[Federal Register Volume 85, Number 203 (Tuesday, October 20, 2020)]
[Notices]
[Pages 66636-66645]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23149]



[[Page 66636]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90184; File No. SR-EMERALD-2020-12]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fee Schedule To Adopt Port Fees and Increase Certain Network 
Connectivity Fees

October 14, 2020.
    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 1, 2020, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Emerald Fee 
Schedule (the ``Fee Schedule'').
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/emerald, at MIAX's 
principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule to: (1) Adopt Port 
fees; and (2) increase the Exchange's network connectivity fees for its 
10 gigabit (``Gb'') ultra-low latency (``ULL'') fiber connection for 
Members \3\ and non-Members (collectively, the ``Proposed Access 
Fees''). On September 15, 2020, the Exchange issued a Regulatory 
Circular which announced, among other things, that the Exchange would 
adopt Port fees, thereby terminating the Waiver Period \4\ for such 
fees, and increase the fees for its 10Gb ULL connection for Members and 
non-Members, beginning October 1, 2020.\5\
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    \3\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
    \4\ ``Waiver Period'' means, for each applicable fee, the period 
of time from the initial effective date of the MIAX Emerald Fee 
Schedule until such time that the Exchange has an effective fee 
filing establishing the applicable fee. The Exchange will issue a 
Regulatory Circular announcing the establishment of an applicable 
fee that was subject to a Waiver Period at least fifteen (15) days 
prior to the termination of the Waiver Period and effective date of 
any such applicable fee. See the Definitions Section of the Fee 
Schedule.
    \5\ See MIAX Emerald Regulatory Circular 2020-41 available at 
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2020_41.pdf.
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Port Fees
    The Exchange proposes to adopt fees for ``Ports'', which are used 
by Members and non-Members to access the Exchange. MIAX Emerald 
provides four Port types: (i) The FIX Port, which allows Members to 
electronically send orders in all products traded on the Exchange; (ii) 
the MEI Port, which allows Market Makers to submit electronic orders 
and quotes to the Exchange; (iii) the Clearing Trade Drop Port (``CTD 
Port''),\6\ which provides real-time trade clearing information to the 
participants to a trade on MIAX Emerald and to the participants' 
respective clearing firms; and (iv) the FIX Drop Copy (``FXD 
Port''),\7\ which provides a copy of real-time trade execution, 
correction and cancellation information through a FIX Port to any 
number of FIX Ports designated by an EEM to receive such messages. The 
Exchange also proposes to increase the monthly fee for each additional 
Limited Service MEI Port per matching engine for Market Makers over and 
above the two (2) Limited Service MEI Ports per matching engine that 
are allocated with the Full Service MEI Ports, as described below.
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    \6\ ``CTD Port'' or ``Clearing Trade Drop Port'' provides an 
Exchange Member with a real-time clearing trade updates. The updates 
include the Member's clearing trade messages on a low latency, real-
time basis. The trade messages are routed to a Member's connection 
containing certain information. The information includes, among 
other things, the following: (i) Trade date and time; (ii) symbol 
information; (iii) trade price/size information; (iv) Member type 
(for example, and without limitation, Market Maker, Electronic 
Exchange Member, Broker-Dealer); and (v) Exchange MPID for each side 
of the transaction, including Clearing Member MPID. See the 
Definitions Section of the Fee Schedule.
    \7\ The FIX Drop Copy (``FXD'') Port is a messaging interface 
that will provide a copy of real-time trade execution, trade 
correction and trade cancellation information to FXD Port users who 
subscribe to the service. FXD Port users are those users who are 
designated by an EEM to receive the information and the information 
is restricted for use by the EEM. FXD Port Fees will be assessed in 
any month the Member is credentialed to use the FXD Port in the 
production environment. See Fee Schedule, Section 4)d)iv).
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    Since the launch of the Exchange, all Port fees have been waived by 
the Exchange in order to incentivize market participants to connect to 
the Exchange, except for additional Limited Service MEI Ports. However, 
also at the launch, the Exchange introduced the structure of Port fees 
on its Fee Schedule (without proposing the actual fee amounts), in 
order to indicate to market participants that Port fees would 
ultimately apply upon expiration of the Waiver Period. The Exchange now 
proposes to assess monthly Port fees for Members and non-Members in 
each month the market participant is credentialed to use a Port in the 
production environment and based upon the number of credentialed Ports 
that a user is entitled to use. MIAX Emerald has Primary and Secondary 
Facilities and a Disaster Recovery Facility. Each type of Port provides 
access to all Exchange facilities for a single fee. The Exchange notes 
that, unless otherwise specifically set forth in the Fee Schedule, the 
Port fees include the information communicated through the Port. That 
is, unless otherwise specifically set forth in the Fee Schedule, there 
is no additional charge for the information that is communicated 
through the Port apart from what the user is assessed for each Port.
FIX Port Fees
    Since the launch of the Exchange, fees for FIX Ports have been 
waived for the Waiver Period. The Exchange now proposes to assess a 
monthly FIX Port fee to Members in each month the Member is 
credentialed to use a FIX Port in the production environment and based 
upon the number of credentialed FIX Ports, as follows: $550 for the 
first FIX Port; $350 for FIX Ports two through five; and $150 for each 
FIX Port over five.
    Below is the proposed table showing the FIX Port fees:

[[Page 66637]]



------------------------------------------------------------------------
                                                   MIAX Emerald monthly
                                                   port fees (includes
                                                   connectivity to the
                 FIX Port fees                    Primary, Secondary and
                                                  Disaster Recovery data
                                                         centers)
------------------------------------------------------------------------
1st FIX Port...................................                  $550.00
FIX Ports 2 through 5..........................                   350.00
Additional FIX Ports over 5....................                   150.00
------------------------------------------------------------------------

MEI Port Fees
    MIAX Emerald offers different options of MEI Ports depending on the 
services required by Market Makers. Since the launch of the Exchange, 
fees for MEI Ports have been waived for the Waiver Period. The Exchange 
now proposes to assess monthly MEI Port Fees to Market Makers based 
upon the number of classes or class volume accessed by the Market 
Maker. Market Makers are allocated two (2) Full Service MEI Ports \8\ 
and two (2) Limited Service MEI Ports \9\ per Matching Engine \10\ to 
which they connect. The Full Service MEI Ports, Limited Service MEI 
Ports and the additional Limited Service MEI Ports all include access 
to the Exchange's Primary and Secondary data centers and its Disaster 
Recovery center.
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    \8\ Full Service MEI Ports means a port which provides Market 
Makers with the ability to send Market Maker simple and complex 
quotes, eQuotes, and quote purge messages to the MIAX Emerald 
System. Full Service MEI Ports are also capable of receiving 
administrative information. Market Makers are limited to two Full 
Service MEI Ports per Matching Engine. See the Definitions Section 
of the Fee Schedule.
    \9\ Limited Service MEI Ports means a port which provides Market 
Makers with the ability to send simple and complex eQuotes and quote 
purge messages only, but not Market Maker Quotes, to the MIAX 
Emerald System. Limited Service MEI Ports are also capable of 
receiving administrative information. Market Makers initially 
receive two Limited Service MEI Ports per Matching Engine. See the 
Definitions Section of the Fee Schedule.
    \10\ A ``matching engine'' is a part of the MIAX Emerald 
electronic system that processes options quotes and trades on a 
symbol-by-symbol basis. Some matching engines will process option 
classes with multiple root symbols, and other matching engines will 
be dedicated to one single option root symbol (for example, options 
on SPY will be processed by one single matching engine that is 
dedicated only to SPY). A particular root symbol may only be 
assigned to a single designated matching engine. A particular root 
symbol may not be assigned to multiple matching engines. See the 
Definitions Section of the Fee Schedule.
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    Specifically, the Exchange proposes to adopt MEI Port fees 
assessable to Market Makers based upon the number of classes or class 
volume accessed by the Market Maker. The Exchange proposes to adopt the 
following MEI Port fees: (i) $5,000 for Market Maker Assignments in up 
to 5 option classes or up to 10% of option classes by volume; (ii) 
$10,000 for Market Maker Assignments in up to 10 option classes or up 
to 20% of option classes by volume; (iii) $14,000 for Market Maker 
Assignments in up to 40 option classes or up to 35% of option classes 
by volume; (iv) $17,500 for Market Maker Assignments in up to 100 
option classes or up to 50% of option classes by volume; and (v) 
$20,500 for Market Maker Assignments in over 100 option classes or over 
50% of option classes by volume up to all option classes listed on MIAX 
Emerald.
    The Exchange also proposes to adopt new footnote ``[ssquf]'' for 
its MEI Port fees that will apply to the Market Makers who fall within 
the following MEI Port fee levels, which represent the 4th and 5th 
levels of the fee table: Market Makers who have (i) Assignments in up 
to 100 option classes or up to 50% of option classes by volume and (ii) 
Assignments in over 100 option classes or over 50% of option classes by 
volume up to all option classes listed on MIAX Emerald. Specifically, 
the Exchange proposes for these monthly MEI Port tier levels, if the 
Market Maker's total monthly executed volume during the relevant month 
is less than 0.025% of the total monthly executed volume reported by 
OCC in the customer account type for MIAX Emerald-listed option classes 
for that month, then the fee will be $14,500 instead of the fee 
otherwise applicable to such level.
    The purpose of this proposed lower monthly MEI Port fee is to 
provide a lower fixed cost to those Market Makers who are willing to 
quote the entire Exchange market (or substantial amount of the Exchange 
market), as objectively measured by either number of classes assigned 
or national ADV, but who do not otherwise execute a significant amount 
of volume on the Exchange. The Exchange believes that, by offering 
lower fixed costs to Market Makers that execute less volume, the 
Exchange will retain and attract smaller-scale Market Makers, which are 
an integral component of the option industry marketplace, but have been 
decreasing in number in recent years, due to industry consolidation and 
lower market maker profitability. Since these smaller-scale Market 
Makers utilize less Exchange capacity due to lower overall volume 
executed, the Exchange believes it is reasonable and appropriate to 
offer such Market Makers a lower fixed cost. The Exchange notes that 
other options exchanges assess certain of their fees at different 
rates, based upon a member's participation on that exchange,\11\ and, 
as such, this concept is not novel. The proposed changes to the MEI 
Port fees for Market Makers who fall within the 4th and 5th levels of 
the fee table are based upon a business determination of current Market 
Maker assignments and trading volume.
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    \11\ See, e.g., Cboe BZX Options Exchange (``BZX Options'') 
assesses the Participant Fee, which is a membership fee, according 
to a member's ADV. See Cboe BZX Options Exchange Fee Schedule under 
``Membership Fees''. The Participant Fee is $500 if the member ADV 
is less than 5000 contracts and $1,000 if the member ADV is equal to 
or greater than 5,000 contracts.
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    For the calculation of the monthly MEI Port Fees that apply to 
Market Makers, the number of classes is defined as the greatest number 
of classes the Market Maker was assigned to quote in on any given day 
within the calendar month and the class volume percentage is based on 
the total national average daily volume in classes listed on MIAX 
Emerald in the prior calendar quarter.\12\ Newly listed option classes 
are excluded from the calculation of the monthly MEI Port Fee until the 
calendar quarter following their listing, at which time the newly 
listed option classes will be included in both the per class count and 
the percentage of total national average daily volume. The Exchange 
proposes to assess Market Makers the monthly MEI Port Fees based on the 
greatest number of classes listed on MIAX Emerald that the Market Maker 
was assigned to quote in on any given day within a calendar month and 
the applicable fee rate that is the lesser of either the per class 
basis or percentage of total national average daily volume measurement.
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    \12\ The Exchange will use the following formula to calculate 
the percentage of total national average daily volume that the 
Market Maker assignment is for purposes of the MEI Port Fee for a 
given month:
    Market Maker assignment percentage of national average daily 
volume = [total volume during the prior calendar quarter in a class 
in which the Market Maker was assigned]/[total national volume in 
classes listed on MIAX in the prior calendar quarter].

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[[Page 66638]]

    The Exchange currently charges $50 per month for each additional 
Limited Service MEI Port per matching engine for Market Makers over and 
above the two (2) Limited Service MEI Ports per matching engine that 
are allocated with the Full Service MEI Ports. The Full Service MEI 
Ports, Limited Service MEI Ports and the additional Limited Service MEI 
Ports all include access to the Exchange's Primary and Secondary data 
centers and its Disaster Recovery center. Currently, footnote ``*'' in 
the MEI Port Fee table provides that the fees for Additional Limited 
Service MEI Ports are not subject to the Waiver Period. Accordingly, in 
connection with this proposal, the Exchange proposes to delete footnote 
``*'' since the Exchange proposes to begin assessing MEI Port fees, 
which will no longer be subject to the Waiver Period. The Exchange also 
proposes to increase the monthly fee from $50 to $100 for each 
additional Limited Service MEI Port per matching engine for Market 
Makers over and above the two (2) Limited Service MEI Ports per 
matching engine that are allocated with the Full Service MEI Ports.
    Below is the proposed table showing the MEI Port fees:

------------------------------------------------------------------------
                               Market Maker Assignments  (the lesser of
                                  the applicable measurements below)
  Monthly MIAX Emerald  MEI  -------------------------------------------
            fees                                        % of national
                                    Per class       average daily volume
------------------------------------------------------------------------
$5,000.00...................  Up to 5 Classes.....  Up to 10% of Classes
                                                     by volume.
$10,000.00..................  Up to 10 Classes....  Up to 20% of Classes
                                                     by volume.
$14,000.00..................  Up to 40 Classes....  Up to 35% of Classes
                                                     by volume.
$17,500.00 [ssquf]..........  Up to 100 Classes...  Up to 50% of Classes
                                                     by volume.
$20,500.00 [ssquf]..........  Over 100 Classes....  Over 50% of Classes
                                                     by volume up to all
                                                     Classes listed on
                                                     MIAX Emerald.
------------------------------------------------------------------------
[ssquf] For these Monthly MIAX Emerald MEI Port tier levels, if the
  Market Maker's total monthly executed volume during the relevant month
  is less than 0.025% of the total monthly executed volume reported by
  OCC in the customer account type for MIAX Emerald-listed option
  classes for that month, then the fee will be $14,500 instead of the
  fee otherwise applicable to such level.

Purge Port Fees
    The Exchange also offers Market Makers the ability to request and 
be allocated two (2) Purge Ports per Matching Engine to which it 
connects. Purge Ports provide Market Makers with the ability to send 
quote purge messages to the MIAX Emerald System. Purge Ports are not 
capable of sending or receiving any other type of messages or 
information. Since the launch of the Exchange, fees for Purge Ports 
have been waived for the Waiver Period. The Exchange now proposes to 
amend its Fee Schedule to adopt fees for Purge Ports. For each month in 
which the MIAX Emerald Market Maker has been credentialed to use Purge 
Ports in the production environment and has been assigned to quote in 
at least one class, the Exchange proposes to assess the MIAX Emerald 
Market Maker a flat fee $1,500, regardless of the number of Purge Ports 
allocated to the MIAX Emerald Market Maker.
CTD Port Fees
    The Exchange proposes to assess a CTD Port fee as a monthly fixed 
amount, not tied to transacted volume of the Member. This fixed fee 
structure is the same structure in place at Nasdaq PHLX with respect to 
the proposed CTD Port Fees.\13\ Since the launch of the Exchange, CTD 
Port Fees have been waived for the Waiver Period. CTD provides Exchange 
members with real-time clearing trade updates. The updates include the 
Member's clearing trade messages on a low latency, real-time basis. The 
trade messages are routed to a Member's connection containing certain 
information. The information includes, among other things, the 
following: (i) Trade date and time; (ii) symbol information; (iii) 
trade price/size information; (iv) Member type (for example, and 
without limitation, Market Maker, Electronic Exchange Member, Broker-
Dealer); (v) Exchange Member Participant Identifier (``MPID'') for each 
side of the transaction, including Clearing Member MPID; and (vi) 
strategy specific information for complex transactions. CTD Port fees 
will be assessed in any month the Member is credentialed to use the CTD 
Port in the production environment. The Exchange proposes to assess a 
CTD Port fee of $450 per month. Below is the proposed table for the CTD 
Port fees:
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    \13\ See Nasdaq PHLX Pricing Schedule, Options 7, Section 9, 
Other Member Fees, B. Port Fees.

------------------------------------------------------------------------
                  Description                          Monthly fee
------------------------------------------------------------------------
Real-Time CTD Information.....................                  $450.00
------------------------------------------------------------------------

FXD Port Fee
    The Exchange proposes to assess an FXD Port Fee as a monthly fixed 
amount, not tied to transacted volume of the Member. This fixed fee 
structure is the same structure in place at Nasdaq PHLX with respect to 
FXD Port Fees.\14\ Since the launch of the Exchange, FXD Port Fees have 
been waived for the Waiver Period. FXD is a messaging interface that 
will provide a copy of real-time trade execution, trade correction and 
trade cancellation information to FXD Port users who subscribe to the 
service. FXD Port users are those users who are designated by an EEM to 
receive the information and the information is restricted for use by 
the EEM. FXD Port fees will be assessed in any month the Member is 
credentialed to use the FXD Port in the production environment. The 
Exchange proposes to assess an FXD Port fee of $500 per month. Below is 
the proposed table for the FXD Port fees:
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    \14\ Id.

[[Page 66639]]



------------------------------------------------------------------------
                                                  MIAX Emerald monthly
                                                   port fees (includes
                                                   connectivity to the
                  Description                    Primary, Secondary and
                                                 Disaster Recovery data
                                                        centers)
------------------------------------------------------------------------
FIX Drop Copy Port............................                  $500.00
------------------------------------------------------------------------

10Gb ULL Connectivity Fee
    The Exchange proposes to amend Sections 5a) and b) of the Fee 
Schedule to increase the monthly network connectivity fees for the 10Gb 
ULL fiber connection, which is charged to both Members and non-Members 
of the Exchange for connectivity to the Exchange's primary/secondary 
facility. The Exchange offers to both Members and non-Members two 
bandwidth alternatives for connectivity to the Exchange, to its primary 
and secondary facilities, consisting of a 1Gb fiber connection and a 
10Gb ULL fiber connection. The 10Gb ULL offering uses an ultra-low 
latency switch, which provides faster processing of messages sent to it 
in comparison to the switch used for the other types of connectivity. 
The Exchange now proposes to increase its monthly network connectivity 
fee for its 10Gb ULL connection to $10,000 for Members and non-Members.
* * * * *
    MIAX Emerald 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. MIAX 
Emerald believes this high standard is especially important when an 
exchange imposes various access fees for market participants to access 
an exchange's marketplace. MIAX Emerald deems Port fees and 
Connectivity Fees to be access fees. The Exchange believes that it is 
important to demonstrate that these fees are based on its costs and 
reasonable business needs. Accordingly, the Exchange believes the 
Proposed Access Fees will allow the Exchange to offset expense the 
Exchange has and will incur, and that the Exchange is providing 
sufficient transparency (as described below) into how the Exchange 
determined to charge such fees. Accordingly, the Exchange is providing 
an analysis of its revenues, costs, and profitability (before the 
proposed changes), and the Exchange's revenues, costs, and 
profitability (following the proposed changes) for the Proposed Access 
Fees. This analysis includes information regarding its methodology for 
determining the costs and revenues associated with the Proposed Access 
Fees.
    In order to determine the Exchange's costs associated with 
providing the Proposed Access Fees, the Exchange conducted an extensive 
cost review in which the Exchange analyzed every expense item in the 
Exchange's general expense ledger to determine whether each such 
expense relates to the Proposed Access Fees, and, if such expense did 
so relate, what portion (or percentage) of such expense actually 
supports the services included in the Proposed Access Fees. The sum of 
all such portions of expenses represents the total cost of the Exchange 
to provide the Proposed Access Fees. For the avoidance of doubt, no 
expense amount was allocated twice. The Exchange is also providing 
detailed information regarding the Exchange's cost allocation 
methodology--namely, information that explains the Exchange's rationale 
for determining that it was reasonable to allocate certain expenses 
described in this filing towards the total cost to the Exchange to 
provide the Proposed Access Fees.
    In order to determine the Exchange's projected revenues associated 
with providing the Proposed Access Fees, the Exchange analyzed the 
number of Members and non-Members currently utilizing the Exchange's 
services associated with the Proposed Access Fees during 2020, and, 
utilizing a recently completed monthly billing cycle, extrapolated 
annualized revenue on a going-forward basis.
    The Exchange is presenting its revenue and expense associated with 
the Proposed Access Fees in this filing in a manner that is consistent 
with how the Exchange presents its revenue and expense in its Audited 
Unconsolidated Financial Statements. The Exchange's most recent Audited 
Unconsolidated Financial Statement is for 2019. However, since the 
revenue and expense associated with the Proposed Access Fees were not 
in place in 2019 or for the first three quarters of 2020, the Exchange 
believes its 2019 Audited Unconsolidated Financial Statement is not 
useful for analyzing the reasonableness of the total annual revenue and 
costs associated with the Proposed Access Fees. Accordingly, the 
Exchange believes it is more appropriate to analyze the Proposed Access 
Fees utilizing its 2020 actual (9 months to date) and projected (3 
months remaining) revenue and costs, as described herein, which utilize 
the same presentation methodology as set forth in the Exchange's 
previously-issued Audited Unconsolidated Financial Statements. Based on 
this analysis, the Exchange believes that the Proposed Access Fees are 
fair and reasonable because they will not result in excessive pricing 
or supra-competitive profit when comparing the Exchange's total annual 
expense associated with providing the services associated with the 
Proposed Access Fees versus the total projected annual revenue the 
Exchange will collect for providing those services.
    On March 29, 2019, the Commission issued its Order Disapproving 
Proposed Rule Changes to Amend the Fee Schedule on the BOX Market LLC 
Options Facility to Establish BOX Connectivity Fees for Participants 
and Non-Participants Who Connect to the BOX Network (the ``BOX 
Order'').\15\ On May 21, 2019, the Commission issued the Staff Guidance 
on SRO Rule Filings Relating to Fees.\16\ On December 20, 2019, the 
Exchange adopted Connectivity Fees in a filing utilizing a cost-based 
justification framework that is substantially similar to the cost-based 
justification framework utilized for the instant Proposed Access 
Fees.\17\ Accordingly, the Exchange believes that the Proposed Access 
Fees are consistent with the Act because they (i) are reasonable, 
equitably allocated, not unfairly discriminatory, and not an undue 
burden on competition; (ii) comply with the BOX Order and the Guidance; 
(iii) are supported by evidence (including comprehensive

[[Page 66640]]

revenue and cost data and analysis) that they are fair and reasonable 
because they not result in excessive pricing or supra-competitive 
profit; and (iv) utilize a cost-based justification framework that is 
substantially similar to a framework previously used by the Exchange to 
establish Connectivity Fees. Accordingly, the Exchange believes that 
the Commission should find that the Proposed Fees are consistent with 
the Act.
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    \15\ See Securities Exchange Act Release No. 85459 (March 29, 
2019), 84 FR 13363 (April 4, 2019) (SR-BOX-2018-24, SR-BOX-2018-37, 
and SR-BOX-2019-04).
    \16\ See Staff Guidance on SRO Rule Filings Relating to Fees 
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
    \17\ See Securities Exchange Act Release No. 87877 (December 31, 
2019), 84 FR 738 (January 7, 2020) (SR-EMERALD-2019-39).
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    The proposed rule change is immediately effective upon filing with 
the Commission pursuant to Section 19(b)(3)(A) of the Act.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \18\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \19\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among Exchange Members and 
issuers and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposal 
furthers the objectives of Section 6(b)(5) of the Act \20\ in that it 
is designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general to protect 
investors and the public interest and is not designed to permit unfair 
discrimination between customer, issuers, brokers and dealers.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(4).
    \20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. In Regulation NMS, 
the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \21\
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    \21\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
---------------------------------------------------------------------------

    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options transaction services. The Exchange is one of several options 
venues to which market participants may direct their order flow, and it 
represents a small percentage of the overall market. Within this 
environment, market participants can freely and often do shift their 
order flow among the Exchange and competing venues in response to 
changes in their respective pricing schedules. There are currently 16 
registered options exchanges competing for order flow. Based on 
publicly-available information, and excluding index-based options, no 
single exchange has more than approximately 16% of the market share of 
executed volume of multiply-listed equity and exchange-traded fund 
(``ETF'') options.\22\ Therefore, no exchange possesses significant 
pricing power. More specifically, for the month of August 2020, the 
Exchange had a market share of approximately 3.24% of executed 
multiply-listed equity options.\23\
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    \22\ The Options Clearing Corporation (``OCC'') publishes 
options and futures volume in a variety of formats, including daily 
and monthly volume by exchange, available here: https://www.theocc.com/market-data/volume/default.jsp.
    \23\ See id.
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    The Exchange also believes that the ever-shifting market share 
among the exchanges from month to month demonstrates that market 
participants can discontinue or reduce use of certain categories of 
products, or shift order flow, in response to non-transaction and 
transaction fee changes. For example, on February 28, 2019, the 
Exchange's affiliate, MIAX PEARL, LLC (``MIAX PEARL'') filed with the 
Commission a proposal to increase Taker fees in certain Tiers for 
options transactions in certain Penny classes for Priority Customers 
and decrease Maker rebates in certain Tiers for options transactions in 
Penny classes for Priority Customers (which fee was to be effective 
March 1, 2019).\24\ MIAX PEARL experienced a decrease in total market 
share for the month of March 2019, after the proposal went into effect. 
Accordingly, the Exchange believes that the MIAX PEARL March 1, 2019 
fee change, to increase certain transaction fees and decrease certain 
transaction rebates, may have contributed to the decrease in MIAX 
PEARL's market share and, as such, the Exchange believes competitive 
forces constrain the Exchange's, and other options exchanges, ability 
to set transaction fees and non-transaction fees and market 
participants can shift order flow based on fee changes instituted by 
the exchanges.
---------------------------------------------------------------------------

    \24\ See Securities Exchange Act Release No. 85304 (March 13, 
2019), 84 FR 10144 (March 19, 2019) (SR-PEARL-2019-07).
---------------------------------------------------------------------------

    The Exchange launched trading on March 1, 2019. The Exchange has 
only a 3.24% market share of the U.S. options industry in August 2020 
in equity option classes according to the OCC.\25\ The Exchange is not 
aware of any evidence that a market share of approximately 3% provides 
the Exchange with anti-competitive pricing power. If the Exchange were 
to attempt to establish unreasonable pricing, then no market 
participant would join or connect, and existing market participants 
would disconnect.
---------------------------------------------------------------------------

    \25\ See supra note 22.
---------------------------------------------------------------------------

    Separately, the Exchange is not aware of any reason why market 
participants could not simply drop their connections to an exchange (or 
not connect to an exchange) if an exchange were to establish prices for 
its non-transaction fees that, in the determination of such market 
participant, did not make business or economic sense for such market 
participant to connect to such exchange. No options market participant 
is required by rule, regulation, or competitive forces to be a Member 
of the Exchange. As evidence of the fact that market participants can 
and do disconnect from exchanges based on non-transaction fee pricing, 
R2G Services LLC (``R2G'') filed a comment letter after BOX's proposed 
rule changes to increase its connectivity fees (SR-BOX-2018-24, SR-BOX-
2018-37, and SR-BOX-2019-04).\26\ The R2G Letter stated, ``[w]hen BOX 
instituted a $10,000/month price increase for connectivity; we had no 
choice but to terminate connectivity into them as well as terminate our 
market data relationship. The cost benefit analysis just didn't make 
any sense for us at those new levels.'' \27\ Accordingly, this example 
shows that if an exchange sets too high of a fee for connectivity and/
or other non-transaction fees for its relevant marketplace, market 
participants can choose to disconnect from such exchange.
---------------------------------------------------------------------------

    \26\ See Letter from Stefano Durdic, R2G, to Vanessa Countryman, 
Acting Secretary, Commission, dated March 27, 2019 (the ``R2G 
Letter'').
    \27\ See id.
---------------------------------------------------------------------------

    The Exchange believes that its proposal is consistent with Section 
6(b)(4) of the Act because the Proposed Access Fees will not result in 
excessive or supra-competitive profit. The costs associated with 
providing access to Exchange Members and non-Members, as well as the 
general expansion of a state-of-the-art infrastructure, are extensive, 
have increased year-over-year, and are projected to increase year-over-
year in the future. In particular, the Exchange has experienced a 
material increase in its costs in 2020, in connection with a project to 
make its network environment more transparent and deterministic, based 
on customer

[[Page 66641]]

demand. This project will allow the Exchange to enhance its network 
architecture with the intent of ensuring a best-in-class, transparent 
and deterministic trading system while maintaining its industry leading 
latency and throughput capabilities. In order to provide this greater 
amount of transparency and higher determinism, MIAX Emerald has made 
significant capital expenditures (``CapEx''), incurred increased 
ongoing operational expenditures, and undertaken additional engineering 
R&D in the following areas: (i) Implementing an improved network design 
to ensure the minimum latency between multicast market data signals 
disseminated by the Exchange across the extranet switches, improving 
the unicast jitter profile to reduce the occurrence of message sequence 
inversions from Members to the Exchange quoting gateway processors, and 
introducing a new optical fiber network infrastructure that ensures the 
optical fiber path for participants within extremely tight tolerances; 
(ii) introducing a re-architected and engineered participant quoting 
gateway that ensures the delivery of messages to the match engine with 
absolute determinism, eliminating the message processing inversions 
that can occur with messages received nanoseconds apart; and (iii) 
designing an improved monitoring platform to better measure the 
performance of the network and systems at extremely tight tolerances 
and to provide Members with reporting on the performance of their 
systems. Just the CapEx associated with phase 1 of this project in 2020 
was approximately $1.85 million. This expense does not include the 
significant increase in employee time and other resources necessary to 
maintain and service this network, which expense is captured in the 
operating expense (``OpEx'') discussed below. This project, which 
results in a material increase in expense of the Exchange, is a primary 
driver for the increase in network connectivity fees proposed by the 
Exchange.
    However, in order to provide more detail and to quantify the 
Exchange's costs associated with providing access to the Exchange in 
general, the Exchange notes that there are material costs associated 
with providing the infrastructure and headcount to fully-support access 
to the Exchange. The Exchange incurs technology expense related to 
establishing and maintaining Information Security services, enhanced 
network monitoring and customer reporting, as well as Regulation SCI 
mandated processes, associated with its network technology. While some 
of the expense is fixed, much of the expense is not fixed, and thus 
increases as the services associated with the Proposed Access Fees 
increase. For example, new 10Gb ULL connections and Ports require the 
purchase of additional hardware to support those connections as well as 
enhanced monitoring and reporting of customer performance that MIAX 
Emerald and its affiliates provide. Further, as the total number of all 
connections and Ports increase, MIAX Emerald and its affiliates need to 
increase their data center footprint and consume more power, resulting 
in increased costs charged by their third-party data center provider. 
Accordingly, the cost to MIAX Emerald and its affiliates is not fixed. 
The Exchange believes the Proposed Access Fees are reasonable in order 
to offset the costs to the Exchange associated with providing access to 
its network infrastructure.
    Further, because the costs of operating its own data center are 
significant and not economically feasible for the Exchange at this 
time, the Exchange does not operate its own data centers, and instead 
contracts with a third-party data center provider. The Exchange notes 
that other competing exchange operators own/operate their data centers, 
which offers them greater control over their data center costs. Because 
those exchanges own and operate their data centers as profit centers, 
the Exchange is subject to additional costs. The Proposed Access Fees, 
which are charged for accessing the Exchange's data center network 
infrastructure, are directly related to the network and offset such 
costs.
    The Exchange invests significant resources in network R&D to 
improve the overall performance and stability of its network. For 
example, the Exchange has a number of network monitoring tools (some of 
which were developed in-house, and some of which are licensed from 
third-parties), that continually monitor, detect, and report network 
performance, many of which serve as significant value-adds to the 
Exchange's Members and enable the Exchange to provide a high level of 
customer service. These tools detect and report performance issues, and 
thus enable the Exchange to proactively notify a Member (and the SIPs) 
when the Exchange detects a problem with a Member's connectivity. In 
fact, the Exchange often receives inquiries from other industry 
participants regarding the status of networking issues outside of the 
Exchange's own network environment that are impacting the industry as a 
whole via the SIPs, including inquiries from regulators, because the 
Exchange has a superior, state-of the-art network that, through its 
enhanced monitoring and reporting solutions, often detects and 
identifies industry-wide networking issues ahead of the SIPs. The 
Exchange also incurs costs associated with the maintenance and 
improvement of existing tools and the development of new tools.
    Additionally, certain Exchange-developed network aggregation and 
monitoring tools provide the Exchange with the ability to measure 
network traffic with a much more granular level of variability. This is 
important as Exchange Members demand a higher level of network 
determinism and the ability to measure variability in terms of single 
digit nanoseconds. Also, routine R&D projects to improve the 
performance of the network's hardware infrastructure result in 
additional cost. In sum, the costs associated with maintaining and 
enhancing a state-of-the-art exchange network in the U.S. options 
industry is a significant expense for the Exchange that also increases 
year-over-year, and thus the Exchange believes that it is reasonable to 
offset those costs through the Proposed Access Fees. The Exchange 
invests in and offers a superior network infrastructure as part of its 
overall options exchange services offering, resulting in significant 
costs associated with maintaining this network infrastructure, which 
are directly tied to the amount of the Proposed Access Fees that must 
be charged to access it, in order to recover those costs.
    The Exchange only has four primary sources of revenue: Transaction 
fees, access fees (of which the Proposed Access Fees constitute the 
majority), regulatory fees, and market data fees. Accordingly, the 
Exchange must cover all of its expenses from these four primary sources 
of revenue.
    The Proposed Access Fees are fair and reasonable because they will 
not result in excessive pricing or supra-competitive profit, when 
comparing the total annual expense of MIAX Emerald associated with 
providing these services versus the total projected annual revenue that 
the Exchange projects to collect. For 2020, the total annual expense 
for providing the services associated with the Proposed Access Fees for 
MIAX Emerald is projected to be approximately $9.3 million. The $9.3 
million in projected total annual expense is comprised of the 
following, all of which are directly related to the services associated 
with the Proposed Access Fees: (1) Third-party expense, relating to 
fees paid by MIAX Emerald to third-parties for certain products and 
services; and (2) internal expense,

[[Page 66642]]

relating to the internal costs of MIAX Emerald to provide the services 
associated with the Proposed Access Fees. The $9.3 million in projected 
total annual expense is directly related to the services associated 
with the Proposed Access Fees, and not any other product or service 
offered by the Exchange. It does not include general costs of operating 
matching systems and other trading technology, and no expense amount 
was allocated twice.
    As discussed, the Exchange conducted an extensive cost review in 
which the Exchange analyzed every expense item in the Exchange's 
general expense ledger (this includes over 150 separate and distinct 
expense items) to determine whether each such expense relates to the 
services associated with the Proposed Access Fees, and, if such expense 
did so relate, what portion (or percentage) of such expense actually 
supports those services, and thus bears a relationship that is, ``in 
nature and closeness,'' directly related to those services. The sum of 
all such portions of expenses represents the total cost of the Exchange 
to provide services associated with the Proposed Access Fees.
    For 2020, total third-party expense, relating to fees paid by MIAX 
Emerald to third-parties for certain products and services for the 
Exchange to be able to provide the services associated with the 
Proposed Access Fees, is projected to be $1,932,519. This includes, but 
is not limited to, a portion of the fees paid to: (1) Equinix, for data 
center services, for the primary, secondary, and disaster recovery 
locations of the MIAX Emerald trading system infrastructure; (2) Zayo 
Group Holdings, Inc. (``Zayo'') for network services (fiber and 
bandwidth products and services) linking MIAX Emerald's office 
locations in Princeton, NJ and Miami, FL to all data center locations; 
(3) Secure Financial Transaction Infrastructure (``SFTI''),\28\ which 
supports connectivity and feeds for the entire U.S. options industry; 
(4) various other services providers (including Thompson Reuters, NYSE, 
Nasdaq, and Internap), which provide content, connectivity services, 
and infrastructure services for critical components of options 
connectivity and network services; and (5) various other hardware and 
software providers (including Dell and Cisco, which support the 
production environment in which Members and non-Members connect to the 
network to trade, receive market data, etc.).
---------------------------------------------------------------------------

    \28\ In fact, on October 22, 2019, the Exchange was notified by 
SFTI that it is again raising its fees charged to the Exchange by 
approximately 11%, without having to show that such fee change 
complies with the Act by being reasonable, equitably allocated, and 
not unfairly discriminatory. It is unfathomable to the Exchange 
that, given the critical nature of the infrastructure services 
provided by SFTI, that its fees are not required to be rule-filed 
with the Commission pursuant to Section 19(b)(1) of the Act and Rule 
19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4, 
respectively.
---------------------------------------------------------------------------

    For clarity, only a portion of all fees paid to such third-parties 
is included in the third-party expense herein, and no expense amount is 
allocated twice. Accordingly, MIAX Emerald does not allocate its entire 
information technology and communication costs to the services 
associated with the Proposed Access Fees.
    The Exchange believes it is reasonable to allocate such third-party 
expense described above towards the total cost to the Exchange to 
provide the services associated with the Proposed Access Fees. In 
particular, the Exchange believes it is reasonable to allocate the 
identified portion of the Equinix expense because Equinix operates the 
data centers (primary, secondary, and disaster recovery) that host the 
Exchange's network infrastructure. This includes, among other things, 
the necessary storage space, which continues to expand and increase in 
cost, power to operate the network infrastructure, and cooling 
apparatuses to ensure the Exchange's network infrastructure maintains 
stability. Without these services from Equinix, the Exchange would not 
be able to operate and support the network and provide the services 
associated with the Proposed Access Fees to its Members and non-Members 
and their customers. The Exchange did not allocate all of the Equinix 
expense toward the cost of providing the services associated with the 
Proposed Access Fees, only that portion which the Exchange identified 
as being specifically mapped to providing the services associated with 
the Proposed Access Fees, approximately 73% of the total Equinix 
expense. The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the services 
associated with the Proposed Access Fees, and not any other service, as 
supported by its cost review.
    The Exchange believes it is reasonable to allocate the identified 
portion of the Zayo expense because Zayo provides the internet, fiber 
and bandwidth connections with respect to the network, linking MIAX 
Emerald with its affiliates, MIAX and MIAX PEARL, as well as the data 
center and disaster recovery locations. As such, all of the trade data, 
including the billions of messages each day per exchange, flow through 
Zayo's infrastructure over the Exchange's network. Without these 
services from Zayo, the Exchange would not be able to operate and 
support the network and provide the services associated with the 
Proposed Access Fees. The Exchange did not allocate all of the Zayo 
expense toward the cost of providing the services associated with the 
Proposed Access Fees, only the portion which the Exchange identified as 
being specifically mapped to providing the Proposed Access Fees, 
approximately 66% of the total Zayo expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the services associated with the Proposed Access Fees, 
and not any other service, as supported by its cost review.
    The Exchange believes it is reasonable to allocate the identified 
portions of the SFTI expense and various other service providers' 
(including Thompson Reuters, NYSE, Nasdaq, and Internap) expense 
because those entities provide connectivity and feeds for the entire 
U.S. options industry, as well as the content, connectivity services, 
and infrastructure services for critical components of the network. 
Without these services from SFTI and various other service providers, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and non-Members and their customers. The 
Exchange did not allocate all of the SFTI and other service providers' 
expense toward the cost of providing the services associated with the 
Proposed Access Fees, only the portions which the Exchange identified 
as being specifically mapped to providing the services associated with 
the Proposed Access Fees, approximately 94% of the total SFTI and other 
service providers' expense. The Exchange believes this allocation is 
reasonable because it represents the Exchange's actual cost to provide 
the services associated with the Proposed Access Fees.
    The Exchange believes it is reasonable to allocate the identified 
portion of the other hardware and software provider expense because 
this includes costs for dedicated hardware licenses for switches and 
servers, as well as dedicated software licenses for security monitoring 
and reporting across the network. Without this hardware and software, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and non-Members and their customers. The 
Exchange did not allocate all of the hardware and software provider 
expense toward the cost of providing

[[Page 66643]]

the services associated with the Proposed Access Fees, only the 
portions which the Exchange identified as being specifically mapped to 
providing the services associated with the Proposed Access Fees, 
approximately 57% of the total hardware and software provider expense. 
The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the services 
associated with the Proposed Access Fees.
    For 2020, total projected internal expense, relating to the 
internal costs of MIAX Emerald to provide the services associated with 
the Proposed Access Fees, is projected to be $7,367,259. This includes, 
but is not limited to, costs associated with: (1) Employee compensation 
and benefits for full-time employees that support the services 
associated with the Proposed Access Fees, including staff in network 
operations, trading operations, development, system operations, 
business, as well as staff in general corporate departments (such as 
legal, regulatory, and finance) that support those employees and 
functions (including an increase as a result of the higher determinism 
project); (2) depreciation and amortization of hardware and software 
used to provide the services associated with the Proposed Access Fees, 
including equipment, servers, cabling, purchased software and 
internally developed software used in the production environment to 
support the network for trading; and (3) occupancy costs for leased 
office space for staff that provide the services associated with the 
Proposed Access Fees. The breakdown of these costs is more fully-
described below. For clarity, only a portion of all such internal 
expenses are included in the internal expense herein, and no expense 
amount is allocated twice. Accordingly, MIAX Emerald does not allocate 
its entire costs contained in those items to the services associated 
with the Proposed Access Fees.
    The Exchange believes it is reasonable to allocate such internal 
expense described above towards the total cost to the Exchange to 
provide the services associated with the Proposed Access Fees. In 
particular, MIAX Emerald's employee compensation and benefits expense 
relating to providing the services associated with the Proposed Access 
Fees is projected to be $4,489,924, which is only a portion of the 
$9,354,009 total projected expense for employee compensation and 
benefits. The Exchange believes it is reasonable to allocate the 
identified portion of such expense because this includes the time spent 
by employees of several departments, including Technology, Back Office, 
Systems Operations, Networking, Business Strategy Development (who 
create the business requirement documents that the Technology staff use 
to develop network features and enhancements), Trade Operations, 
Finance (who provide billing and accounting services relating to the 
network), and Legal (who provide legal services relating to the 
network, such as rule filings and various license agreements and other 
contracts). As part of the extensive cost review conducted by the 
Exchange, the Exchange reviewed the amount of time spent by each 
employee on matters relating to the provision of services associated 
with the Proposed Access Fees. Without these employees, the Exchange 
would not be able to provide the services associated with the Proposed 
Access Fees to its Members and non-Members and their customers. The 
Exchange did not allocate all of the employee compensation and benefits 
expense toward the cost of the services associated with the Proposed 
Access Fees, only the portions which the Exchange identified as being 
specifically mapped to providing the services associated with the 
Proposed Access Fees, approximately 48% of the total employee 
compensation and benefits expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the services associated with the Proposed Access Fees, 
and not any other service, as supported by its cost review.
    MIAX Emerald's depreciation and amortization expense relating to 
providing the services associated with the Proposed Access Fees is 
projected to be $2,630,687, which is only a portion of the $3,812,590 
total projected expense for depreciation and amortization. The Exchange 
believes it is reasonable to allocate the identified portion of such 
expense because such expense includes the actual cost of the computer 
equipment, such as dedicated servers, computers, laptops, monitors, 
information security appliances and storage, and network switching 
infrastructure equipment, including switches and taps that were 
purchased to operate and support the network and provide the services 
associated with the Proposed Access Fees. Without this equipment, the 
Exchange would not be able to operate the network and provide the 
services associated with the Proposed Access Fees to its Members and 
non-Members and their customers. The Exchange did not allocate all of 
the depreciation and amortization expense toward the cost of providing 
the services associated with the Proposed Access Fees, only the portion 
which the Exchange identified as being specifically mapped to providing 
the services associated with the Proposed Access Fees, approximately 
69% of the total depreciation and amortization expense, as these 
services would not be possible without relying on such equipment. The 
Exchange believes this allocation is reasonable because it represents 
the Exchange's actual cost to provide the services associated with the 
Proposed Access Fees, and not any other service, as supported by its 
cost review.
    MIAX Emerald's occupancy expense relating to providing the services 
associated with the Proposed Access Fees is projected to be $246,648, 
which is only a portion of the $474,323 total projected expense for 
occupancy. The Exchange believes it is reasonable to allocate the 
identified portion of such expense because such expense represents the 
portion of the Exchange's cost to rent and maintain a physical location 
for the Exchange's staff who operate and support the network, including 
providing the services associated with the Proposed Access Fees. This 
amount consists primarily of rent for the Exchange's Princeton, NJ 
office, as well as various related costs, such as physical security, 
property management fees, property taxes, and utilities. The Exchange 
operates its Network Operations Center (``NOC'') and Security 
Operations Center (``SOC'') from its Princeton, New Jersey office 
location. A centralized office space is required to house the staff 
that operates and supports the network. The Exchange currently has 
approximately 150 employees. Approximately two-thirds of the Exchange's 
staff are in the Technology department, and the majority of those staff 
have some role in the operation and performance of the services 
associated with the Proposed Access Fees. Without this office space, 
the Exchange would not be able to operate and support the network and 
provide the services associated with the Proposed Access Fees to its 
Members and non-Members and their customers. Accordingly, the Exchange 
believes it is reasonable to allocate the identified portion of its 
occupancy expense because such amount represents the Exchange's actual 
cost to house the equipment and personnel who operate and support the 
Exchange's network infrastructure and the services associated with the 
Proposed Access Fees. The Exchange did not allocate all of the 
occupancy expense toward the

[[Page 66644]]

cost of providing the services associated with the Proposed Access 
Fees, only the portion which the Exchange identified as being 
specifically mapped to operating and supporting the network, 
approximately 52% of the total occupancy expense. The Exchange believes 
this allocation is reasonable because it represents the Exchange's cost 
to provide the services associated with the Proposed Access Fees, and 
not any other service, as supported by its cost review [sic].
    Accordingly, based on the facts and circumstances presented, the 
Exchange believes that its provision of the services associated with 
the Proposed Access Fees will not result in excessive pricing or supra-
competitive profit. To illustrate, for 2020, the Exchange's total 
revenue for non-transaction fees--consisting of only 1Gb and 10Gb ULL 
connectivity and MEI additional limited service port fees--for the 
first 9 months of 2020, was approximately $3.9 million. Total projected 
revenue associated with the Proposed Access Fees for the remaining 
three months of 2020 is approximately $2.55 million. Therefore, total 
projected revenue for the Exchange for 2020 for the provision of such 
access fees is approximately $6.5 million. Total projected expense for 
the Exchange for 2020 for the provision of access fees is approximately 
$9.3 million. Accordingly, the provision of the services associated 
with the Proposed Access Fees will not result in excessive pricing or 
supra-competitive profit (rather, it will result in a loss of $2.8 
million for 2020).
    On a going-forward, fully-annualized basis, the Exchange projects 
that its annualized revenue for providing the services associated with 
the Proposed Access Fees would be approximately $10.2 million per 
annum, based on a most recently completed billing cycle. The Exchange 
projects that its annualized expense for providing the services 
associated with the Proposed Access Fees would be approximately $9.3 
million per annum. Accordingly, on a fully-annualized basis, the 
Exchange believes its total projected revenue for the providing the 
services associated with the Proposed Access Fees will not result in 
excessive pricing or supra-competitive profit, as the Exchange will 
make only a 9% profit margin on the Proposed Access Fees ($10.2 million 
- 9.3 million = $900,000 per annum). This profit margin does not take 
into account the cost of the CapEx the Exchange is projected to spend 
in 2020 of $1.85 million, or the amounts the Exchange is projected to 
spend each year on CapEx going forward.
    For the avoidance of doubt, none of the expenses included herein 
relating to the services associated with the Proposed Access Fees 
relate to the provision of any other services offered by MIAX Emerald. 
Stated differently, no expense amount of the Exchange is allocated 
twice.
    The Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to allocate the respective percentages of each expense 
category described above towards the total cost to the Exchange of 
operating and supporting the network, including providing the services 
associated with the Proposed Access Fees because the Exchange performed 
a line-by-line item analysis of all the expenses of the Exchange, and 
has determined the expenses that directly relate to operation and 
support of the network. Further, the Exchange notes that, without the 
specific third-party and internal items listed above, the Exchange 
would not be able to operate and support the network, including 
providing the services associated with the Proposed Access Fees to its 
Members and non-Members and their customers. Each of these expense 
items, including physical hardware, software, employee compensation and 
benefits, occupancy costs, and the depreciation and amortization of 
equipment, have been identified through a line-by-line item analysis to 
be integral to the operation and support of the network. The Proposed 
Access Fees are intended to recover the Exchange's costs of operating 
and supporting the network. Accordingly, the Exchange believes that the 
Proposed Access Fee Increases are fair and reasonable because they do 
not result in excessive pricing or supra-competitive profit, when 
comparing the actual network operation and support costs to the 
Exchange versus the projected annual revenue from the Proposed Access 
Fees, including the increased amount.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
place certain market participants at the Exchange at a relative 
disadvantage compared to other market participants or affect the 
ability of such market participants to compete.
Intra-Market Competition
    The Exchange believes that the Proposed Access Fees do not place 
certain market participants at a relative disadvantage to other market 
participants because the Proposed Access 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 Access 
Fees reflects the network resources consumed by the various size of 
market participants--lowest bandwidth consuming members pay the least, 
and highest bandwidth consuming members pays the most, particularly 
since higher bandwidth consumption translates to higher costs to the 
Exchange.
Inter-Market Competition
    The Exchange believes the Proposed Access Fees do not place an 
undue burden on competition on other SROs that is not necessary or 
appropriate. In particular, options market participants are not forced 
to connect to (and purchase market data from) all options exchanges. 
The Exchange had one of its member firms cancel its membership with the 
Exchange as a direct result of the Proposed Access Fees. The Exchange 
also notes that it has far less Members as compared to the much greater 
number of members at other options exchanges. Not only does MIAX 
Emerald have less than half the number of members as certain other 
options exchanges, but there are also a number of the Exchange's 
Members that do not connect directly to MIAX Emerald. There are a 
number of large market makers and broker-dealers that are members of 
other options exchange but not Members of MIAX Emerald. The Exchange is 
also unaware of any assertion that its existing fee levels or the 
Proposed Access Fees would somehow unduly impair its competition with 
other options exchanges. To the contrary, if the fees charged are 
deemed too high by market participants, they can simply disconnect, as 
described above.
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 16 competing options 
venues if they deem fee levels at a particular venue to be 
excessive.\29\ Based on publicly-available information, and excluding 
index-based options, no single exchange has more than 16% market share. 
Therefore, no exchange possesses significant pricing power in the 
execution of multiply-listed equity and ETF options order flow. For the 
month of August 2020, the Exchange had a market share of approximately 
3.24% of executed multiply-listed equity options \30\ and the Exchange 
believes that the ever-shifting market share among exchanges from month 
to month

[[Page 66645]]

demonstrates that market participants can discontinue or reduce use of 
certain categories of products, or shift order flow, in response to fee 
changes. In such an environment, the Exchange must continually adjust 
its fees and fee waivers to remain competitive with other exchanges and 
to attract order flow to the Exchange.
---------------------------------------------------------------------------

    \29\ See supra note 22.
    \30\ Id.
---------------------------------------------------------------------------

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,\31\ and Rule 19b-4(f)(2) \32\ 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.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \32\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-EMERALD-2020-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-EMERALD-2020-12. 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 (http://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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-EMERALD-2020-12 and should be submitted 
on or before November 10, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-23149 Filed 10-19-20; 8:45 am]
BILLING CODE 8011-01-P


