[Federal Register Volume 85, Number 240 (Monday, December 14, 2020)]
[Notices]
[Pages 80864-80871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27393]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90601; File No. SR-EMERALD-2020-18]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Amend 
Its Fee Schedule To Adopt a Monthly Trading Permit Fees

December 8, 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 November 27, 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'') to establish monthly Trading Permit \3\ 
fees for Exchange Members.\4\
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    \3\ The term ``Trading Permit'' means a permit issued by the 
Exchange that confers the ability to transact on the Exchange. See 
Exchange Rule 100.
    \4\ 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 and the Definitions Section of the Fee Schedule.
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    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 adopt monthly 
Trading Permit fees (the ``Proposed Access Fees'') depending on the 
Member's status as either an Electronic Exchange Member (``EEM'') \5\ 
or as a Market Maker.\6\ MIAX Emerald commenced operations as a 
national securities exchange registered under Section 6 of the Act \7\ 
on March 1, 2019.\8\ The Exchange adopted its transaction fees and 
certain of its non-transaction fees in its filing SR-EMERALD-2019-
15.\9\ In that filing, the Exchange expressly waived, among other fees, 
the Proposed Access Fees, to provide an incentive to prospective EEMs 
and Market Makers to become Members of the Exchange. Accordingly, since 
the launch of the Exchange, all such membership fees have been waived 
for the Waiver Period.\10\ When the Exchange adopted the framework for 
its fees, it stated that it would provide notice to market participants 
when the Exchange intended to terminate the Waiver Period for the 
Proposed Access Fees. Accordingly, on September 15, 2020, the Exchange 
issued a Regulatory Circular which announced that the Exchange would be 
ending the Waiver Period for the Proposed Access Fees, among other non-
transaction fees, beginning October 1, 2020.\11\
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    \5\ ``Electronic Exchange Member'' or ``EEM'' means the holder 
of a Trading Permit who is not a Market Maker. Electronic Exchange 
Members are deemed ``members'' under the Exchange Act. See Exchange 
Rule 100 and the Definitions Section of the Fee Schedule.
    \6\ The term ``Market Makers'' refers to ``Lead Market Makers'', 
``Primary Lead Market Makers'' and ``Registered Market Makers'' 
collectively. See Exchange Rule 100 and the Definitions Section of 
the Fee Schedule.
    \7\ 15 U.S.C. 78f.
    \8\ See Securities Exchange Act Release No. 84891 (December 20, 
2018), 83 FR 67421 (December 28, 2018) (File No. 10-233) (order 
approving application of MIAX Emerald, LLC for registration as a 
national securities exchange).
    \9\ See Securities Exchange Act Release No. 85393 (March 21, 
2019), 84 FR 11599 (March 27, 2019) (SR-EMERALD-2019-15) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Establish the MIAX Emerald Fee Schedule).
    \10\ ``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.
    \11\ 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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    The Exchange initially filed its proposal to establish the Proposed 
Access Fees on October 1, 2020.\12\ The First Proposed Rule Change was 
published for comment in the Federal Register on October 21, 2020.\13\ 
On November 25, 2020, the Exchange withdrew the First Proposed Rule 
Change and refiled its proposal to establish monthly Trading Permit 
fees.\14\
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    \12\ See Securities Exchange Act Release Nos. 90196 (October 15, 
2020), 85 FR 67064 (October 21, 2020) (SR-EMERALD-2020-11) (Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Its Fee Schedule To Adopt One-Time Membership Application Fees 
and Monthly Trading Permit Fees) (the ``First Proposed Rule 
Change''). The Exchange notes that it will refile its proposal to 
establish the one-time membership application fee in a separate 
filing.
    \13\ See id.
    \14\ See Comment Letter from Joseph W. Ferraro III, SVP, Deputy 
General Counsel, the Exchange, dated November 20, 2020, notifying 
the Commission that the Exchange will withdraw the First Proposed 
Rule Change.
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    Trading Permits are issued to Members who are either EEMs or Market 
Makers. The Exchange proposes to assess the Proposed Access Fees 
depending upon the category of Member that is issued a Trading Permit. 
Members issued Trading Permits during a calendar month will be assessed 
monthly Trading Permit Fees. The Exchange notes that the Exchange's 
affiliate, Miami International Securities Exchange, LLC (``MIAX''), 
charges a similar, fixed trading permit fee to its EEMs, and a similar, 
varying trading permit fee to its Market Makers, based upon the number 
of assignments of option classes or the percentage of volume in option 
classes.\15\
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    \15\ See the MIAX Fee Schedule, Section 3)b).
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    The Exchange proposes that monthly Trading Permit fees will be 
assessed, with respect to the calculation of such fee to EEMs (other 
than clearing firms), in any month the EEM is certified in the 
membership system and is credentialed to use one or more Financial 
Information Exchange (``FIX'') \16\ ports

[[Page 80865]]

in the production environment. Further, the Exchange proposes that 
monthly Trading Permit fees will be assessed with respect to EEM 
clearing firms in any month the clearing firm is certified in the 
membership system to clear transactions on the Exchange.
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    \16\ ``FIX Port'' means an interface with MIAX Emerald systems 
that enables the Port user to submit simple and complex orders 
electronically to MIAX Emerald. See the Definitions Section of the 
Fee Schedule.
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    The Exchange proposes to assess EEMs a monthly fee of $1,000 for 
each Trading Permit. Below is the proposed table showing the Trading 
Permit fees for EEMs:

------------------------------------------------------------------------
                                                          Monthly MIAX
                Type of trading permit                  Emerald trading
                                                           permit fee
------------------------------------------------------------------------
Electronic Exchange Member...........................         $1,000.00
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    The Exchange proposes to assess monthly Trading Permit fees for 
Market Makers in any month the Market Maker (including a Registered 
Market Maker, Lead Market Maker, and Primary Lead Market Maker) is 
certified in the membership system, is credentialed to use one or more 
MIAX Emerald Express Interface (``MEI'') \17\ ports in the production 
environment and is assigned to quote in one or more classes. 
Specifically, the Exchange proposes to adopt the following Trading 
Permit fees for Market Makers: (i) $7,000 for Market Maker Assignments 
in up to 10 option classes or up to 20% of option classes by national 
average daily volume (``ADV''); (ii) $12,000 for Market Maker 
Assignments in up to 40 option classes or up to 35% of option classes 
by ADV; (iii) $17,000 for Market Maker Assignments in up to 100 option 
classes or up to 50% of option classes by ADV; and (iv) $22,000 for 
Market Maker Assignments in over 100 option classes or over 50% of 
option classes by ADV up to all option classes listed on MIAX Emerald.
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    \17\ The MEI is a connection to the MIAX Emerald System that 
enables Market Makers to submit simple and complex electronic quotes 
to MIAX Emerald. The Exchange offers Full Service MEI Ports, which 
provide 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. The Exchange also offers 
Limited Service MEI Ports, which provide 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.
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    The Exchange also proposes to adopt an alternative lower Trading 
Permit fee for Market Makers who fall within the following Trading 
Permit fee levels, which represent the 3rd and 4th levels of the Market 
Maker Trading Permit fee table: (i) Market Maker Assignments in up to 
100 option classes or up to 50% of option classes by volume; and (ii) 
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. Specifically, the Exchange proposes to adopt footnote 
``[ssquf]'' following the Market Maker Trading Permit fee table for 
these Monthly Trading Permit 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 $15,500 instead of the fee otherwise applicable to 
such level.
    Below is the proposed table showing the Trading Permit fees for 
Market Makers:

----------------------------------------------------------------------------------------------------------------
                                                          Market maker assignments (the lesser of the applicable
                                         Monthly MIAX                      measurements below)
        Type of trading permit          Emerald trading --------------------------------------------------------
                                          permit fee                                Percent of national average
                                                                 Per class                  daily volume
----------------------------------------------------------------------------------------------------------------
Market Maker (includes RMM, LMM,              $7,000.00  Up to 10 Classes........  Up to 20% of Classes by
 PLMM).                                                                             volume.
                                              12,000.00  Up to 40 Classes........  Up to 35% of Classes by
                                                                                    volume.
                                                [ssquf]  Up to 100 Classes.......  Up to 50% of Classes by
                                              17,000.00                             volume.
                                              22,000.00  Over 100 Classes........  Over 50% of Classes by volume
                                                                                    up to all Classes listed on
                                                                                    MIAX Emerald.
----------------------------------------------------------------------------------------------------------------
 For these Monthly MIAX Emerald Trading Permit 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 $15,500
  instead of the fee otherwise applicable to such level.

    For the calculation of the monthly Market Maker Trading Permit 
fees, 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 ADV in classes listed on MIAX Emerald in the prior 
calendar quarter. Newly listed option classes are excluded from the 
calculation of the monthly Market Maker Trading Permit 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 MIAX Emerald Market Makers the monthly Market Maker 
Trading Permit fee 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 ADV measurement.
    The purpose of the alternative lower fee designated in proposed 
footnote ``[ssquf]'' 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 
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 equitable to offer such Market Makers a lower fixed cost. The 
Exchange notes that the Exchange's affiliate, MIAX, provides a similar 
alternative lower Trading Permit fee for Market Makers who quote the 
entire MIAX market (or substantial amount of the MIAX market), as 
objectively measured by either number of classes assigned or national 
ADV, but who do not otherwise execute a significant

[[Page 80866]]

amount of volume on MIAX.\18\ The Exchange also notes that other 
options exchanges assess certain of their membership fees at different 
rates, based upon a member's participation on that exchange,\19\ and, 
as such, this concept is not new or novel. The proposed changes to the 
Trading Permit fees for Market Makers who fall within the 3rd and 4th 
levels of the fee table are based upon a business determination of 
current Market Maker assignments and trading volume.
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    \18\ See supra note 15.
    \19\ See e.g., NYSE Arca Options Fees and Charges, p.1 
(assessing market makers $6,000 for up to 175 option issues, an 
additional $5,000 for up to 350 option issues, an additional $4,000 
for up to 1,000 option issues, an additional $3,000 for all option 
issues on the exchange, and an additional $1,000 for the fifth 
trading permit and for each trading permit thereafter); NYSE 
American Options Fee Schedule, p. 23 (assessing market makers $8,000 
for up to 60 plus the bottom 45% of option issues, an additional 
$6,000 for up to 150 plus the bottom 45% of option issues, an 
additional $5,000 for up to 500 plus the bottom 45% of option 
issues, and additional $4,000 for up to 1,100 plus the bottom 45% of 
option issues, an additional $3,000 for all issues traded on the 
exchange, and an additional $2,000 for 6th to 9th ATPs; plus an 
addition fee for premium products). See also 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 5000 contracts. Id.
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    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 Trading Permit 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 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 (for the first 9 months) and projected 
(for the final 3 months) 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'').\20\ On May 21, 2019, the Commission issued the Staff Guidance 
on SRO Rule Filings Relating to Fees.\21\ 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 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 other non-transaction fees. Accordingly, 
the Exchange believes that the Commission should find that the Proposed 
Access Fees are consistent with the Act.
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    \20\ 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).
    \21\ 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'').
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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 \22\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \23\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees and other charges among its members and

[[Page 80867]]

issuers and other persons using its facilities. The Exchange also 
believes the proposal furthers the objectives of Section 6(b)(5) of the 
Act 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 customers, issuers, brokers and dealers.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange only has four primary sources of revenue: transaction 
fees, access fees (which includes the Proposed Access Fees), regulatory 
fees, and market data fees. Accordingly, the Exchange must cover all of 
its expenses from these four primary sources of revenue.
    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 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 $2.5 million. The $2.5 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, 
relating to the internal costs of MIAX Emerald to provide the services 
associated with the Proposed Access Fees. As noted above, the Exchange 
believes it is more appropriate to analyze the Proposed Access Fees 
utilizing its 2020 actual (for the first 9 months) and projected (for 
the final 3 months) revenue and costs, which utilize the same 
presentation methodology as set forth in the Exchange's previously-
issued Audited Unconsolidated Financial Statements.\24\ The $2.5 
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.
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    \24\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the 
information technology and communication costs line item under the 
section titled ``Operating Expenses Incurred Directly or Allocated 
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing 
its financial statements for 2018. See Securities Exchange Act 
Release No. 87877 (December 31, 2019), 85 FR 738 (January 7, 2020) 
(SR-EMERALD-2019-39). Accordingly, the third-part expense described 
in this filing is attributed to the same line item for the 
Exchange's 2020 Form 1 Amendment, which will be filed in 2021.
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    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 $190,621. 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'') \25\, 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 connect to the network to 
trade, receive market data, etc.).
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    \25\ 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.
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    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 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 10% 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

[[Page 80868]]

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 1% 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 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 1% 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 their customers. The Exchange did not 
allocate all of the hardware and software provider 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 10% 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 $2,046,137. 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 $1,403,101, 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 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 15% 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 $571,888, 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 
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 15% of 
the total

[[Page 80869]]

depreciation and amortization expense, as these services would not be 
possible without relying on such. 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 $71,148, 
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 Trading Permit 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 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 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 15% 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 
projected revenue associated with the Proposed Access Fees for the 
remaining three months of 2020 is approximately $625,000. Total 
projected expense for the Exchange for 2020 for the provision of the 
Proposed Access Fees is approximately $2,236,758. 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 $1,611,758 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 $2.5 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 $2,236,758 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 10% profit margin 
on the Proposed Access Fees ($2.5 million - $2,236,758 = $263,242 per 
annum).
    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 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 Fees 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.
    Further, the Exchange no longer believes it is necessary to waive 
these fees to attract market participants to the MIAX Emerald market 
since this market is now established and MIAX Emerald no longer needs 
to rely on such waivers to attract market participants. The Exchange 
believes that the proposal is equitable and not unfairly discriminatory 
because the elimination of the fee waiver for the Proposed Access Fees 
will uniformly apply to all EEMs and Market Makers seeking to become 
Members of the Exchange. The Exchange also notes that the Exchange's 
affiliate, MIAX, charges a similar, fixed trading permit fee to its 
EEMs, and a similar, varying trading permit fee to its Market Makers, 
based upon the number of assignments of option classes or the 
percentage of volume in option classes.\26\
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    \26\ See supra note 15.
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    The Exchange believes that the Proposed Access Fees are reasonable, 
equitable and not unfairly discriminatory because they are within the 
range of comparable fees at other competing options exchanges.\27\ The 
Proposed Access Fees are fair and equitable and not unreasonably 
discriminatory because they apply equally to all Market Makers 
regardless of type and access to the Exchange is offered on terms that 
are not unfairly discriminatory. The Exchange designed the fee rates in 
order to provide objective criteria for Market Makers of different 
sizes and business models that best matches their quoting activity on 
the Exchange. The Exchange notes that trading volume and quoting 
activity in

[[Page 80870]]

the options market tends to be concentrated in the top ranked options 
classes; with the vast majority of options classes being thinly quoted 
and traded. The Exchange believes that the proposed fee rates and 
criteria provide an objective and flexible framework that will 
encourage Market Makers to be assigned and quote in option classes with 
lower total national average daily volume while also equitably 
allocating the fees in a reasonable manner amongst Market Maker 
assignments to account for quoting and trading activity.
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    \27\ See supra note 19.
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    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive. In such an environment, the Exchange must continually adjust 
its fees for services and products, in addition to order flow, to 
remain competitive with other exchanges. The Exchange believes that the 
proposed changes reflect this competitive environment.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
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 fee rates are designed in order to 
provide objective criteria for Market Makers of different sizes and 
business models that best matches their quoting activity on the 
Exchange. The Exchange notes that trading volume and quoting activity 
in the options market tends to be concentrated in the top ranked 
options classes; with the vast majority of options classes being thinly 
quoted and traded. The Exchange believes that the proposed fee rates 
and criteria provide an objective and flexible framework that will 
encourage Market Makers to be assigned and quote in option classes with 
lower total national average daily volume while also equitably 
allocating the fees in a reasonable manner amongst Market Maker 
assignments to account for quoting and trading activity.
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 become members of all options exchanges. The Exchange notes that it 
has far less Members as compared to the much greater number of members 
at other options exchanges. 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 discontinue their membership with the 
Exchange.
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 15 competing options 
venues if they deem fee levels at a particular venue to be excessive. 
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 
October 2020, the Exchange had a market share of approximately 3.60% of 
executed multiply-listed equity options \28\ and the Exchange believes 
that the ever-shifting market share among 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 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.
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    \28\ See 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.
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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,\29\ and Rule 19b-4(f)(2) \30\ 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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    \29\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \30\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-EMERALD-2020-18 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-2020-18. 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

[[Page 80871]]

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-2020-18 and should be submitted on or before January 4, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
---------------------------------------------------------------------------

    \31\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27393 Filed 12-11-20; 8:45 am]
BILLING CODE 8011-01-P


