Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Establish Fees for the Exchange's Proprietary Market Data Feeds: (i) MIAX Sapphire Top of Market Data Feed; (ii) MIAX Sapphire Complex Top of Market Data Feed; and (iii) MIAX Sapphire Liquidity Feed, 84646-84657 [2024-24472]
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Federal Register / Vol. 89, No. 205 / Wednesday, October 23, 2024 / Notices
number should be included on the
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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,
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a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
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you should submit only information
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SR–MEMX–2024–40 and should be
submitted on or before November 13,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.46
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–24469 Filed 10–22–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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[Release No. 34–101368; File No. SR–
SAPPHIRE–2024–31]
Self-Regulatory Organizations; MIAX
Sapphire, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Establish Fees for the
Exchange’s Proprietary Market Data
Feeds: (i) MIAX Sapphire Top of Market
Data Feed; (ii) MIAX Sapphire Complex
Top of Market Data Feed; and (iii) MIAX
Sapphire Liquidity Feed
October 17, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
46 17
CFR 200.30–3(a)(12).
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(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
4, 2024, MIAX Sapphire, LLC (‘‘MIAX
Sapphire’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the MIAX Sapphire Options
Exchange Fee Schedule (the ‘‘Fee
Schedule’’) to establish fees for the
Exchange’s proprietary market data
feeds: (i) MIAX Sapphire Top of Market
(‘‘ToM’’) data feed; (ii) MIAX Sapphire
Complex Top of Market (‘‘cToM’’) data
feed; and (iii) MIAX Sapphire Liquidity
Feed (‘‘SLF’’).
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxglobal.com/markets/
us-options/all-options-exchanges/rulefilings, at MIAX Sapphire’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
On July 19, 2024, the Exchange filed
a proposal to establish the ToM, cToM
and SLF data feeds (collectively, the
‘‘market data feeds’’) 3 for MIAX
Sapphire. The Exchange now proposes
to amend the Fee Schedule to establish
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 100588
(July 25, 2024), 89 FR 61554 (July 31, 2024) (SR–
SAPPHIRE–2024–01).
2 17
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fees for each of these market data feeds.4
The Exchange also proposes to waive
such fees during an Initial Waiver
Period,5 which would run for six full
calendar months from the initial
effective date (August 12, 2024) of the
proposed fees to incentivize market
participants to subscribe and make the
Exchange’s proprietary market data
more widely available. The Exchange
initially filed this proposal on August 8,
2024 (SR–SAPPHIRE–2024–18). The
Exchange withdrew SR–SAPPHIRE–
2024–18 on October 3, 2024 and
submitted this proposal.
The ToM data feed contains top of
book quotations based on options
orders 6 and quotes 7 resting on the
Exchange’s Simple Order Book 8 as well
as administrative messages, such as
other real-time Exchange System 9
functions.10 The cToM data feed
includes the same types of information
as ToM, but for Complex Orders 11 on
the Exchange’s Strategy Book.12 This
information includes the Exchange’s
best bid and offer for a complex
strategy,13 with aggregate size, based on
4 The Exchange established the Definitions
section of the Fee Schedule in a separate rule filing.
See Securities Exchange Act Release No. 100683
(August 9, 2024), 89 FR 66467 (August 15, 2024)
(SR–SAPPHIRE–2024–13).
5 The term ‘‘Initial Waiver Period’’ means, for
each applicable fee, the period of time from the
initial effective date of the MIAX Sapphire Fee
Schedule plus an additional six (6) full calendar
months after the completion of the partial month of
the Exchange launch. See the Definitions section of
the Fee Schedule.
6 The term ‘‘order’’ means a firm commitment to
buy or sell option contracts. See Exchange Rule 100.
7 The term ‘‘quote’’ or ‘‘quotation’’ The term
‘‘quote’’ or ‘‘quotation’’ means a bid or offer entered
by a Market Maker as a firm order that updates the
Market Maker’s previous bid or offer, if any. When
the term order is used in the Exchange’s Rules and
a bid or offer is entered by the Market Maker in the
option series to which such Market Maker is
registered, such order shall, as applicable,
constitute a quote or quotation for purposes of the
Exchange’s Rules. See Exchange Rule 100.
8 The ‘‘Simple Order Book’’ is the Exchange’s
regular electronic book of orders and quotes. See
Exchange Rule 100.
9 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
10 See MIAX Sapphire Options Exchange User
Manual, Version 1.0.0, Section 5.06, dated
December 11, 2023, available at https://
www.miaxglobal.com/miax_sapphire_user_
manual.pdf (last visited July 24, 2024).
11 In sum, a ‘‘Complex Order’’ is ‘‘any order
involving the concurrent purchase and/or sale of
two or more different options in the same
underlying security (the ‘legs’ or ‘components’ of
the complex order), for the same account. . . .’’ See
Exchange Rule 518(a).
12 The ‘‘Strategy Book’’ is the Exchange’s
electronic book of complex orders. See Exchange
Rule 100.
13 The term ‘‘complex strategy’’ means a
particular combination of components and their
ratios to one another. New complex strategies can
be created as the result of the receipt of a complex
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displayable orders in the complex
strategy. The cToM data feed also
provides subscribers with the following
information: (i) the identification of the
complex strategies currently trading on
the Exchange; (ii) complex strategy last
sale information; and (iii) the status of
securities underlying the complex
strategy (e.g., halted, open, or resumed).
ToM subscribers are not required to
subscribe to cToM, and cToM
subscribers are not required to subscribe
to ToM.
The Exchange notes that there is no
requirement that any Member 14 or
market participant subscribe to either
the ToM or cToM data feeds. Instead, a
Member may choose to maintain
subscriptions to ToM or cToM based on
their trading strategies and individual
business decisions. Moreover, persons
(including broker-dealers) who
subscribe to any exchange proprietary
data feed must also have equivalent
access to consolidated Options
Information 15 from the Options Price
Reporting Authority (‘‘OPRA’’) for the
same classes or series of options that are
included in the proprietary data feed
(including for exclusively listed
products), and proprietary data feeds
cannot be used to meet that particular
requirement. The proposed fees
described below would not apply
differently based upon the size or type
of firm, but rather based upon the type
of subscription a firm has to ToM or
cToM and their use thereof, which are
based upon factors deemed relevant by
each firm.
order or by the Exchange for a complex strategy that
is not currently in the System. The Exchange may
limit the number of new complex strategies that
may be in the System at a particular time and will
communicate this limitation to Members via
Regulatory Circular. See Exchange Rule 518(a).
14 The term ‘‘Member’’ means an individual or
organization that is registered with the Exchange
pursuant to Chapter II of these Rules for purposes
of trading on the Exchange as an ‘‘Electronic
Exchange Member’’ or ‘‘Market Maker.’’ Members
are deemed ‘‘members’’ under the Exchange Act.
See Exchange Rule 100.
15 The term ‘‘consolidated Options Information’’
means ‘‘consolidated Last Sale Reports combined
with either consolidated Quotation Information or
the BBO furnished by OPRA . . .’’ Access to
consolidated Options Information is deemed
‘‘equivalent’’ if both kinds of information are
equally accessible on the same terminal or work
station. See Limited Liability Company Agreement
of Options Price Reporting Authority, LLC (‘‘OPRA
Plan’’), Section 5.2(c)(iii). The Exchange notes that
this requirement under the OPRA Plan is also
reiterated under the Cboe Global Markets Global
Data Agreement and Cboe Global Markets North
American Data Policies, which subscribers to any
exchange proprietary product must sign and are
subject to, respectively. Additionally, the
Exchange’s Data Order Form (used for requesting
the Exchange’s market data products) requires
confirmation that the requesting market participant
receives data from OPRA.
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The SLF data feed provides market
participants with a direct data feed that
allows subscribers to receive real-time
updates of options orders, products
traded on MIAX Sapphire, MIAX
Sapphire System status, and MIAX
Sapphire underlying trading status.
When an order is received or an order
state changes, published order
information will be transmitted over
SLF, including time stamp, action,
product ID, order ID, order side, order
type, order price, original order size,
open order size, time in force, origin,
open or close, and route instruction. For
complex orders, complex strategy
definition notification and complex
order notice are also included.
Subscribers to the SLF will get a list of
all options symbols and strategies that
will be traded and sourced on that feed
at the start of every session.
Each of the proposed fees are
described below. Again, the Exchange
proposes to not charge the proposed fees
during the Initial Waiver Period. Even
though the Exchange proposes to waive
these particular fees during the Initial
Waiver Period, the Exchange believes
that it is appropriate to provide market
participants with the overall structure of
the fees by outlining the structure and
amounts in the Fee Schedule so that
there is general awareness that the
Exchange intends to assess such fees
upon expiration of the defined term of
the Initial Waiver Period.
ToM
The Exchange proposes to charge a
monthly fee of $1,200 to Internal
Distributors 16 and $2,000 to External
Distributors for the ToM data feed after
the expiration of the Initial Waiver
Period. The proposed fees are intended
to cover the Exchange’s costs with
compiling and producing the ToM data
feed described in the Exchange’s cost
analysis detailed below. The Exchange
proposes to assess Internal Distributors
fees that are less than the fees assessed
for External Distributors because
External Distributors may monetize
their receipt of the ToM data feed by
charging their customers fees for receipt
of the Exchange’s data. Internal
Distributors do not have the same
ability. The Exchange does not propose
to charge any additional fees based on
a Distributor’s use of the ToM data feed
(e.g., displayed versus non-displayed
16 A ‘‘Distributor’’ of MIAX Sapphire data is any
entity that receives a feed or file of data either
directly from MIAX Sapphire or indirectly through
another entity and then distributes it either
internally (within that entity) or externally (outside
that entity). All Distributors are required to execute
an Exchange Data Agreement. See Fee Schedule,
proposed Section 6)a).
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84647
use), redistribution fees, or individual
per user fees.
cToM
The Exchange proposes to charge a
monthly fee of $1,200 to Internal
Distributors and $2,000 to External
Distributors for the cToM data feed after
the expiration of the Initial Waiver
Period. The proposed fees are intended
to cover the Exchange’s costs with
compiling and producing the cToM data
feed described in the Exchange’s cost
analysis detailed below. The Exchange
proposes to assess Internal Distributors
fees that are less than the fees assessed
for External Distributors because
External Distributors may monetize
their receipt of the cToM data feed by
charging their customers fees for receipt
of the Exchange’s data. Internal
Distributors do not have the same
ability. The Exchange does not propose
to charge any additional fees based on
a Distributor’s use of the cToM data feed
(e.g., displayed versus non-displayed
use), redistribution fees, or individual
per user fees.
SLF
The Exchange proposes to charge a
monthly fee of $3,000 to Internal
Distributors and $3,500 to External
Distributors for the SLF data feed after
the expiration of the Initial Waiver
Period. The proposed fees are intended
to cover the Exchange’s costs with
compiling and producing the SLF data
feed described in the Exchange’s Cost
Analysis detailed below. The Exchange
proposes to assess Internal Distributors
fees that are less than the fees assessed
for External Distributors because
External Distributors may monetize
their receipt of the SLF data feed by
charging their customers fees for receipt
of the Exchange’s data. Internal
Distributors do not have the same
ability. The Exchange does not propose
to charge any additional fees based on
a Distributor’s use of the SLF data feed
(e.g., displayed versus non-displayed
use), redistribution fees, or individual
per user fees.
*
*
*
*
*
The Exchange proposes that each
Distributor would be charged for each
month it is credentialed to receive ToM,
cToM, and/or SLF in the Exchange’s
production environment. Fees for each
of the market data feeds will be reduced
for new Distributors who subscribe to a
market data feed mid-month for the first
month they subscribe following the
expiration of the Initial Waiver Period,
as described above. New Distributors
who subscribe mid-month for each
market data feed would be assessed a
pro-rata percentage of the applicable
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Distribution fee based on the percentage
of the number of trading days remaining
in the affected calendar month as of the
date on which they have been first
credentialed to receive each of the
market data feeds in the production
environment, divided by the total
number of trading days in the affected
calendar month.
The Exchange believes the proposed
fees will allow the Exchange to offset
the expenses the Exchange has and will
continue to incur associated with
compiling and disseminating the market
data 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 issued an alert publicly
announcing the proposed fees on July
23, 2024.17
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2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6(b) 18 of the
Act in general, and furthers the
objectives of Section 6(b)(4) 19 of the
Act, in particular, in that it is designed
to provide for the equitable allocation of
reasonable dues, fees and other charges
among its Members and other persons
using its facilities. Additionally, the
Exchange believes that the proposed
fees are consistent with the objectives of
Section 6(b)(5) 20 of the Act in that they
are designed to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, to remove impediments to
a free and open market and national
market system, and, in general, to
protect investors and the public interest,
and, particularly, are not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
In 2019, Commission staff published
guidance suggesting the types of
information that self-regulatory
organizations (‘‘SROs’’) may use to
demonstrate that their fee filings comply
with the standards of the Exchange Act
(the ‘‘Staff Guidance’’).21 While the
17 See Fee Change Alert, MIAX Sapphire Options
Exchange—Summary of Proposed Non-Transaction
Fees (July 23, 2024), available at https://
www.miaxglobal.com/alert/2024/07/23/miaxsapphire-options-exchange-summary-proposednon-transaction-fees?nav=all.
18 15 U.S.C. 78f.
19 15 U.S.C. 78f(b)(4).
20 15 U.S.C. 78f(b)(5).
21 See Staff Guidance on SRO Rule Filings
Relating to Fees (May 21, 2019), available at https://
www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
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Exchange understands that the Staff
Guidance does not create new legal
obligations on SROs, the Staff Guidance
is consistent with the Exchange’s view
about the type and level of transparency
that exchanges should meet to
demonstrate compliance with their
existing obligations when they seek to
charge new fees. The Staff Guidance
provides that in assessing the
reasonableness of a fee, the Staff would
consider whether the fee is constrained
by significant competitive forces. To
determine whether a proposed fee is
constrained by significant competitive
forces, the Staff Guidance further
provides that the Staff would consider
whether the evidence provided by an
SRO in a fee filing proposal
demonstrates (i) that there are
reasonable substitutes for the product or
service that is the subject of a proposed
fee; (ii) that ‘‘platform’’ competition
constrains the fee; and/or (iii) that the
revenue and cost analysis provided by
the SRO otherwise demonstrates that
the proposed fee would not result in the
SRO taking supra-competitive profits.22
The Exchange provides sufficient
evidence below to support the findings
that the proposed fees are reasonable
because the projected revenue and cost
analysis contained herein demonstrates
that the proposed fees would not result
in the Exchange taking supracompetitive profits.
Cost Analysis
In general, 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
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, cToM, and SLF
feeds (the ‘‘Cost Analysis’’).
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
22 Id.
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transparently assessing the impact on
Members—both generally and in
relation to other Members—to ensure
the fees will not create a financial
burden on any participant and will not
have an undue impact in particular on
smaller Members and competition
among Members in general. The
Exchange does not believe it needs to
otherwise address questions about
market competition in the context of
this filing because the proposed fees are
consistent with the Act based on the
Exchange’s 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,23 and Rule 19b–4 thereunder,24
with respect to the types of information
SROs should provide when filing fee
changes, and Section 6(b) of the Act,25
which requires, among other things, that
exchange fees be reasonable and
equitably allocated,26 not designed to
permit unfair discrimination,27 and that
they do not impose a burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.28 This proposal
addresses those requirements, and the
analysis and data in this section are
designed to clearly and
comprehensively show how they are
met.
The Exchange’s affiliates 29 previously
completed a study of their aggregate
costs to produce market data and
provide connectivity and port services,
defined above as its Cost Analysis.30
Personnel began to plan for and develop
the Exchange beginning in early 2023,
and costs included in this Cost Analysis
are related to the development and
buildout of the Exchange since that
time. During the Exchange’s
development and buildout that occurred
throughout 2023 and continues to today,
the Exchange routinely studied its
23 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
25 15 U.S.C. 78f(b).
26 15 U.S.C. 78f(b)(4).
27 15 U.S.C. 78f(b)(5).
28 15 U.S.C. 78f(b)(8).
29 The affiliated markets include Miami
International Securities Exchange, LLC (‘‘MIAX’’);
separately, the options and equities markets of
MIAX PEARL, LLC (‘‘MIAX Pearl’’); and MIAX
Emerald, LLC (‘‘MIAX Emerald’’).
30 See Securities Exchange Act Release Nos.
100041 (April 26, 2024), 89 FR 35868 (May 2, 2024)
(SR–MIAX–2024–25); 100319 (June 12, 2024), 89 FR
51562 (June 18, 2024) (SR–PEARL–2024–25);
100042 (April 26, 2024), 89 FR 35879 (May 2, 2024)
(SR–EMERALD–2024–15). The Exchange frequently
updates it Cost Analysis as strategic initiatives
change, costs increase or decrease, and market
participant needs and trading activity (once live
trading begins) changes. The Exchange’s most
recent Cost Analysis was conducted ahead of this
filing.
24 17
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aggregate costs to produce and
disseminate Exchange market data,
which were used to determine the
proposed pricing for the market data
feeds as part of the Exchange’s Cost
Analysis. 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 for
each cost driver as part of the
Exchange’s 2024 budget review process.
The 2024 budget review is a companywide 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,31 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
31 For example, MIAX Sapphire maintains 8
matching engines, 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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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 five
separate and distinct marketplaces,32
the Exchange must determine the costs
associated with each actual market—as
opposed to the Exchange’s parent
company simply concluding that all
cost drivers are the same at each
individual marketplace and dividing
total cost by five (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 each exchange for the same cost
drivers, due to the unique factors of
each marketplace as described above.
This allocation methodology also
ensures that no cost would be allocated
twice or double-counted between the
Exchange and its affiliated markets. The
Finance Team then consolidates the
budget and sends it to senior
management, including the Chief
Financial Officer and Chief Executive
Officer, for review and approval. Next,
the budget is presented to the Board of
Directors and the Finance and Audit
Committees for each exchange for their
approval. The above steps encompass
the first step of the cost allocation
process. For the 2024 budget process for
MIAX Sapphire, only costs and
anticipated revenues associated with the
electronic exchange were considered.
While MIAX Sapphire plans on opening
its trading floor in 2025 costs and
anticipated revenues from the trading
floor were not included as part of any
analysis for MIAX Sapphire for 2024.33
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., market data,
connectivity, ports, 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
32 MIAX Options Exchange, MIAX Pearl Options
Exchange, MIAX Pearl Equities Exchange, MIAX
Emerald Exchange, and the MIAX Sapphire
Exchange.
33 Additionally, while MIAX Sapphire received
approval as a national securities exchange on July
15, 2024, start-up costs associated with the launch
of MIAX Sapphire were not included in the costs
used for the 2024 electronic exchange projections.
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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,
62% of the data center total expense
amount is allocated to all provisions of
connectivity), with smaller allocations
to ToM, cToM and SLF (2.0%
combined), and the remainder to the
provision of ports, transaction
execution, and membership services
(36%). This next level of the allocation
methodology at the individual exchange
level also took into account factors
similar to those set forth under the first
step of the allocation methodology
process described above, to determine
the appropriate allocation to
connectivity or market data versus
allocations for other services. This
allocation methodology was developed
through an assessment of costs with
senior management intimately familiar
with each area of the Exchange’s
operations. After adopting this
allocation methodology, the Exchange
then applied an allocation of each cost
driver to each core service, resulting in
the cost allocations described below.
Each of the below cost allocations is
unique to the Exchange and represents
a percentage of overall cost that was
allocated to the Exchange pursuant to
the initial allocation described above.
By allocating segmented costs to each
core service, the Exchange was able to
estimate by core service the potential
margin it might earn based on different
fee models. The Exchange notes that it
has five primary sources of revenue that
it can potentially use to fund its
operations: transaction fees,
connectivity and port service fees,
membership fees, regulatory fees, and
market data fees. Accordingly, the
Exchange must cover its expenses from
these five primary sources of revenue.
The Exchange also notes that as a
general matter each of these sources of
revenue is based on services that are
interdependent. For instance, the
Exchange’s system for executing
transactions is dependent on physical
hardware and connectivity; only
Members and parties that they sponsor
to participate directly on the Exchange
may submit orders to the Exchange;
some 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
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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, 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 the market
data feeds, and, if such expense did so
relate, what portion (or percentage) of
such expense actually supports the
provision of the market data feeds, and
thus bears a relationship that is, ‘‘in
nature and closeness,’’ directly related
to the 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 ToM, cToM,
and SLF data feeds is $59,161 (the
Exchange divided the annual cost for
each of ToM, cToM, and SLF by 12
months, then added all three numbers
together), as further detailed below.
Costs Related To Offering ToM, cToM,
and SLF Data Feeds 34
The following chart details the
individual line-item (annual) costs
considered by the Exchange to be
related to offering the ToM, cToM, and
SLF data feeds to its Members and other
customers, as well as the percentage of
the Exchange’s overall costs that such
costs represent for such area (e.g., as set
forth below, the Exchange allocated
approximately 6.2% of its overall
Human Resources cost to offering ToM,
cToM, and SLF 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 ........................................................................................................
$631,203
511
0.00
12,298
9,933
13,656
42,326
$52,600
43
0.00
1,025
828
1,138
3,527
6.2
2.0
0.0
2.0
2.0
1.1
1.5
Total ......................................................................................................................................
709,927
59,161
4.6
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.
b The
The Exchange notes that it and its
affiliated markets anticipate that by
year-end 2024, there will be 289
employees (excluding employees at
non-options/equities exchange
subsidiaries of Miami International
Holdings, Inc. (‘‘MIH’’), the holding
company of the Exchange and its
affiliated markets), and each department
leader has direct knowledge of the time
spent by each employee with respect to
the various tasks necessary to operate
the Exchange. Specifically, twice a year,
and as needed with additional new
hires and new project initiatives, in
consultation with employees as needed,
managers and department heads assign
a percentage of time to every employee
and then allocate that time amongst the
Exchange and its affiliated markets to
determine each market’s individual
Human Resources expense. Then,
managers and department heads assign
a percentage of each employee’s time
allocated to the Exchange into buckets
including network connectivity, ports,
market data, and other exchange
services. This process ensures that every
employee is 100% allocated, ensuring
there is no double counting between the
Exchange and its affiliated markets.
For personnel costs (Human
Resources), the Exchange calculated an
allocation of employee time for
employees whose functions include
providing and maintaining the 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 the
market data feeds. From that portion
allocated to the Exchange that applied
to the market data feeds, the Exchange
then allocated a weighted average of
7.3% of each employee’s time from the
above group to the 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
34 The Exchange notes that in recent nontransaction fee filings by the Exchange’s affiliated
markets, those exchanges included a comparison
and explanation where certain cost driver
allocations and expense amounts materially
differed for the same cost driver among the
affiliated markets. See, e.g., Securities Exchange Act
Release No. 100041 (April 26, 2024), 89 FR 35868
(May 2, 2024) (SR–MIAX–2024–25). The Exchange
believes a similar comparison and explanation is
not appropriate here because the Exchange has yet
to commence operations and the allocations
provided herein may change over time as the
Exchange matures and its operations adjust based
on its trading volumes and number of market data
subscribers. In contrast, MIAX and MIAX Emerald
are more mature markets with a steady market data
subscriber base and a clearer estimation of their
costs associated with producing and disseminating
their market data feeds. Further, as a new exchange,
MIAX Sapphire proposes to waive the fees for the
market data feeds for a specified period of time in
order to build market share, which in turn, should
attract more market data subscribers. If the
Exchange does not attract as many market data
subscribers as currently projected for the Cost
Analysis, the Exchange may need to reduce its
market data fees or waive the fees for a longer
period of time. Accordingly, the Exchange believes
it is reasonable to not provide a similar comparison
of cost driver allocations until the Exchange has
time to build its subscriber base for the market data
feeds.
Below are additional details regarding
each of the line-item costs considered
by the Exchange to be related to offering
the market data feeds.
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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
the market data feeds (4.9%, 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 7.3% 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 the 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
Member and internal Exchange reports
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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 the market data
feeds, 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 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 ToM, cToM, and SLF data feeds).35
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
35 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 market data fee proposals in 2022 and
2023. 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 IEX’s or MEMX’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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Princeton and Miami. External market
data includes fees paid to third parties,
including other exchanges, to receive
market data. The Exchange did not
allocate any costs associated with
internet services or external market data
to the ToM, cToM or SLF 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 the
Exchange 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 to
the market data feeds. The Exchange
believes it is reasonable to apply the
same proportionate percentage of Data
Center costs to that of the Connectivity
cost driver.
Hardware and Software Maintenance
and Licenses
Hardware and Software Maintenance
and Licenses includes hardware and
software licenses used to operate and
monitor physical assets necessary to
offer the market data feeds. Because the
hardware and software license fees are
correlated to the servers used by the
Exchange, the Exchange again applied
an allocation of 2.0% of its costs for
Hardware and Software Maintenance
and Licenses to the market data feeds.
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
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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 1.1% of its allocated
depreciation costs to providing the
market data feeds.
Allocated Shared Expenses
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Finally, as with other exchange
products and services, a portion of
general shared expenses was allocated
to the provision of 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.36 These
general shared expenses are incurred by
the Exchange’s parent company, MIH, as
a direct result of operating the Exchange
and its affiliated markets.
The Exchange employed a process to
determine a reasonable percentage to
allocate general shared expenses to 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
market data. Then, these costs were
further allocated to sub-categories
within the final categories, i.e., ToM,
cToM, and SLF, 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
36 The Exchange notes that MEMX allocated a
precise amount of 10% of the overall cost for
directors in a similar non-transaction fee filing. See
Securities Exchange Act Release No. 97130 (March
13, 2023), 88 FR 16491 (March 17, 2023) (SR–
MEMX–2023–04). The Exchange does not calculate
is expenses at that granular a level. Instead, director
costs are included as part of the overall general
allocation.
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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 ToM, cToM and SLF.
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
believes this allocation percentage is
reasonable because, while the overall
dollar amount may be higher than other
cost drivers, the 1.5% 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 ToM, cToM, and SLF are main
contributors.
*
*
*
*
*
Approximate Cost for ToM, cToM, and
SLF per Month
After determining the approximate
allocated monthly cost related to the
market data feeds combined, the total
monthly cost for the market data feeds
of $59,161 was divided by the total
number of projected subscribers 37 to
ToM, cToM and SLF that the Exchange
anticipates will maintain market data
subscriptions following the expiration
of the waiver periods for each respective
market data feed (29 Internal
Distributors + 4 External Distributors =
33 total Distributors), to arrive at a cost
37 The methodology used by the Exchange to
project the number of subscribers for each of the
market data feeds once the Initial Waiver Period
expires can be found under the section titled
‘‘Projected Revenue’’, below.
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of approximately $1,793 per month per
subscription (rounded to the nearest
dollar). Due to the nature of this
particular cost, this allocation
methodology results in an allocation
among the Exchange and its affiliated
markets based on set quantifiable
criteria, i.e., projected number of ToM,
cToM, and SLF subscribers.
Cost Analysis—Additional Discussion
In conducting its Cost Analysis, the
Exchange did not allocate any of its
expenses in full to any core service
(including market data) and did not
double-count any expenses. Instead, as
described above, the Exchange allocated
applicable cost drivers across its core
services and used the same Cost
Analysis to form the basis of this
proposal. For instance, in calculating
the Human Resources expenses to be
allocated to market data based upon the
above described methodology, the
Exchange allocated a higher percentage
of dedicated network infrastructure
personnel (7.3%) due to their focus on
functions necessary to provide market
data. The remaining 92.7% of the
Human Resources expense was then
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 4.9% for costs
associated with certain specified
personnel who work closely with and
support network infrastructure
personnel.
In total, the Exchange allocated 6.2%
of its personnel costs (Human
Resources) to providing the market data
feeds. In turn, the Exchange allocated
the remaining 93.8% 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
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network. Without this equipment, the
Exchange would not be able to operate
the network and provide the market
data feeds to its Members and their
customers. However, the Exchange did
not allocate all of the depreciation and
amortization expense toward the cost of
providing the market data feeds, but
instead allocated approximately 1.1% of
the Exchange’s overall depreciation and
amortization expense to the market data
feeds combined. The Exchange allocated
the remaining depreciation and
amortization expense (98.9%) 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 revenue
estimates are based upon the Exchange’s
projected number of Internal and
External Distributors for each of the
ToM, cToM, and SLF data feeds upon
the expiration of the fee waiver periods
for each market data feed and then
annualized. 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 attracting
customers to a new exchange and then
successfully retain those customers that
wish to maintain subscriptions to the
market data feeds or obtain new
customers 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, which will only be for part
of the year. It is possible, however, that
actual costs may be higher or lower. The
proposed fee waivers for the market data
feeds mean that the Exchange will
receive no revenue from market data
distribution in 2024. To the extent the
Exchange sees growth in use of market
data services in 2025, following the
expiration of the Initial Waiver Period,
it will begin to receive 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 and expiration of the fee waivers.
The Exchange expects that it may
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propose to adjust fees at that time, to
increase fees in the event that revenues
fail to cover costs and a reasonable
mark-up of such costs. Similarly, the
Exchange may propose to decrease fees
in the event that revenue materially
exceeds our current projections. In
addition, the Exchange will periodically
conduct a review to inform its decision
making on whether a fee change is
appropriate (e.g., to monitor for costs
increasing/decreasing or subscribers
increasing/decreasing, etc. in ways that
suggest the then-current fees are
becoming dislocated from the prior costbased analysis) and would propose to
increase fees in the event that revenues
fail to cover its costs and a reasonable
mark-up, or decrease fees in the event
that revenue or the mark-up materially
exceeds our current projections. In the
event that the Exchange determines to
propose a fee change, the results of a
timely review, including an updated
cost estimate, will be included in the
rule filing proposing the fee change.
More generally, the Exchange believes
that it is appropriate for an exchange to
refresh and update information about its
relevant costs and revenues in seeking
any future changes to fees, and the
Exchange commits to do so.
Projected Revenue 38
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 establishing fees for market
data subscribers. Subscribers to the
ToM, cToM and SLF 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,
connectivity service fees, membership
and regulatory fees, and market data
fees. Accordingly, the Exchange must
38 For purposes of calculating projected
annualized revenue for the market data feeds, the
Exchange used projected monthly revenues for the
market data feeds once the Initial Waiver Period
expires.
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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 $709,927.
Based on projected ToM, cToM and SLF
subscribers once the waiver periods
expire for the market data feeds, the
Exchange projects to generate annual
revenue of approximately $726,000 for
the market data feeds combined. The
Exchange believes this represents a
modest profit of 2.2% when compared
to the cost of providing the market data
feeds on an annualized basis once the
waiver periods expire, 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 projected number of Distributors for
each of the market data feeds, the
Exchange reviewed its anticipated
Distributor population from July 2024
based on Distributor on-boarding
documents the Exchange received that
showed interest in the market data
products in the month preceding when
the Exchange filed its proposal to
implement the proposed fees, and
assumed a 5% attrition rate. The 5%
attrition rate is based upon the
Exchange’s experience on its affiliate
exchanges where it has been observed
that a percentage of subscribers do not
continue their market data subscriptions
after the expiration of fee waivers.
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 of the Exchange
associated with the market data feeds.
The Exchange’s affiliated markets,
MIAX and MIAX Emerald, charge
similar or higher rates for their
respective ToM, cToM and MOR data
feeds.39 The Exchange’s proposed fees
for its market data feeds are also
comparable to, or lower than, the fees
for similar products charged by
competing options exchanges. For
example, for Internal Distributors of
ToM and cToM, the Exchange proposes
a lower fee than the fees charged by
39 See MIAX Fee Schedule, Sections (6)(a) and (c);
and MIAX Emerald Fee Schedule, Sections (6)(a)
and (c).
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Nasdaq ISE, LLC (‘‘ISE’’) for ISE’s Top
Quote Feed 40 and NYSE Arca, Inc.
(‘‘Arca’’) for Arca’s Top Datafeed 41 and
Complex Order Book data feed.42
Additionally, Nasdaq PHLX LLC
(‘‘PHLX’’) assesses the same fees for the
PHLX Orders data feed as proposed by
the Exchange for its SLF data feed.43
Accordingly, the Exchange believes
that comparable and competitive pricing
are key factors in determining whether
a proposed fee meets the requirements
of the Act, regardless of whether that
same fee across the Exchange’s affiliated
markets leads to slightly different profit
margins due to factors outside of the
Exchange’s control (i.e., more
subscribers to ToM, cToM, and/or SLF).
The Exchange also reiterates that it
proposes to waive the fees for the
market data feeds for a defined period
of time. The Exchange is owned by a
holding company that is the parent
company of five 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, which currently operates only one
exchange, in its recent non-transaction
fee filing allocated the entire amount of
that same cost to a single exchange. This
can result in lower profit margins for the
40 See ISE Options 7: Pricing Schedule, Section
10, Market Data, Section H. Nasdaq ISE Top Quote
Feed, available at https://listingcenter.nasdaq.com/
rulebook/ise/rules/ISE%20Options%207 (last
visited June 13, 2024) (assessing Professional
internal and external distributors $3,000 per month,
plus $20 per month per controlled device).
41 See NYSE Proprietary Market Data Pricing
Guide, Section 6.3, NYSE Arca Options (dated May
4, 2022), available at: https://www.nyse.com/
publicdocs/nyse/data/NYSE_Market_Data_
Pricing.pdf (last visited June 13, 2024). Fees for the
NYSE Arca Options Top Datafeed, which is the
comparable product to ToM, are $3,000 per month
for access (internal use) and an additional $2,000
per month for redistribution (external distribution),
compared to the Exchange’s proposed fees of $1,200
and $2,000 for Internal and External Distributors,
respectively. In addition, for its NYSE Arca Options
Top Datafeed, NYSE Arca charges for three different
categories of non-display usage, and user fees, both
of which the Exchange does not propose to charge,
causing the overall cost of NYSE Arca Options Top
Datafeed to far exceed the Exchange’s proposed
rates.
42 See NYSE Proprietary Market Data Pricing
Guide, Section 6.4, NYSE Arca Options Complex
Order Book (dated May 4, 2022), available at:
https://www.nyse.com/publicdocs/nyse/data/
NYSE_Market_Data_Pricing.pdf (last visited June
13, 2024) (assessing an access fee of $1,500 per
month, plus a $1,000 redistribution fee, $1,000 nondisplay fee, and $20 fee per professional user).
43 See PHLX Options 7: Pricing Schedule, Section
10. Proprietary Data Feed Fees, PHLX Orders,
available at https://listingcenter.nasdaq.com/
rulebook/phlx/rules/Phlx%20Options%207 (last
visited June 13, 2024) (assessing internal
distributors $3,000 per month and external
distributors $3,500 per month for the PHLX Orders
data feed).
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non-transaction fees proposed by IEX
because the single allocated cost does
not experience the efficiencies and
synergies that result from sharing costs
across multiple platforms.44 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
44 The Exchange acknowledges that IEX included
in its proposal to adopt market data fees after
offering market data for free an analysis of what its
projected revenue would be if all of its existing
customers continued to subscribe versus what its
projected revenue would be if a limited number of
customers subscribed due to the new fees. See
Securities Exchange Act Release No. 94630 (April
7, 2022), 87 FR 21945 (April 13, 2022) (SR–IEX–
2022–02). MEMX did not include a similar analysis
in either of its recent non-transaction fee proposals.
See, e.g., supra notes 35 and 36. The Exchange does
not believe a similar analysis would be useful here
because it is part of a holding company that
operates five different markets.
PO 00000
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higher costs alone are used to justify
fees increases.
Accordingly, while the Exchange is
supportive of transparency around costs
and potential margins (applied across
all exchanges), as well as periodic
review of revenues and applicable costs
(as discussed below), the Exchange does
not believe that these estimates should
form the sole basis of whether or not a
proposed fee is reasonable or can be
adopted. Instead, the Exchange believes
that the information should be used
solely to confirm that an Exchange is
not earning—or seeking to earn—supracompetitive profits, the standard set
forth in the Staff Guidance. The
Exchange believes the Cost Analysis and
related projections in this filing
demonstrate this fact.
Reasonableness
Overall. With regard to
reasonableness, the Exchange
understands that the Commission has
traditionally taken a market-based
approach to examine whether the
exchange making the fee proposal was
subject to significant competitive forces
in setting the terms of the proposal. The
Exchange understands that in general
the analysis considers whether the
exchange has demonstrated in its filing
that (i) there are reasonable substitutes
for the product or service; (ii)
‘‘platform’’ competition constrains the
ability to set the fee; and/or (iii) revenue
and cost analysis shows the fee would
not result in the exchange taking supracompetitive profits. If the exchange
demonstrates that the fee is subject to
significant competitive forces, the
Exchange understands that in general
the analysis will next consider whether
there is any substantial countervailing
basis to suggest the fee’s terms fail to
meet one or more standards under the
Exchange Act. The Exchange further
understands that if the filing fails to
demonstrate that the fee is constrained
by competitive forces, the exchange
must provide a substantial basis, other
than competition, to show that it is
consistent with the Exchange Act,
which may include production of
relevant revenue and cost data
pertaining to the product or service.
The Exchange has not determined its
proposed overall market data fees based
on assumptions about market
competition, instead relying upon a
cost-plus model to determine a
reasonable fee structure that is informed
by the Exchange’s understanding of
different uses of the products by
different types of participants. In this
context, the Exchange believes the
proposed fees overall are fair and
reasonable as a form of cost recovery
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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 $726,000 once the fee
waivers expire for the market data feeds,
representing a potential mark-up of just
2.2% over the cost of providing the
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
less than the fees charged by competing
options exchanges for comparable
market data products, notwithstanding
that the competing exchanges may have
different system architectures that may
result in different cost structures for the
provision of market data.
The Exchange believes the proposed
fees for the market data products are
reasonable when compared to fees for
comparable products, compared to
which the Exchange’s proposed fees are
generally lower, as well as other
comparable data feeds priced
significantly higher than the Exchange’s
proposed fees for the market data feeds.
Internal Distribution Fees. The
Exchange believes it is reasonable to
charge Internal Distribution fees because
such data assists Internal Distributors in
their profit-generating activities. The
Exchange also believes that the
proposed monthly Internal Distribution
fees for ToM, cToM, and SLF are
reasonable as they are similar to the
amounts charged by at least one other
exchange of comparable size for
comparable data products, and lower
than the fees charged by other
exchanges for comparable data
products.45
External Distribution Fees. The
Exchange believes that it is reasonable
to charge External Distribution fees for
the market data feeds because vendors
receive enumeration 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
45 See
supra notes 42 and 43.
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charged such fees profit by retransmitting the Exchange’s market data
to their customers. These fees would be
charged only once per month to each
vendor account that redistributes any
ToM, cToM, or SLF data feeds,
regardless of the number of customers to
which that vendor redistributes the
data.
For all of the foregoing reasons, the
Exchange believes that the proposed
fees for the market data feeds are
reasonable.
Equitable Allocation and Not Unfairly
Discriminatory
Overall. The Exchange believes that
its proposed fees are reasonable,
equitable, and not unfairly
discriminatory because they are
designed to align the proposed 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 subscriber
or vendor 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 of
the ToM, cToM or SLF data feeds is
based on objective differences in usage
of each market data feed among
different Members, which are still
ultimately in the control of any
particular 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, which may have
additional value to market participants.
Internal Distribution Fees. The
Exchange believes the proposed
monthly fees for Internal Distribution 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 for internal distribution,
regardless of what type of business they
operate.
External Distribution Fees. The
Exchange believes the proposed
monthly fees for External Distribution of
the 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
PO 00000
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84655
feeds that choose to redistribute the
feeds externally, regardless of what
business they operate. The Exchange
also believes that the proposed monthly
fees for External Distribution are
equitably allocated when compared to
lower proposed fees for Internal
Distribution because data recipients that
are externally distributing ToM, cToM,
and/or SLF data feeds are able to
monetize such distribution and spread
such costs amongst multiple third party
data recipients, whereas the Internal
Distribution fee is applicable to use by
a single data recipient (and its affiliates).
The Exchange believes that it is
reasonable, equitable and not unfairly
discriminatory to assess Internal
Distributors fees that are less than the
fees assessed for External Distributors
for subscriptions to the ToM, cToM and
SLF data feeds because Internal
Distributors have limited, restricted
usage rights to the market data, as
compared to External Distributors,
which have more expansive usage
rights. All Members and non-Members
that decide to receive any market data
feed of the Exchange (or its affiliates,
MIAX, MIAX Pearl and MIAX Emerald),
must first execute, among other things,
the MIAX Exchange Group Data
Agreement (the ‘‘Exchange Data
Agreement’’).46 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.47 External Distributors may
distribute the Exchange’s market data to
persons who are not officers, employees
or affiliates of the External Distributor,48
and may charge their own fees for the
redistribution of such market data.
External Distributors may monetize
their receipt of the ToM, cToM and SLF
data feeds by charging their customers
fees for receipt of the Exchange’s market
data. 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
46 See Exchange Data Agreement, available at
https://www.miaxglobal.com/markets/us-options/
all-options/market-data-vendor-agreements.
47 See id.
48 See id.
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data and can adjust their own fee
structures if necessary.
The Exchange believes it is reasonable
and equitable to charge different fees for
different market data products. While
the ToM and cToM feeds provide top of
market data for the Simple Order Book
and Strategy Book respectively and have
identical fees, the SLF provides a
different data set and is thus priced
accordingly to properly compete with
comparable products offered by
competing exchanges.49
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.50 Exchange staff must then, in
turn, process and review information
reported by External Distributors to
ensure the External Distributors are
redistributing market data in
compliance with the Exchange Data
Agreement and Market Data Policies.
The Exchange believes the proposed
market data fees are equitable and not
unfairly discriminatory because the fee
level results in a reasonable and
equitable allocation of fees amongst
subscribers for similar services,
depending on whether the subscriber is
an Internal or External Distributor.
Moreover, the decision as to whether or
not to purchase market data is entirely
optional to all market participants.
Potential purchasers are not required to
purchase the market data, and the
Exchange is not required to make the
market data available. Purchasers may
request the data at any time or may
decline to purchase such data. The
allocation of fees among users is fair and
reasonable because, if market
participants decide not to subscribe to
the data feed, firms can discontinue
their use of any of the market data feeds.
For all of the foregoing reasons, the
Exchange believes that the proposed
fees are equitably allocated and not
unfairly discriminatory.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,51 the Exchange does not believe
that the proposed rule change would
impose any burden on competition that
49 See
supra note 43.
Section 6 of the Exchange’s Market Data
Policies, available at https://www.miaxglobal.com/
sites/default/files/page-files/MIAX_Exchange_
Group_Market_Data_Policies_07202021.pdf.
51 15 U.S.C. 78f(b)(8).
50 See
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is not necessary or appropriate in
furtherance of the purposes of the Act.
Intra-Market Competition
The Exchange does not believe that
the proposed fees place certain market
participants at a relative disadvantage to
other market participants because, as
noted above, the proposed fees are
associated with usage of the data feed by
each market participant based on
whether the market participant
internally or externally distributes the
Exchange data, which are still
ultimately in the control of any
particular Member, and such fees do not
impose a barrier to entry to smaller
participants. Accordingly, the proposed
fees do not favor certain categories of
market participants in a manner that
would impose a burden on competition;
rather, the allocation of the proposed
fees reflects the types of data consumed
by various market participants and their
usage thereof.
Inter-Market Competition
The Exchange does not believe the
proposed fees place an undue burden on
competition on other exchanges that is
not necessary or appropriate. In
particular, market participants are not
forced to subscribe to any of the market
data feeds. Additionally, other
exchanges have similar market data fees
with comparable rates in place for their
participants.52 The proposed fees are
based on actual costs and are designed
to enable the Exchange to recoup its
applicable costs with the possibility of
a reasonable profit on its investment as
described in the Purpose and Statutory
Basis sections. Competing exchanges are
free to adopt comparable fee structures
subject to the Commission’s rule filing
process. Allowing the Exchange, or any
new market entrant, to waive fees (as
the Exchange proposes here for all three
of its market data feeds) for a period of
time to allow it to become established
encourages market entry and thereby
ultimately promotes competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act,53 and Rule
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–
SAPPHIRE–2024–31 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–SAPPHIRE–2024–31. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
52 See
53 15
PO 00000
supra notes 42 and 43.
U.S.C. 78s(b)(3)(A)(ii).
19b–4(f)(2) 54 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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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–SAPPHIRE–2024–31 and should be
submitted on or before November 13,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.55
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–24472 Filed 10–22–24; 8:45 am]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101377; File No. SR–
CboeEDGX–2024–063]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend
Remove Volume Tier 2 of the Fee
Schedule
October 17, 2024.
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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 October
9, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (‘‘EDGX’’
or the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’) a proposed
rule change 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.
55 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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.
1. Purpose
The Exchange proposes to amend its
Fee Schedule applicable to its equities
trading platform (‘‘EDGX Equities’’) by
changing the required criteria applicable
to Remove Volume Tier 2.3 The
Exchange proposes to implement these
changes effective October 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 Act, to which
market participants may direct their
order flow. Based on publicly available
information,4 no single registered
equities exchange has more than 16% of
the market share. Thus, in such a lowconcentrated 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
3 The Exchange initially filed the proposed fee
change on October 1, 2024 (SR–CboeEDGX–2024–
062). On October 9, 2024, the Exchange withdrew
that filing and submitted this filing.
4 See Cboe Global Markets, U.S. Equities Market
Volume Summary, Month-to-Date (September 23,
2024), available at https://www.cboe.com/us/
equities/market_statistics/.
PO 00000
Frm 00137
Fmt 4703
Sfmt 4703
84657
at or above $1.00, the Exchange
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.5 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.6 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.
Under footnote 1 of the Fee Schedule,
the Exchange currently offers various
Add/Remove Volume Tiers. In
particular, the Exchange offers two
Remove Volume Tiers that each assess
a reduced fee for Members’ qualifying
orders yielding fee codes BB,7 N,8 and
W 9 where a Member reaches certain
add volume-based criteria. The
Exchange now proposes to amend the
criteria of Remove Volume Tier 2.
Currently, the criteria for Remove
Volume Tier 2 is as follows:
• Remove Volume Tier 2 provides a
reduced fee of $0.00285 per share for
securities priced at or above $1.00 to
qualifying orders (i.e., orders yielding
fee codes BB, N, or W) and a reduced
fee of 0.28% of total dollar value for
securities priced below $1.00 where: (1)
Member has an ADAV 10 of greater than
or equal to 0.30% of the TCV; 11 (2)
Member has a total remove ADV 12
5 See EDGX Equities Fee Schedule, Standard
Rates.
6 Id.
7 Fee code BB is appended to orders that remove
liquidity from EDGX (Tape B).
8 Fee code N is appended to orders that remove
liquidity from EDGX (Tape C).
9 Fee code W is appended to orders that remove
liquidity from EDGX (Tape A).
10 ADAV means average daily added volume
calculated as the number of shares added per day.
ADAV is calculated on a monthly basis.
11 TCV means total consolidated volume
calculated as the volume reported by all exchanges
and trade reporting facilities to a consolidated
transaction reporting plan for the month for which
the fees apply. The Exchange excludes from its
calculation of TCV volume on any day that the
Exchange experiences an Exchange System
Disruption, on any day with a scheduled early
market close, and the Russell Reconstitution Day.
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
E:\FR\FM\23OCN1.SGM
Continued
23OCN1
]]>Agencies
[Federal Register Volume 89, Number 205 (Wednesday, October 23, 2024)]
[Notices]
[Pages 84646-84657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-24472]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101368; File No. SR-SAPPHIRE-2024-31]
Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Establish Fees for the Exchange's Proprietary Market Data Feeds: (i)
MIAX Sapphire Top of Market Data Feed; (ii) MIAX Sapphire Complex Top
of Market Data Feed; and (iii) MIAX Sapphire Liquidity Feed
October 17, 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 October 4, 2024, MIAX Sapphire, LLC (``MIAX Sapphire'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the MIAX Sapphire
Options Exchange Fee Schedule (the ``Fee Schedule'') to establish fees
for the Exchange's proprietary market data feeds: (i) MIAX Sapphire Top
of Market (``ToM'') data feed; (ii) MIAX Sapphire Complex Top of Market
(``cToM'') data feed; and (iii) MIAX Sapphire Liquidity Feed (``SLF'').
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings, at MIAX Sapphire'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
On July 19, 2024, the Exchange filed a proposal to establish the
ToM, cToM and SLF data feeds (collectively, the ``market data feeds'')
\3\ for MIAX Sapphire. The Exchange now proposes to amend the Fee
Schedule to establish fees for each of these market data feeds.\4\ The
Exchange also proposes to waive such fees during an Initial Waiver
Period,\5\ which would run for six full calendar months from the
initial effective date (August 12, 2024) of the proposed fees to
incentivize market participants to subscribe and make the Exchange's
proprietary market data more widely available. The Exchange initially
filed this proposal on August 8, 2024 (SR-SAPPHIRE-2024-18). The
Exchange withdrew SR-SAPPHIRE-2024-18 on October 3, 2024 and submitted
this proposal.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 100588 (July 25,
2024), 89 FR 61554 (July 31, 2024) (SR-SAPPHIRE-2024-01).
\4\ The Exchange established the Definitions section of the Fee
Schedule in a separate rule filing. See Securities Exchange Act
Release No. 100683 (August 9, 2024), 89 FR 66467 (August 15, 2024)
(SR-SAPPHIRE-2024-13).
\5\ The term ``Initial Waiver Period'' means, for each
applicable fee, the period of time from the initial effective date
of the MIAX Sapphire Fee Schedule plus an additional six (6) full
calendar months after the completion of the partial month of the
Exchange launch. See the Definitions section of the Fee Schedule.
---------------------------------------------------------------------------
The ToM data feed contains top of book quotations based on options
orders \6\ and quotes \7\ resting on the Exchange's Simple Order Book
\8\ as well as administrative messages, such as other real-time
Exchange System \9\ functions.\10\ The cToM data feed includes the same
types of information as ToM, but for Complex Orders \11\ on the
Exchange's Strategy Book.\12\ This information includes the Exchange's
best bid and offer for a complex strategy,\13\ with aggregate size,
based on
[[Page 84647]]
displayable orders in the complex strategy. The cToM data feed also
provides subscribers with the following information: (i) the
identification of the complex strategies currently trading on the
Exchange; (ii) complex strategy last sale information; and (iii) the
status of securities underlying the complex strategy (e.g., halted,
open, or resumed). ToM subscribers are not required to subscribe to
cToM, and cToM subscribers are not required to subscribe to ToM.
---------------------------------------------------------------------------
\6\ The term ``order'' means a firm commitment to buy or sell
option contracts. See Exchange Rule 100.
\7\ The term ``quote'' or ``quotation'' The term ``quote'' or
``quotation'' means a bid or offer entered by a Market Maker as a
firm order that updates the Market Maker's previous bid or offer, if
any. When the term order is used in the Exchange's Rules and a bid
or offer is entered by the Market Maker in the option series to
which such Market Maker is registered, such order shall, as
applicable, constitute a quote or quotation for purposes of the
Exchange's Rules. See Exchange Rule 100.
\8\ The ``Simple Order Book'' is the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 100.
\9\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\10\ See MIAX Sapphire Options Exchange User Manual, Version
1.0.0, Section 5.06, dated December 11, 2023, available at https://www.miaxglobal.com/miax_sapphire_user_manual.pdf (last visited July
24, 2024).
\11\ In sum, a ``Complex Order'' is ``any order involving the
concurrent purchase and/or sale of two or more different options in
the same underlying security (the `legs' or `components' of the
complex order), for the same account. . . .'' See Exchange Rule
518(a).
\12\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders. See Exchange Rule 100.
\13\ The term ``complex strategy'' means a particular
combination of components and their ratios to one another. New
complex strategies can be created as the result of the receipt of a
complex order or by the Exchange for a complex strategy that is not
currently in the System. The Exchange may limit the number of new
complex strategies that may be in the System at a particular time
and will communicate this limitation to Members via Regulatory
Circular. See Exchange Rule 518(a).
---------------------------------------------------------------------------
The Exchange notes that there is no requirement that any Member
\14\ or market participant subscribe to either the ToM or cToM data
feeds. Instead, a Member may choose to maintain subscriptions to ToM or
cToM based on their trading strategies and individual business
decisions. Moreover, persons (including broker-dealers) who subscribe
to any exchange proprietary data feed must also have equivalent access
to consolidated Options Information \15\ from the Options Price
Reporting Authority (``OPRA'') for the same classes or series of
options that are included in the proprietary data feed (including for
exclusively listed products), and proprietary data feeds cannot be used
to meet that particular requirement. The proposed fees described below
would not apply differently based upon the size or type of firm, but
rather based upon the type of subscription a firm has to ToM or cToM
and their use thereof, which are based upon factors deemed relevant by
each firm.
---------------------------------------------------------------------------
\14\ The term ``Member'' means an individual or organization
that is registered with the Exchange pursuant to Chapter II of these
Rules for purposes of trading on the Exchange as an ``Electronic
Exchange Member'' or ``Market Maker.'' Members are deemed
``members'' under the Exchange Act. See Exchange Rule 100.
\15\ The term ``consolidated Options Information'' means
``consolidated Last Sale Reports combined with either consolidated
Quotation Information or the BBO furnished by OPRA . . .'' Access to
consolidated Options Information is deemed ``equivalent'' if both
kinds of information are equally accessible on the same terminal or
work station. See Limited Liability Company Agreement of Options
Price Reporting Authority, LLC (``OPRA Plan''), Section 5.2(c)(iii).
The Exchange notes that this requirement under the OPRA Plan is also
reiterated under the Cboe Global Markets Global Data Agreement and
Cboe Global Markets North American Data Policies, which subscribers
to any exchange proprietary product must sign and are subject to,
respectively. Additionally, the Exchange's Data Order Form (used for
requesting the Exchange's market data products) requires
confirmation that the requesting market participant receives data
from OPRA.
---------------------------------------------------------------------------
The SLF data feed provides market participants with a direct data
feed that allows subscribers to receive real-time updates of options
orders, products traded on MIAX Sapphire, MIAX Sapphire System status,
and MIAX Sapphire underlying trading status. When an order is received
or an order state changes, published order information will be
transmitted over SLF, including time stamp, action, product ID, order
ID, order side, order type, order price, original order size, open
order size, time in force, origin, open or close, and route
instruction. For complex orders, complex strategy definition
notification and complex order notice are also included. Subscribers to
the SLF will get a list of all options symbols and strategies that will
be traded and sourced on that feed at the start of every session.
Each of the proposed fees are described below. Again, the Exchange
proposes to not charge the proposed fees during the Initial Waiver
Period. Even though the Exchange proposes to waive these particular
fees during the Initial Waiver Period, the Exchange believes that it is
appropriate to provide market participants with the overall structure
of the fees by outlining the structure and amounts in the Fee Schedule
so that there is general awareness that the Exchange intends to assess
such fees upon expiration of the defined term of the Initial Waiver
Period.
ToM
The Exchange proposes to charge a monthly fee of $1,200 to Internal
Distributors \16\ and $2,000 to External Distributors for the ToM data
feed after the expiration of the Initial Waiver Period. The proposed
fees are intended to cover the Exchange's costs with compiling and
producing the ToM data feed described in the Exchange's cost analysis
detailed below. The Exchange proposes to assess Internal Distributors
fees that are less than the fees assessed for External Distributors
because External Distributors may monetize their receipt of the ToM
data feed by charging their customers fees for receipt of the
Exchange's data. Internal Distributors do not have the same ability.
The Exchange does not propose to charge any additional fees based on a
Distributor's use of the ToM data feed (e.g., displayed versus non-
displayed use), redistribution fees, or individual per user fees.
---------------------------------------------------------------------------
\16\ A ``Distributor'' of MIAX Sapphire data is any entity that
receives a feed or file of data either directly from MIAX Sapphire
or indirectly through another entity and then distributes it either
internally (within that entity) or externally (outside that entity).
All Distributors are required to execute an Exchange Data Agreement.
See Fee Schedule, proposed Section 6)a).
---------------------------------------------------------------------------
cToM
The Exchange proposes to charge a monthly fee of $1,200 to Internal
Distributors and $2,000 to External Distributors for the cToM data feed
after the expiration of the Initial Waiver Period. The proposed fees
are intended to cover the Exchange's costs with compiling and producing
the cToM data feed described in the Exchange's cost analysis detailed
below. The Exchange proposes to assess Internal Distributors fees that
are less than the fees assessed for External Distributors because
External Distributors may monetize their receipt of the cToM data feed
by charging their customers fees for receipt of the Exchange's data.
Internal Distributors do not have the same ability. The Exchange does
not propose to charge any additional fees based on a Distributor's use
of the cToM data feed (e.g., displayed versus non-displayed use),
redistribution fees, or individual per user fees.
SLF
The Exchange proposes to charge a monthly fee of $3,000 to Internal
Distributors and $3,500 to External Distributors for the SLF data feed
after the expiration of the Initial Waiver Period. The proposed fees
are intended to cover the Exchange's costs with compiling and producing
the SLF data feed described in the Exchange's Cost Analysis detailed
below. The Exchange proposes to assess Internal Distributors fees that
are less than the fees assessed for External Distributors because
External Distributors may monetize their receipt of the SLF data feed
by charging their customers fees for receipt of the Exchange's data.
Internal Distributors do not have the same ability. The Exchange does
not propose to charge any additional fees based on a Distributor's use
of the SLF data feed (e.g., displayed versus non-displayed use),
redistribution fees, or individual per user fees.
* * * * *
The Exchange proposes that each Distributor would be charged for
each month it is credentialed to receive ToM, cToM, and/or SLF in the
Exchange's production environment. Fees for each of the market data
feeds will be reduced for new Distributors who subscribe to a market
data feed mid-month for the first month they subscribe following the
expiration of the Initial Waiver Period, as described above. New
Distributors who subscribe mid-month for each market data feed would be
assessed a pro-rata percentage of the applicable
[[Page 84648]]
Distribution fee based on the percentage of the number of trading days
remaining in the affected calendar month as of the date on which they
have been first credentialed to receive each of the market data feeds
in the production environment, divided by the total number of trading
days in the affected calendar month.
The Exchange believes the proposed fees will allow the Exchange to
offset the expenses the Exchange has and will continue to incur
associated with compiling and disseminating the market data 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 issued an alert publicly announcing the proposed fees
on July 23, 2024.\17\
---------------------------------------------------------------------------
\17\ See Fee Change Alert, MIAX Sapphire Options Exchange--
Summary of Proposed Non-Transaction Fees (July 23, 2024), available
at https://www.miaxglobal.com/alert/2024/07/23/miax-sapphire-options-exchange-summary-proposed-non-transaction-fees?nav=all.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) \18\ of the Act in general, and
furthers the objectives of Section 6(b)(4) \19\ of the Act, in
particular, in that it is designed to provide for the equitable
allocation of reasonable dues, fees and other charges among its Members
and other persons using its facilities. Additionally, the Exchange
believes that the proposed fees are consistent with the objectives of
Section 6(b)(5) \20\ of the Act in that they are designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to a free and open market and
national market system, and, in general, to protect investors and the
public interest, and, particularly, are not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(4).
\20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In 2019, Commission staff published guidance suggesting the types
of information that self-regulatory organizations (``SROs'') may use to
demonstrate that their fee filings comply with the standards of the
Exchange Act (the ``Staff Guidance'').\21\ While the Exchange
understands that the Staff Guidance does not create new legal
obligations on SROs, the Staff Guidance is consistent with the
Exchange's view about the type and level of transparency that exchanges
should meet to demonstrate compliance with their existing obligations
when they seek to charge new fees. The Staff Guidance provides that in
assessing the reasonableness of a fee, the Staff would consider whether
the fee is constrained by significant competitive forces. To determine
whether a proposed fee is constrained by significant competitive
forces, the Staff Guidance further provides that the Staff would
consider whether the evidence provided by an SRO in a fee filing
proposal demonstrates (i) that there are reasonable substitutes for the
product or service that is the subject of a proposed fee; (ii) that
``platform'' competition constrains the fee; and/or (iii) that the
revenue and cost analysis provided by the SRO otherwise demonstrates
that the proposed fee would not result in the SRO taking supra-
competitive profits.\22\ The Exchange provides sufficient evidence
below to support the findings that the proposed fees are reasonable
because the projected revenue and cost analysis contained herein
demonstrates that the proposed fees would not result in the Exchange
taking supra-competitive profits.
---------------------------------------------------------------------------
\21\ See Staff Guidance on SRO Rule Filings Relating to Fees
(May 21, 2019), available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
\22\ Id.
---------------------------------------------------------------------------
Cost Analysis
In general, 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
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, cToM,
and SLF feeds (the ``Cost Analysis'').
Accordingly, in proposing to charge fees for market data, the
Exchange is especially diligent in assessing those fees in a
transparent way against its own aggregate costs of providing the
related service, and in carefully and transparently assessing the
impact on Members--both generally and in relation to other Members--to
ensure the fees will not create a financial burden on any participant
and will not have an undue impact in particular on smaller Members and
competition among Members in general. The Exchange does not believe it
needs to otherwise address questions about market competition in the
context of this filing because the proposed fees are consistent with
the Act based on the Exchange's 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,\23\ and Rule 19b-4
thereunder,\24\ with respect to the types of information SROs should
provide when filing fee changes, and Section 6(b) of the Act,\25\ which
requires, among other things, that exchange fees be reasonable and
equitably allocated,\26\ not designed to permit unfair
discrimination,\27\ and that they do not impose a burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.\28\ This proposal addresses those requirements, and the
analysis and data in this section are designed to clearly and
comprehensively show how they are met.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78s(b)(1).
\24\ 17 CFR 240.19b-4.
\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(4).
\27\ 15 U.S.C. 78f(b)(5).
\28\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
The Exchange's affiliates \29\ previously completed a study of
their aggregate costs to produce market data and provide connectivity
and port services, defined above as its Cost Analysis.\30\ Personnel
began to plan for and develop the Exchange beginning in early 2023, and
costs included in this Cost Analysis are related to the development and
buildout of the Exchange since that time. During the Exchange's
development and buildout that occurred throughout 2023 and continues to
today, the Exchange routinely studied its
[[Page 84649]]
aggregate costs to produce and disseminate Exchange market data, which
were used to determine the proposed pricing for the market data feeds
as part of the Exchange's Cost Analysis. 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'').
---------------------------------------------------------------------------
\29\ The affiliated markets include Miami International
Securities Exchange, LLC (``MIAX''); separately, the options and
equities markets of MIAX PEARL, LLC (``MIAX Pearl''); and MIAX
Emerald, LLC (``MIAX Emerald'').
\30\ See Securities Exchange Act Release Nos. 100041 (April 26,
2024), 89 FR 35868 (May 2, 2024) (SR-MIAX-2024-25); 100319 (June 12,
2024), 89 FR 51562 (June 18, 2024) (SR-PEARL-2024-25); 100042 (April
26, 2024), 89 FR 35879 (May 2, 2024) (SR-EMERALD-2024-15). The
Exchange frequently updates it Cost Analysis as strategic
initiatives change, costs increase or decrease, and market
participant needs and trading activity (once live trading begins)
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 for each cost driver as part of the
Exchange's 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,\31\ 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 five separate
and distinct marketplaces,\32\ the Exchange must determine the costs
associated with each actual market--as opposed to the Exchange's parent
company simply concluding that all cost drivers are the same at each
individual marketplace and dividing total cost by five (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 each exchange for the same cost drivers,
due to the unique factors of each marketplace as described above. This
allocation methodology also ensures that no cost would be allocated
twice or double-counted between the Exchange and its affiliated
markets. The Finance Team then consolidates the budget and sends it to
senior management, including the Chief Financial Officer and Chief
Executive Officer, for review and approval. Next, the budget is
presented to the Board of Directors and the Finance and Audit
Committees for each exchange for their approval. The above steps
encompass the first step of the cost allocation process. For the 2024
budget process for MIAX Sapphire, only costs and anticipated revenues
associated with the electronic exchange were considered. While MIAX
Sapphire plans on opening its trading floor in 2025 costs and
anticipated revenues from the trading floor were not included as part
of any analysis for MIAX Sapphire for 2024.\33\
---------------------------------------------------------------------------
\31\ For example, MIAX Sapphire maintains 8 matching engines,
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.
\32\ MIAX Options Exchange, MIAX Pearl Options Exchange, MIAX
Pearl Equities Exchange, MIAX Emerald Exchange, and the MIAX
Sapphire Exchange.
\33\ Additionally, while MIAX Sapphire received approval as a
national securities exchange on July 15, 2024, start-up costs
associated with the launch of MIAX Sapphire were not included in the
costs used for the 2024 electronic exchange projections.
---------------------------------------------------------------------------
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., market data, connectivity, ports,
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, 62% of the data
center total expense amount is allocated to all provisions of
connectivity), with smaller allocations to ToM, cToM and SLF (2.0%
combined), and the remainder to the provision of ports, transaction
execution, and membership services (36%). This next level of the
allocation methodology at the individual exchange level also took into
account factors similar to those set forth under the first step of the
allocation methodology process described above, to determine the
appropriate allocation to connectivity or market data versus
allocations for other services. This allocation methodology was
developed through an assessment of costs with senior management
intimately familiar with each area of the Exchange's operations. After
adopting this allocation methodology, the Exchange then applied an
allocation of each cost driver to each core service, resulting in the
cost allocations described below. Each of the below cost allocations is
unique to the Exchange and represents a percentage of overall cost that
was allocated to the Exchange pursuant to the initial allocation
described above.
By allocating segmented costs to each core service, the Exchange
was able to estimate by core service the potential margin it might earn
based on different fee models. The Exchange notes that it has five
primary sources of revenue that it can potentially use to fund its
operations: transaction fees, connectivity and port service fees,
membership fees, regulatory fees, and market data fees. Accordingly,
the Exchange must cover its expenses from these five primary sources of
revenue. The Exchange also notes that as a general matter each of these
sources of revenue is based on services that are interdependent. For
instance, the Exchange's system for executing transactions is dependent
on physical hardware and connectivity; only Members and parties that
they sponsor to participate directly on the Exchange may submit orders
to the Exchange; some 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
[[Page 84650]]
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, 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 the market data feeds, and, if such expense did so relate, what
portion (or percentage) of such expense actually supports the provision
of the market data feeds, and thus bears a relationship that is, ``in
nature and closeness,'' directly related to the 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 ToM, cToM, and SLF data feeds is $59,161 (the Exchange
divided the annual cost for each of ToM, cToM, and SLF by 12 months,
then added all three numbers together), as further detailed below.
Costs Related To Offering ToM, cToM, and SLF Data Feeds \34\
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\34\ The Exchange notes that in recent non-transaction fee
filings by the Exchange's affiliated markets, those exchanges
included a comparison and explanation where certain cost driver
allocations and expense amounts materially differed for the same
cost driver among the affiliated markets. See, e.g., Securities
Exchange Act Release No. 100041 (April 26, 2024), 89 FR 35868 (May
2, 2024) (SR-MIAX-2024-25). The Exchange believes a similar
comparison and explanation is not appropriate here because the
Exchange has yet to commence operations and the allocations provided
herein may change over time as the Exchange matures and its
operations adjust based on its trading volumes and number of market
data subscribers. In contrast, MIAX and MIAX Emerald are more mature
markets with a steady market data subscriber base and a clearer
estimation of their costs associated with producing and
disseminating their market data feeds. Further, as a new exchange,
MIAX Sapphire proposes to waive the fees for the market data feeds
for a specified period of time in order to build market share, which
in turn, should attract more market data subscribers. If the
Exchange does not attract as many market data subscribers as
currently projected for the Cost Analysis, the Exchange may need to
reduce its market data fees or waive the fees for a longer period of
time. Accordingly, the Exchange believes it is reasonable to not
provide a similar comparison of cost driver allocations until the
Exchange has time to build its subscriber base for the market data
feeds.
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The following chart details the individual line-item (annual) costs
considered by the Exchange to be related to offering the ToM, cToM, and
SLF data feeds to its Members and other customers, as well as the
percentage of the Exchange's overall costs that such costs represent
for such area (e.g., as set forth below, the Exchange allocated
approximately 6.2% of its overall Human Resources cost to offering ToM,
cToM, and SLF data feeds).
----------------------------------------------------------------------------------------------------------------
Allocated Allocted
Cost drivers annual cost monthly cost % of all
\a\ \b\
----------------------------------------------------------------------------------------------------------------
Human Resources................................................. $631,203 $52,600 6.2
Connectivity (external fees, cabling, switches, etc.)........... 511 43 2.0
Internet Services and External Market Data...................... 0.00 0.00 0.0
Data Center..................................................... 12,298 1,025 2.0
Hardware and Software Maintenance & Licenses.................... 9,933 828 2.0
Depreciation.................................................... 13,656 1,138 1.1
Allocated Shared Expenses....................................... 42,326 3,527 1.5
-----------------------------------------------
Total....................................................... 709,927 59,161 4.6
----------------------------------------------------------------------------------------------------------------
\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.
Human Resources
The Exchange notes that it and its affiliated markets anticipate
that by year-end 2024, there will be 289 employees (excluding employees
at non-options/equities exchange subsidiaries of Miami International
Holdings, Inc. (``MIH''), the holding company of the Exchange and its
affiliated markets), and each department leader has direct knowledge of
the time spent by each employee with respect to the various tasks
necessary to operate the Exchange. Specifically, twice a year, and as
needed with additional new hires and new project initiatives, in
consultation with employees as needed, managers and department heads
assign a percentage of time to every employee and then allocate that
time amongst the Exchange and its affiliated markets to determine each
market's individual Human Resources expense. Then, managers and
department heads assign a percentage of each employee's time allocated
to the Exchange into buckets including network connectivity, ports,
market data, and other exchange services. This process ensures that
every employee is 100% allocated, ensuring there is no double counting
between the Exchange and its affiliated markets.
For personnel costs (Human Resources), the Exchange calculated an
allocation of employee time for employees whose functions include
providing and maintaining the 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 the market data feeds. From that portion allocated to the
Exchange that applied to the market data feeds, the Exchange then
allocated a weighted average of 7.3% of each employee's time from the
above group to the 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
[[Page 84651]]
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 the market data feeds (4.9%, 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 7.3% 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 the 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 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 the market data
feeds, 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 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 ToM, cToM, and SLF data
feeds).\35\
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\35\ 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 market data fee proposals in 2022 and 2023. 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 IEX's or MEMX'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.
---------------------------------------------------------------------------
Internet Services and External Market Data
The next cost driver consists of internet services and external
market data. Internet services includes third-party service providers
that provide the internet, fiber and bandwidth connections between the
Exchange's networks, primary and secondary data centers, and office
locations in Princeton and Miami. External market data includes fees
paid to third parties, including other exchanges, to receive market
data. The Exchange did not allocate any costs associated with internet
services or external market data to the ToM, cToM or SLF 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 the Exchange 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 to the
market data feeds. The Exchange believes it is reasonable to apply the
same proportionate percentage of Data Center costs to that of the
Connectivity cost driver.
Hardware and Software Maintenance and Licenses
Hardware and Software Maintenance and Licenses includes hardware
and software licenses used to operate and monitor physical assets
necessary to offer the market data feeds. Because the hardware and
software license fees are correlated to the servers used by the
Exchange, the Exchange again applied an allocation of 2.0% of its costs
for Hardware and Software Maintenance and Licenses to the market data
feeds.
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
[[Page 84652]]
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 1.1% of its allocated
depreciation costs to providing the market data feeds.
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.\36\
These general shared expenses are incurred by the Exchange's parent
company, MIH, as a direct result of operating the Exchange and its
affiliated markets.
---------------------------------------------------------------------------
\36\ The Exchange notes that MEMX allocated a precise amount of
10% of the overall cost for directors in a similar non-transaction
fee filing. See Securities Exchange Act Release No. 97130 (March 13,
2023), 88 FR 16491 (March 17, 2023) (SR-MEMX-2023-04). The Exchange
does not calculate is expenses at that granular a level. Instead,
director costs are included as part of the overall general
allocation.
---------------------------------------------------------------------------
The Exchange employed a process to determine a reasonable
percentage to allocate general shared expenses to 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., ToM, cToM, and SLF, 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 ToM, cToM
and SLF.
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 believes this allocation percentage is
reasonable because, while the overall dollar amount may be higher than
other cost drivers, the 1.5% 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 ToM, cToM,
and SLF are main contributors.
* * * * *
Approximate Cost for ToM, cToM, and SLF per Month
After determining the approximate allocated monthly cost related to
the market data feeds combined, the total monthly cost for the market
data feeds of $59,161 was divided by the total number of projected
subscribers \37\ to ToM, cToM and SLF that the Exchange anticipates
will maintain market data subscriptions following the expiration of the
waiver periods for each respective market data feed (29 Internal
Distributors + 4 External Distributors = 33 total Distributors), to
arrive at a cost of approximately $1,793 per month per subscription
(rounded to the nearest dollar). Due to the nature of this particular
cost, this allocation methodology results in an allocation among the
Exchange and its affiliated markets based on set quantifiable criteria,
i.e., projected number of ToM, cToM, and SLF subscribers.
---------------------------------------------------------------------------
\37\ The methodology used by the Exchange to project the number
of subscribers for each of the market data feeds once the Initial
Waiver Period expires can be found under the section titled
``Projected Revenue'', below.
---------------------------------------------------------------------------
Cost Analysis--Additional Discussion
In conducting its Cost Analysis, the Exchange did not allocate any
of its expenses in full to any core service (including market data) and
did not double-count any expenses. Instead, as described above, the
Exchange allocated applicable cost drivers across its core services and
used the same Cost Analysis to form the basis of this proposal. For
instance, in calculating the Human Resources expenses to be allocated
to market data based upon the above described methodology, the Exchange
allocated a higher percentage of dedicated network infrastructure
personnel (7.3%) due to their focus on functions necessary to provide
market data. The remaining 92.7% of the Human Resources expense was
then 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 4.9% for costs
associated with certain specified personnel who work closely with and
support network infrastructure personnel.
In total, the Exchange allocated 6.2% of its personnel costs (Human
Resources) to providing the market data feeds. In turn, the Exchange
allocated the remaining 93.8% 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
[[Page 84653]]
network. Without this equipment, the Exchange would not be able to
operate the network and provide the market data feeds to its Members
and their customers. However, the Exchange did not allocate all of the
depreciation and amortization expense toward the cost of providing the
market data feeds, but instead allocated approximately 1.1% of the
Exchange's overall depreciation and amortization expense to the market
data feeds combined. The Exchange allocated the remaining depreciation
and amortization expense (98.9%) 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 revenue estimates are based upon the Exchange's
projected number of Internal and External Distributors for each of the
ToM, cToM, and SLF data feeds upon the expiration of the fee waiver
periods for each market data feed and then annualized. 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 attracting
customers to a new exchange and then successfully retain those
customers that wish to maintain subscriptions to the market data feeds
or obtain new customers 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, which will
only be for part of the year. It is possible, however, that actual
costs may be higher or lower. The proposed fee waivers for the market
data feeds mean that the Exchange will receive no revenue from market
data distribution in 2024. To the extent the Exchange sees growth in
use of market data services in 2025, following the expiration of the
Initial Waiver Period, it will begin to receive 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 and expiration of the fee waivers. The
Exchange expects that it may propose to adjust fees at that time, to
increase fees in the event that revenues fail to cover costs and a
reasonable mark-up of such costs. Similarly, the Exchange may propose
to decrease fees in the event that revenue materially exceeds our
current projections. In addition, the Exchange will periodically
conduct a review to inform its decision making on whether a fee change
is appropriate (e.g., to monitor for costs increasing/decreasing or
subscribers increasing/decreasing, etc. in ways that suggest the then-
current fees are becoming dislocated from the prior cost-based
analysis) and would propose to increase fees in the event that revenues
fail to cover its costs and a reasonable mark-up, or decrease fees in
the event that revenue or the mark-up materially exceeds our current
projections. In the event that the Exchange determines to propose a fee
change, the results of a timely review, including an updated cost
estimate, will be included in the rule filing proposing the fee change.
More generally, the Exchange believes that it is appropriate for an
exchange to refresh and update information about its relevant costs and
revenues in seeking any future changes to fees, and the Exchange
commits to do so.
Projected Revenue \38\
---------------------------------------------------------------------------
\38\ For purposes of calculating projected annualized revenue
for the market data feeds, the Exchange used projected monthly
revenues for the market data feeds once the Initial Waiver Period
expires.
---------------------------------------------------------------------------
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 establishing
fees for market data subscribers. Subscribers to the ToM, cToM and SLF
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, connectivity service fees, 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 $709,927. Based on projected ToM, cToM
and SLF subscribers once the waiver periods expire for the market data
feeds, the Exchange projects to generate annual revenue of
approximately $726,000 for the market data feeds combined. The Exchange
believes this represents a modest profit of 2.2% when compared to the
cost of providing the market data feeds on an annualized basis once the
waiver periods expire, 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 projected number of Distributors
for each of the market data feeds, the Exchange reviewed its
anticipated Distributor population from July 2024 based on Distributor
on-boarding documents the Exchange received that showed interest in the
market data products in the month preceding when the Exchange filed its
proposal to implement the proposed fees, and assumed a 5% attrition
rate. The 5% attrition rate is based upon the Exchange's experience on
its affiliate exchanges where it has been observed that a percentage of
subscribers do not continue their market data subscriptions after the
expiration of fee waivers.
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 of the Exchange associated with the market data
feeds.
The Exchange's affiliated markets, MIAX and MIAX Emerald, charge
similar or higher rates for their respective ToM, cToM and MOR data
feeds.\39\ The Exchange's proposed fees for its market data feeds are
also comparable to, or lower than, the fees for similar products
charged by competing options exchanges. For example, for Internal
Distributors of ToM and cToM, the Exchange proposes a lower fee than
the fees charged by
[[Page 84654]]
Nasdaq ISE, LLC (``ISE'') for ISE's Top Quote Feed \40\ and NYSE Arca,
Inc. (``Arca'') for Arca's Top Datafeed \41\ and Complex Order Book
data feed.\42\ Additionally, Nasdaq PHLX LLC (``PHLX'') assesses the
same fees for the PHLX Orders data feed as proposed by the Exchange for
its SLF data feed.\43\
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\39\ See MIAX Fee Schedule, Sections (6)(a) and (c); and MIAX
Emerald Fee Schedule, Sections (6)(a) and (c).
\40\ See ISE Options 7: Pricing Schedule, Section 10, Market
Data, Section H. Nasdaq ISE Top Quote Feed, available at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207 (last
visited June 13, 2024) (assessing Professional internal and external
distributors $3,000 per month, plus $20 per month per controlled
device).
\41\ See NYSE Proprietary Market Data Pricing Guide, Section
6.3, NYSE Arca Options (dated May 4, 2022), available at: https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf (last
visited June 13, 2024). Fees for the NYSE Arca Options Top Datafeed,
which is the comparable product to ToM, are $3,000 per month for
access (internal use) and an additional $2,000 per month for
redistribution (external distribution), compared to the Exchange's
proposed fees of $1,200 and $2,000 for Internal and External
Distributors, respectively. In addition, for its NYSE Arca Options
Top Datafeed, NYSE Arca charges for three different categories of
non-display usage, and user fees, both of which the Exchange does
not propose to charge, causing the overall cost of NYSE Arca Options
Top Datafeed to far exceed the Exchange's proposed rates.
\42\ See NYSE Proprietary Market Data Pricing Guide, Section
6.4, NYSE Arca Options Complex Order Book (dated May 4, 2022),
available at: https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf (last visited June 13, 2024) (assessing
an access fee of $1,500 per month, plus a $1,000 redistribution fee,
$1,000 non-display fee, and $20 fee per professional user).
\43\ See PHLX Options 7: Pricing Schedule, Section 10.
Proprietary Data Feed Fees, PHLX Orders, available at https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207
(last visited June 13, 2024) (assessing internal distributors $3,000
per month and external distributors $3,500 per month for the PHLX
Orders data feed).
---------------------------------------------------------------------------
Accordingly, the Exchange believes that comparable and competitive
pricing are key factors in determining whether a proposed fee meets the
requirements of the Act, regardless of whether that same fee across the
Exchange's affiliated markets leads to slightly different profit
margins due to factors outside of the Exchange's control (i.e., more
subscribers to ToM, cToM, and/or SLF).
The Exchange also reiterates that it proposes to waive the fees for
the market data feeds for a defined period of time. The Exchange is
owned by a holding company that is the parent company of five 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, which
currently operates only one exchange, in its recent non-transaction fee
filing allocated the entire amount of that same cost to a single
exchange. This can result in lower profit margins for the non-
transaction fees proposed by IEX because the single allocated cost does
not experience the efficiencies and synergies that result from sharing
costs across multiple platforms.\44\ 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.
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\44\ The Exchange acknowledges that IEX included in its proposal
to adopt market data fees after offering market data for free an
analysis of what its projected revenue would be if all of its
existing customers continued to subscribe versus what its projected
revenue would be if a limited number of customers subscribed due to
the new fees. See Securities Exchange Act Release No. 94630 (April
7, 2022), 87 FR 21945 (April 13, 2022) (SR-IEX-2022-02). MEMX did
not include a similar analysis in either of its recent non-
transaction fee proposals. See, e.g., supra notes 35 and 36. The
Exchange does not believe a similar analysis would be useful here
because it is part of a holding company that operates five different
markets.
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Further, the proposal reflects the Exchange's efforts to control
its costs, which the Exchange does on an ongoing basis as a matter of
good business practice. A potential profit margin should not be judged
alone based on its size, but is also indicative of costs management and
whether the ultimate fee reflects the value of the services provided.
For example, a profit margin on one exchange should not be deemed
excessive where that exchange has been successful in controlling its
costs, but not excessive where on another exchange where that exchange
is charging comparable fees but has a lower profit margin due to higher
costs. Doing so could have the perverse effect of not incentivizing
cost control where higher costs alone 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--supra-competitive profits, the standard set forth in the Staff
Guidance. The Exchange believes the Cost Analysis and related
projections in this filing demonstrate this fact.
Reasonableness
Overall. With regard to reasonableness, the Exchange understands
that the Commission has traditionally taken a market-based approach to
examine whether the exchange making the fee proposal was subject to
significant competitive forces in setting the terms of the proposal.
The Exchange understands that in general the analysis considers whether
the exchange has demonstrated in its filing that (i) there are
reasonable substitutes for the product or service; (ii) ``platform''
competition constrains the ability to set the fee; and/or (iii) revenue
and cost analysis shows the fee would not result in the exchange taking
supra-competitive profits. If the exchange demonstrates that the fee is
subject to significant competitive forces, the Exchange understands
that in general the analysis will next consider whether there is any
substantial countervailing basis to suggest the fee's terms fail to
meet one or more standards under the Exchange Act. The Exchange further
understands that if the filing fails to demonstrate that the fee is
constrained by competitive forces, the exchange must provide a
substantial basis, other than competition, to show that it is
consistent with the Exchange Act, which may include production of
relevant revenue and cost data pertaining to the product or service.
The Exchange has not determined its proposed overall market data
fees based on assumptions about market competition, instead relying
upon a cost-plus model to determine a reasonable fee structure that is
informed by the Exchange's understanding of different uses of the
products by different types of participants. In this context, the
Exchange believes the proposed fees overall are fair and reasonable as
a form of cost recovery
[[Page 84655]]
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 $726,000 once the fee waivers expire
for the market data feeds, representing a potential mark-up of just
2.2% over the cost of providing the 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 less than the fees charged by competing options
exchanges for comparable market data products, notwithstanding that the
competing exchanges may have different system architectures that may
result in different cost structures for the provision of market data.
The Exchange believes the proposed fees for the market data
products are reasonable when compared to fees for comparable products,
compared to which the Exchange's proposed fees are generally lower, as
well as other comparable data feeds priced significantly higher than
the Exchange's proposed fees for the market data feeds.
Internal Distribution Fees. The Exchange believes it is reasonable
to charge Internal Distribution fees because such data assists Internal
Distributors in their profit-generating activities. The Exchange also
believes that the proposed monthly Internal Distribution fees for ToM,
cToM, and SLF are reasonable as they are similar to the amounts charged
by at least one other exchange of comparable size for comparable data
products, and lower than the fees charged by other exchanges for
comparable data products.\45\
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\45\ See supra notes 42 and 43.
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External Distribution Fees. The Exchange believes that it is
reasonable to charge External Distribution fees for the market data
feeds because vendors receive enumeration from redistributing the data
in their business products provided to their customers. The Exchange
believes that charging External Distribution fees is reasonable because
the vendors that would be charged such fees profit by re-transmitting
the Exchange's market data to their customers. These fees would be
charged only once per month to each vendor account that redistributes
any ToM, cToM, or SLF data feeds, regardless of the number of customers
to which that vendor redistributes the data.
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the market data feeds are reasonable.
Equitable Allocation and Not Unfairly Discriminatory
Overall. The Exchange believes that its proposed fees are
reasonable, equitable, and not unfairly discriminatory because they are
designed to align the proposed 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 subscriber or vendor
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 of the ToM, cToM or SLF
data feeds is based on objective differences in usage of each market
data feed among different Members, which are still ultimately in the
control of any particular 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, which may have additional value to market participants.
Internal Distribution Fees. The Exchange believes the proposed
monthly fees for Internal Distribution 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 for internal distribution, regardless of what type of
business they operate.
External Distribution Fees. The Exchange believes the proposed
monthly fees for External Distribution of the 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 Distribution are equitably
allocated when compared to lower proposed fees for Internal
Distribution because data recipients that are externally distributing
ToM, cToM, and/or SLF data feeds are able to monetize such distribution
and spread such costs amongst multiple third party data recipients,
whereas the Internal Distribution fee is applicable to use by a single
data recipient (and its affiliates).
The Exchange believes that it is reasonable, equitable and not
unfairly discriminatory to assess Internal Distributors fees that are
less than the fees assessed for External Distributors for subscriptions
to the ToM, cToM and SLF data feeds because Internal Distributors have
limited, restricted usage rights to the market data, as compared to
External Distributors, which have more expansive usage rights. All
Members and non-Members that decide to receive any market data feed of
the Exchange (or its affiliates, MIAX, MIAX Pearl and MIAX Emerald),
must first execute, among other things, the MIAX Exchange Group Data
Agreement (the ``Exchange Data Agreement'').\46\ 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.\47\ External
Distributors may distribute the Exchange's market data to persons who
are not officers, employees or affiliates of the External
Distributor,\48\ and may charge their own fees for the redistribution
of such market data. External Distributors may monetize their receipt
of the ToM, cToM and SLF data feeds by charging their customers fees
for receipt of the Exchange's market data. 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
[[Page 84656]]
data and can adjust their own fee structures if necessary.
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\46\ See Exchange Data Agreement, available at https://www.miaxglobal.com/markets/us-options/all-options/market-data-vendor-agreements.
\47\ See id.
\48\ See id.
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The Exchange believes it is reasonable and equitable to charge
different fees for different market data products. While the ToM and
cToM feeds provide top of market data for the Simple Order Book and
Strategy Book respectively and have identical fees, the SLF provides a
different data set and is thus priced accordingly to properly compete
with comparable products offered by competing exchanges.\49\
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\49\ See supra note 43.
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The Exchange also utilizes more resources to support External
Distributors versus Internal Distributors, as External Distributors
have reporting and monitoring obligations that Internal Distributors do
not have, thus requiring additional time and effort of Exchange staff.
For example, External Distributors have monthly reporting requirements
under the Exchange's Market Data Policies.\50\ Exchange staff must
then, in turn, process and review information reported by External
Distributors to ensure the External Distributors are redistributing
market data in compliance with the Exchange Data Agreement and Market
Data Policies.
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\50\ See Section 6 of the Exchange's Market Data Policies,
available at https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Exchange_Group_Market_Data_Policies_07202021.pdf.
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The Exchange believes the proposed market data fees are equitable
and not unfairly discriminatory because the fee level results in a
reasonable and equitable allocation of fees amongst subscribers for
similar services, depending on whether the subscriber is an Internal or
External Distributor. Moreover, the decision as to whether or not to
purchase market data is entirely optional to all market participants.
Potential purchasers are not required to purchase the market data, and
the Exchange is not required to make the market data available.
Purchasers may request the data at any time or may decline to purchase
such data. The allocation of fees among users is fair and reasonable
because, if market participants decide not to subscribe to the data
feed, firms can discontinue their use of any of the market data feeds.
For all of the foregoing reasons, the Exchange believes that the
proposed fees are equitably allocated and not unfairly discriminatory.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\51\ 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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\51\ 15 U.S.C. 78f(b)(8).
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Intra-Market Competition
The Exchange does not believe that the proposed fees place certain
market participants at a relative disadvantage to other market
participants because, as noted above, the proposed fees are associated
with usage of the data feed by each market participant based on whether
the market participant internally or externally distributes the
Exchange data, which are still ultimately in the control of any
particular Member, and such fees do not impose a barrier to entry to
smaller participants. Accordingly, the proposed fees do not favor
certain categories of market participants in a manner that would impose
a burden on competition; rather, the allocation of the proposed fees
reflects the types of data consumed by various market participants and
their usage thereof.
Inter-Market Competition
The Exchange does not believe the proposed fees place an undue
burden on competition on other exchanges that is not necessary or
appropriate. In particular, market participants are not forced to
subscribe to any of the market data feeds. Additionally, other
exchanges have similar market data fees with comparable rates in place
for their participants.\52\ The proposed fees are based on actual costs
and are designed to enable the Exchange to recoup its applicable costs
with the possibility of a reasonable profit on its investment as
described in the Purpose and Statutory Basis sections. Competing
exchanges are free to adopt comparable fee structures subject to the
Commission's rule filing process. Allowing the Exchange, or any new
market entrant, to waive fees (as the Exchange proposes here for all
three of its market data feeds) for a period of time to allow it to
become established encourages market entry and thereby ultimately
promotes competition.
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\52\ See supra notes 42 and 43.
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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,\53\ and Rule 19b-4(f)(2) \54\ 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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\53\ 15 U.S.C. 78s(b)(3)(A)(ii).
\54\ 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-SAPPHIRE-2024-31 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-SAPPHIRE-2024-31. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal
[[Page 84657]]
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-SAPPHIRE-2024-31 and should be submitted on or
before November 13, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\55\
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\55\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-24472 Filed 10-22-24; 8:45 am]
BILLING CODE 8011-01-P
