the market data feeds is subject to the same Fee Schedule,
regardless of what type of business they operate. Because the proposed
fees for DoM are higher, market participants seeking lower cost options
may instead choose to receive data from the SIPs or through the ToM
feed for a lower cost. Alternatively, market participants can choose to
pay for the DoM feed to receive data in a single feed with depth-of-
book information if such information is valuable to such market
participants. The Exchange notes that market participants can also
choose to subscribe to a combination of data feeds for redundancy
purposes or to use different feeds for different purposes. In sum, each
market participant has the ability to choose the best business solution
for itself. The Exchange does not believe it is unfairly discriminatory
to base pricing upon the amount of information contained in each data
feed and the value of that information to market participants. As
described above, the ToM feed can be utilized to trade on the Exchange
but contain less information than that is available on the DoM feed
(i.e., even for a Distributor who takes both feeds, such feeds do not
contain depth-of-book information). Thus, the Exchange believes it is
not unfairly discriminatory for the products to be priced as proposed,
with ToM having the lowest price and DoM a higher price.
Internal Distributor Fees. The Exchange believes the proposed
monthly fees for Internal Distributors are not unfairly discriminatory
because they would be charged on an equal basis to all data recipients
that receive the same market data feed(s) for internal distribution,
regardless of what type of business they operate.
External Distributor Fees. The Exchange believes the proposed
monthly fees for redistributing the market data feeds are not unfairly
discriminatory because they would be charged on an equal basis to all
data recipients that receive the same market data feed(s) that choose
to redistribute the feed(s) externally. The Exchange also believes that
having higher monthly fees for External Distributors than Internal
Distributors is not unfairly discriminatory because data recipients
that are externally distributing the market data feeds are able to
monetize such distribution and spread such costs amongst multiple third
party data recipients, whereas the Internal Distributor fee is
applicable to use by a single data recipient (and its affiliates).
User Fees. The Exchange believes that the fee structure
differentiating Professional User fees from Non-Professional User fees
for display use is not unfairly discriminatory. This structure has long
been used by other exchanges and the SIPs to reduce the price of data
to Non-Professional Users and make it more broadly available.\67\
Offering the market data feeds to Non-Professional Users with the same
data as is available to Professional Users, albeit at a lower cost,
results in greater equity among data recipients. These User fees would
be charged uniformly to all individuals that have access to the market
data feeds based on the category of User.
---------------------------------------------------------------------------
\67\ See supra note 65.
---------------------------------------------------------------------------
The Exchange also believes the proposed User fees for DoM are not
unfairly discriminatory, with higher fees for Professional Users than
Non-Professional Users, because Non-Professional Users may have less
ability to pay for such data than Professional Users as well as less
opportunity to profit from their usage of such data. The Exchange also
believes the proposed User fees for DoM are not unfairly
[[Page 43481]]
discriminatory, even though substantially higher than the proposed User
fees for ToM because, as described above, DoM has significantly more
information than ToM and is thus potentially more valuable to such
Users.
The Exchange further believes that its proposal to adopt an
Enterprise Fee is not unfairly discriminatory because this optional
alternatives to counting and paying for specific Users will provide
market participants the ability to provide information from the market
data feeds to large numbers of Users without counting and paying for
each individual User.
Non-Display Use Fees. The Exchange believes the proposed Non-
Display Usage fees are not unfairly discriminatory because they would
require Distributors for non-display use to pay fees depending on their
use of the data, either for operation of a Trading Platform or not, but
would not impose multiple fees to the extent a Distributor operates
multiple Trading Platforms or has multiple different types of non-
display use. As noted above, non-display data can be used by data
recipients for a wide variety of profit-generating purposes as well as
purposes that do not directly generate revenues but nonetheless
substantially reduce the recipient's costs by automating certain
functions. This segmented fee structure is not unfairly discriminatory
because no Distributor of non-display data would be charged a fee for a
category of use in which it did not actually engage.
The Exchange believes that it is not unreasonably discriminatory to
charge a single fee for an operator of Trading Platforms that operates
more than one Trading Platform because operators of Trading Platforms
are many times viewed as a single competing venue or group, even if
there a multiple liquidity pools operated by the same competitor. The
Exchange again notes that certain competitors to the Exchange charge
for non-display usage per Trading Platform,\68\ in contrast to the
Exchange's proposal. In turn, to the extent they subscribe to the
market data feeds, these same competitors will benefit from the
Exchange's pricing model to the extent they operate multiple Trading
Platforms (as most do) by paying a single fee rather than paying for
each Trading Platform that they operate that consumes the market data
feeds.
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\68\ See supra note 49.
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* * * * *
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the Exchange's market data feeds are not unfairly
discriminatory.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\69\ 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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\69\ 15 U.S.C. 78f(b)(8).
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Intra-Market Competition
The Exchange does not believe that the proposed fees place certain
market participants at a relative disadvantage to other market
participants because, as noted above, the proposed fees are associated
with usage of the data feed by each market participant based on whether
the market participant internally or externally distributes the
Exchange data, which are still ultimately in the control of any
particular Equity Member, and such fees do not impose a barrier to
entry to smaller participants. Accordingly, the proposed fees do not
favor certain categories of market participants in a manner that would
impose a burden on competition; rather, the allocation of the proposed
fees reflects the types of data consumed by various market participants
and their usage thereof.
Inter-Market Competition
The Exchange does not believe the proposed fees place an undue
burden on competition on other SROs that is not necessary or
appropriate. In particular, market participants are not forced to
subscribe to either data feed, as described above. Additionally, other
exchanges have similar market data fees with comparable rates in place
for their participants.\70\ 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.
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\70\ See supra note 37.
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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,\71\ and Rule 19b-4(f)(2) \72\ 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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\71\ 15 U.S.C. 78s(b)(3)(A)(ii).
\72\ 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-PEARL-2024-22 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-PEARL-2024-22. 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
[[Page 43482]]
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-PEARL-2024-22 and should be submitted on
or before June 7, 2024.
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\73\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\73\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10820 Filed 5-16-24; 8:45 am]
BILLING CODE 8011-01-P
