[Federal Register Volume 86, Number 34 (Tuesday, February 23, 2021)]
[Notices]
[Pages 11033-11040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-03549]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91145; File No. SR-EMERALD-2021-05]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fee Schedule To Establish Market Data Fees

February 17, 2021.
    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 February 4, 2021, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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 market data fees.
    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 establish market 
data fees. MIAX Emerald commenced operations as a national securities 
exchange registered under Section 6 of the Act \3\ on March 1, 2019.\4\ 
The Exchange adopted its transaction fees and certain of its non-
transaction fees in its filing SR-EMERALD-2019-15.\5\ In that filing, 
the Exchange expressly waived, among others, market data fees to 
provide an incentive to prospective market participants to become 
Members \6\ of the Exchange. At that time, the Exchange waived market 
data fees for the Waiver Period \7\ and stated that it would provide 
notice to market participants when the Exchange intended to terminate 
the Waiver Period.
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    \3\ 15 U.S.C. 78f.
    \4\ 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).
    \5\ 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).
    \6\ ``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.
    \7\ ``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.
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    On September 15, 2020, the Exchange issued a Regulatory Circular 
which announced, among other things, that the Exchange would be ending 
the Waiver Period for market data fees, beginning October 1, 2020.\8\
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    \8\ 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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    On October 1, 2020, the Exchange filed its proposal to assess fees 
for its market data products, MIAX Emerald Top of Market (``ToM''), 
Administrative Information Subscriber (``AIS'') feed, and MIAX Order 
Feed (``MOR'').\9\ On October 14, 2020, the Exchange withdrew the First 
Proposed Rule Change and refiled its proposal in order to provide more 
description regarding the difference in pricing for internal 
distributors and external distributors.\10\
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    \9\ See SR-EMERALD-2020-10 (the ``First Proposed Rule Change'').
    \10\ See Securities Exchange Act Release No. 90274 (October 27, 
2020), 85 FR 69371 (November 2, 2020) (SR-EMERALD-2020-13) (Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Its Fee Schedule To Establish Market Data Fees) (the ``Second 
Proposed Rule Change'').
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    On November 25, 2020, the Exchange withdrew the Second Proposed 
Rule Change \11\ and refiled its proposal to assess fees for its ToM, 
AIS and MOR products in order to provide additional information.\12\ On 
January 22, 2021, the Exchange withdrew the Third Proposed Rule Change 
\13\ and refiled its proposal in order to provide a cost-based 
justification for its market data fees.\14\ On February 4, 2021, the 
Exchange withdrew the Fourth Proposed Rule Change and refiled this 
proposal.
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    \11\ 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 Second Proposed 
Rule Change.
    \12\ See Securities Exchange Act Release No. 90612 (December 9, 
2020), 85 FR 81242 (December 15, 2020) (SR-EMERALD-2020-16) (the 
``Third Proposed Rule Change'').
    \13\ See Comment Letter from Joseph W. Ferraro III, SVP, Deputy 
General Counsel, the Exchange, dated January 19, 2021, notifying the 
Commission that the Exchange will withdraw the Third Proposed Rule 
Change.
    \14\ See SR-EMERALD-2021-04 (the ``Fourth Proposed Rule 
Change'').
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    A more detailed description of the ToM, AIS and MOR products can be

[[Page 11034]]

found in the Exchange's previously filed Market Data Product 
filings.\15\ The Exchange notes that it will not be assessing fees for 
Complex Top of Market (``cToM'') \16\ data at this time.
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    \15\ See Securities Exchange Act Release No. 85207 (February 27, 
2019), 84 FR 7963 (March 5, 2019) (SR-EMERALD-2019-09) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to 
Establish MIAX Emerald Top of Market (``ToM'') Data Feed, MIAX 
Emerald Complex Top of Market (``cToM'') Data Feed, MIAX Emerald 
Administrative Information Subscriber (``AIS'') Data Feed, and MIAX 
Emerald Order Feed (``MOR'')).
    \16\ cToM provides subscribers with the same information as the 
ToM market data product as it relates to the strategy book, i.e., 
the Exchange's best bid and offer for a complex strategy, with 
aggregate size, based on displayable order and quoting interest in 
the complex strategy on the Exchange. cToM also provides subscribers 
with the identification of the complex strategies currently trading 
on MIAX Emerald; complex strategy last sale information; and the 
status of securities underlying the complex strategy (e.g., halted, 
open, or resumed). cToM is distinct from ToM, and anyone wishing to 
receive cToM data must subscribe to cToM regardless of whether they 
are a current ToM subscriber. ToM subscribers are not required to 
subscribe to cToM, and cToM subscribers are not required to 
subscribe to ToM. See id.
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    To summarize, ToM provides market participants with a direct data 
feed that includes the Exchange's best bid and offer, with aggregate 
size, and last sale information, based on displayable order and quoting 
interest on the Exchange. The ToM data feed includes data that is 
identical to the data sent to the processor for the Options Price 
Reporting Authority (``OPRA''). ToM also contains a feature that 
provides the number of Priority Customer \17\ contracts that are 
included in the size associated with the Exchange's best bid and offer.
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    \17\ The term ``Priority Customer'' means a person or entity 
that (i) is not a broker or dealer in securities, and (ii) does not 
place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s). The 
number of orders shall be counted in accordance with Interpretation 
and Policy .01 to Exchange Rule 100. See Exchange Rule 100.
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    AIS provides market participants with a direct data feed that 
allows subscribers to receive real-time updates of products traded on 
MIAX Emerald, trading status for MIAX Emerald and products traded on 
MIAX Emerald, and liquidity seeking event notifications. The AIS market 
data feed includes opening imbalance condition information, opening 
routing information, expanded quote range information, post-halt 
notifications, and liquidity refresh condition information. AIS real-
time messages are disseminated over multicast to achieve a fair 
delivery mechanism. AIS notifications provide current electronic system 
status allowing subscribers to take necessary actions immediately.
    MOR provides market participants with a direct data feed that 
allows subscribers to receive real-time updates of options orders, 
products traded on MIAX Emerald, MIAX Emerald Options System status, 
and MIAX Emerald Options Underlying trading status. Subscribers to the 
data feed will get a list of all options symbols and strategies that 
will be traded and sourced on that feed at the start of every session.
    The Exchange proposes to charge monthly fees to Distributors 
(defined below) of the ToM, AIS, and MOR market data products. MIAX 
Emerald will assess market data fees applicable to the market data 
products on Internal and External Distributors in each month the 
Distributor is credentialed to use the applicable market data product 
in the production environment. A ``Distributor'' of MIAX Emerald data 
is any entity that receives a feed or file of data either directly from 
MIAX Emerald or indirectly through another entity and then distributes 
it either internally (within that entity) or externally (outside that 
entity). All Distributors are required to execute a MIAX Emerald 
Distributor Agreement. Market data fees for ToM, AIS, and MOR will be 
reduced for new Distributors for the first month during which they 
subscribe to the applicable market data product, based on the number of 
trading days that have been held during the month prior to the date on 
which they have been credentialed to use the applicable market data 
product in the production environment. Such new Distributors will be 
assessed a pro-rata percentage of the fees described above, which is 
the percentage of the number of trading days remaining in the affected 
calendar month as of the date on which they have been credentialed to 
use the applicable market data product in the production environment, 
divided by the total number of trading days in the affected calendar 
month.
    Specifically, the Exchange proposes to assess Internal Distributors 
$1,250 per month and External Distributors $1,750 per month for the ToM 
market data feed. The Exchange proposes to assess Internal Distributors 
$1,250 per month and External Distributors $1,750 per month for the AIS 
market data feed. The Exchange proposes to assess Internal Distributors 
$3,000 per month and External Distributors $3,500 per month for the MOR 
market data feed. The Exchange notes that its data feed prices are 
generally lower than other options exchanges' data feed prices for 
their comparable data feed products.\18\
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    \18\ See Nasdaq PHLX LLC Pricing Schedule, Options 7, Section 
10, Proprietary Data Feed Fees; Cboe BZX Exchange, Inc. Fee 
Schedule, Market Data Fees; Cboe Data Services, LLC, Fee Schedule.
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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 sets certain non-transaction fees, including market data fees. 
The Exchange believes that it is important to demonstrate that these 
fees are based on its costs to provide these products and reasonable 
business needs. Accordingly, the Exchange believes the proposed 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 associated with the proposed fees. This 
analysis includes information regarding its methodology for determining 
the costs and revenues associated with the proposed fees.
    In order to determine the Exchange's costs associated with 
providing the proposed 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 fees, and, if such expense did so 
relate, what portion (or percentage) of such expense actually supports 
the services included in the proposed fees. The sum of all such 
portions of expenses represents the total cost of the Exchange to 
provide the proposed 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 fees.
    In order to determine the Exchange's projected revenues associated 
with providing the proposed fees, the Exchange analyzed the number of 
Members and non-Members currently utilizing the Exchange's services 
associated with the proposed fees, and, utilizing a recent monthly 
billing cycle representative of 2020 monthly revenue,

[[Page 11035]]

extrapolated annualized revenue on a going-forward basis. The Exchange 
does not believe it is appropriate to factor into its analysis future 
revenue growth or decline into its projections for purposes of these 
calculations, given the uncertainty of such projections due to the 
continually changing market data needs of market participants, market 
participant consolidation, etc. Additionally, the Exchange similarly 
does not factor into its analysis future cost growth or decline.
    The Exchange is presenting its revenue and expense associated with 
the proposed 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 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 fees. Accordingly, the Exchange believes 
it is more appropriate to analyze the proposed fees utilizing its 2020 
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 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 
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'').\19\ On May 21, 2019, the Commission issued the Staff Guidance 
on SRO Rule Filings Relating to Fees.\20\ Accordingly, the Exchange 
believes that the proposed 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 do not result in excessive pricing 
or supra-competitive profit; and (iv) utilize a cost-based 
justification framework. Accordingly, the Exchange believes that the 
Commission should find that the proposed fees are consistent with the 
Act.
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    \19\ 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).
    \20\ 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 \21\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \22\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees and other charges among its members and 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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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(4) and (5).
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    Separately, the Exchange is not aware of any reason why market 
participants could not simply drop their market data subscriptions to 
an exchange (or not subscribe to market data feeds of an exchange) if 
an exchange were to establish prices for its market data fees that, in 
the determination of such market participant, did not make business or 
economic sense for such market participant. No options market 
participant is required by rule or regulation to subscribe to market 
data feeds of an options exchange. As evidence of the fact that market 
participants can and do unsubscribe from an exchange's market data 
feeds based on pricing, the Exchange notes that, since it issued its 
notice for the proposed fees, one Member terminated its market data 
feed subscriptions as a result of the proposed fees. Accordingly, this 
example shows that if an exchange sets too high of a fee for its market 
data products, market participants can choose to not purchase market 
data or simply unsubscribe from an exchange's market data feeds.
    The Exchange believes that its proposal is consistent with Section 
6(b)(4) of the Act because the proposed fees will not result in 
excessive or supra-competitive profit. The costs associated with 
providing market data 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 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 (``OpEx''), and undertaken additional engineering research 
and development (``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. The CapEx associated with only phase

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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 discussed below. This project, 
which results in a material increase in expense of the Exchange, is, 
among other things, intended to enhance the overall trading experience 
at the Exchange, making it a venue that market participants want to 
access, thereby creating greater value in the Exchange's market data 
products.
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to assess internal distributors fees that are 
less than the fees assessed for external distributors for subscriptions 
to the Exchange's ToM, AIS and MOR data feeds because internal 
distributors have limited, restricted usage rights to the market data, 
as compared to external distributors which have more expansive usage 
rights. All Members and non-Members that determine to receive any 
market data feed of the Exchange (or its affiliates, MIAX and MIAX 
PEARL), must first execute, among other things, the MIAX Exchange Group 
Exchange Data Agreement (the ``Exchange Data Agreement'').\23\ Pursuant 
to the Exchange Data Agreement, Internal Distributors are restricted to 
the ``internal use'' of any market data they receive. This means that 
Internal Distributors may only distribute the Exchange's market data to 
the recipient's officers and employees and its affiliates.\24\ External 
Distributors may distribute the Exchange's market data to persons who 
are not officers, employees or affiliates of the external 
distributor,\25\ and may charge their own fees for the distribution of 
such market data. Accordingly, the Exchange believes it is fair, 
reasonable and not unfairly discriminatory to assess External 
Distributors a higher fee for the Exchange's market data products as 
External Distributors have greater usage rights to commercialize such 
market data. It also costs the Exchange more to support External 
Distributors versus internal distributors, as External Distributors 
have reporting and monitoring obligations that Internal Distributors do 
not have, thus requiring additional time and effort of Exchange staff. 
The Exchange believes the proposed fees are a reasonable allocation of 
its costs and expenses among its Members and other persons using its 
facilities since it is recovering the costs associated with 
distributing such data. Access to the Exchange is provided on fair and 
non-discriminatory terms. The Exchange believes the proposed fees are 
equitable and not unfairly discriminatory because the fee level results 
in a reasonable and equitable allocation of fees amongst users for 
similar services. Moreover, the decision as to whether or not to 
purchase market data is entirely optional to all users. Potential 
purchasers are not required to purchase the market data, and the 
Exchange is not required to make the market data available. Purchasers 
may request the data at any time or may decline to purchase such data. 
The allocation of fees among users is fair and reasonable because, if 
the market deems the proposed fees to be unfair or inequitable, firms 
can diminish or discontinue their use of this data.
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    \23\ See Exchange Data Agreement, available at https://miaxweb2.pairsite.com/sites/default/files/page-files/MIAX_Exchange_Group_Data_Agreement_09032020.pdf.
    \24\ See id.
    \25\ See id.
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    The Exchange only has four primary sources of revenue: Transaction 
fees, 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 fees are fair and 
reasonable because they will not result in excessive pricing or supra-
competitive profit, when comparing the total annual expense that the 
Exchange projects to incur in connection with providing these products 
versus the total annual revenue that the Exchange projects to collect 
in connection with the proposed market data fees. For 2020,\26\ the 
total annual expense for providing the market data products associated 
with the proposed fees for MIAX Emerald is projected to be 
approximately $1,040,064. The $1,040,064 in projected total annual 
expense is comprised of the following, all of which are directly 
related to providing the market data products associated with the 
proposed 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 market data products associated with the proposed fees.
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    \26\ The Exchange has not yet finalized its 2020 year end 
results.
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    The Exchange notes that the MIAX Emerald architecture takes 
advantage of an advance in design to eliminate the need for a market 
data distribution gateway layer. The computation and dissemination via 
an application program interface (``API'') is done solely within the 
match engine environment and is then delivered via the Member and non-
Member connectivity infrastructure. This architecture delivers a market 
data distribution system that is more efficient both in cost and 
performance. Earlier implementations like those implemented for the 
Exchange's affiliates, Miami International Securities Exchange, LLC 
(``MIAX'') and MIAX PEARL, LLC (``MIAX PEARL''), require an additional 
server hardware level and network infrastructure making them more 
expensive to deploy, operate and maintain. All capital and operational 
expenses to support market data generation are a percentage of the 
total cost to support the MIAX Emerald match engines (both in capital 
and operational expense). The Exchange believes that 10% of the 
functionality and support infrastructure is required to support the 
computation and dissemination of market data at the match engine layer, 
which serves as the basis for its cost allocation for market data 
products. Approximately 10% of the Exchange staff are required to 
support market data and fall under two categories: (1) The technical 
development, maintenance, operation and administration of market data 
computation and delivery; and (2) non-technical administration 
including managing market data agreements and the auditing and tracking 
of member and non-member market data usage.
    As noted above, the Exchange believes it is more appropriate to 
analyze the proposed fees utilizing its 2020 revenue and costs, which 
utilize the same presentation methodology as set forth in the 
Exchange's previously-issued Audited Unconsolidated Financial 
Statements.\27\ The $1,040,064 in projected total annual expense is 
directly related to providing the market data products associated with 
the proposed fees, and not any other product or service offered by the 
Exchange. No expense amount was allocated twice.
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    \27\ 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

[[Page 11037]]

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 
providing the market data products associated with the proposed fees, 
and, if such expense did so relate, what portion (or percentage) of 
such expense actually supports those products, and thus bears a 
relationship that is, ``in nature and closeness,'' directly related to 
those products. The sum of all such portions of expenses represents the 
total cost of the Exchange to provide the market data products 
associated with the proposed 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 market data products associated with 
the proposed fees, is projected to be $19,105. 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 connect to the network to 
trade, receive market data, etc.).
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    \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.
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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 providing the market 
data products associated with the proposed 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 market data products associated with the proposed 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 market data 
products associated with the proposed fees to its Members and their 
customers. The Exchange did not allocate all of the Equinix expense 
toward the cost of providing the market data products associated with 
the proposed fees, only that portion which the Exchange identified as 
being specifically mapped to providing the market data products 
associated with the proposed fees, approximately 1% of the total 
Equinix expense. The Exchange believes this allocation is reasonable 
because it represents the Exchange's actual cost to provide the market 
data products associated with the proposed fees, and not any other 
product or 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 market data products associated 
with the proposed fees. The Exchange did not allocate all of the Zayo 
expense toward the cost of providing the market data products 
associated with the proposed fees, only the portion which the Exchange 
identified as being specifically mapped to providing the market data 
products associated with the proposed 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 market 
data products associated with the proposed fees, and not any other 
product or service, as supported by its cost review.
    The Exchange did not allocate any expense associated with the 
proposed fees towards SFTI and various other service providers' 
(including Thompson Reuters, NYSE, Nasdaq, and Internap) because, as 
described above, the MIAX Emerald architecture takes advantage of an 
advance in design to eliminate the need for a market data distribution 
gateway layer. The computation and dissemination via an API is done 
solely within the match engine environment and is then delivered via 
the member and non-member connectivity infrastructure. This 
architecture delivers a market data system that is more efficient both 
in cost and performance. Accordingly, the Exchange determined not to 
allocate any expense associated with SFTI and various other service 
providers.
    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 the market data products. The Exchange did not allocate all of 
the hardware and software provider expense toward the cost of providing 
the market data products associated with the proposed fees, only the 
portions which the Exchange identified as being specifically mapped to 
providing the market data products associated with the proposed fees, 
approximately 1% 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 market data 
products associated with the proposed fees.
    For 2020, total projected internal expense, relating to the 
internal costs of MIAX Emerald to provide the market data products 
associated with the proposed fees, is projected to be $1,020,959. This 
includes, but is not limited to, costs associated with: (1) Employee 
compensation and benefits for full-time employees that support the 
market data products associated with the proposed fees, including staff 
in network operations, trading operations, development, system 
operations,

[[Page 11038]]

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 market data products associated with the proposed 
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 market data products associated 
with the proposed 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 market data products 
associated with the proposed fees.
    The Exchange believes it is reasonable to allocate such internal 
expense described above towards the total cost to the Exchange to 
provide the market data products associated with the proposed fees. In 
particular, MIAX Emerald's employee compensation and benefits expense 
relating to providing the market data products associated with the 
proposed fees is projected to be $935,400, 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 market data products and enhancements), Trade Operations, 
Finance (who provide billing and accounting services relating to the 
market data products), and Legal (who provide legal services relating 
to the market data products, 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 the 
market data products associated with the proposed fees. Without these 
employees, the Exchange would not be able to provide the market data 
products associated with the proposed 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 market data 
products associated with the proposed fees, only the portions which the 
Exchange identified as being specifically mapped to providing the 
market data products associated with the proposed fees, approximately 
10% 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 market data products 
associated with the proposed fees, and not any other service, as 
supported by its cost review.
    MIAX Emerald's depreciation and amortization expense relating to 
providing the market data products associated with the proposed fees is 
projected to be $38,125, 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 market 
data products associated with the proposed fees. Without this 
equipment, the Exchange would not be able to operate the network and 
provide the market data products associated with the proposed 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 market data products associated with the proposed fees, only the 
portion which the Exchange identified as being specifically mapped to 
providing the market data products associated with the proposed fees, 
approximately 1% of the total depreciation and amortization expense, as 
these access 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 market data 
products associated with the proposed fees, and not any other product 
or service, as supported by its cost review.
    MIAX Emerald's occupancy expense relating to providing the market 
data products associated with the proposed fees is projected to be 
$47,432, 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 
market data products, including providing the services associated with 
the proposed 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 operate and support the market data products. 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 network that supports the provision of the market 
data products associated with the proposed fees. Without this office 
space, the Exchange would not be able to operate and support the 
network and provide the market data products associated with the 
proposed 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 market data 
products associated with the proposed fees. The Exchange did not 
allocate all of the occupancy expense toward the cost of providing the 
market data products associated with the proposed fees, only the 
portion which the Exchange identified as being specifically mapped to 
operating and supporting the market data products, approximately 10% 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 fees, and not any other service, 
as supported by its cost review.
    Accordingly, based on the facts and circumstances presented, the 
Exchange believes that its provision of the market data products 
associated with the proposed fees will not result in excessive pricing 
or supra-competitive profit. To illustrate, on a going-forward, fully-
annualized basis, the Exchange projects that its annualized revenue for

[[Page 11039]]

providing the market data products associated with the proposed fees 
would be approximately $648,000 per annum, based on a recent billing 
cycle. The Exchange projects that its annualized expense for providing 
the market data products associated with the proposed fees would be 
approximately $1,040,064 per annum. Accordingly, on a fully-annualized 
basis, the Exchange believes its total projected revenue for providing 
the market data products associated with the proposed fees will not 
result in excessive pricing or supra-competitive profit; rather, it 
will result in a net loss to the Exchange of approximately ($392,064) 
per year ($648,000 -$1,040,064 = -$392,064).
    For the avoidance of doubt, none of the expenses included herein 
relating to the market data products associated with the proposed 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 notes that, with respect to the MIAX Emerald 
expenses included herein, those expenses only cover the MIAX Emerald 
market; expenses associated with the Exchange's affiliate exchanges, 
MIAX and MIAX PEARL, are accounted for separately and are not included 
within the scope of this filing. Stated differently, no expense amount 
of the Exchange is also allocated to MIAX or MIAX PEARL.
    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 
providing the market data products associated with the proposed 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 providing the market data products associated with the 
proposed fees. Further, the Exchange notes that, without the specific 
third-party and internal items listed above, the Exchange would not be 
able to provide the market data products associated with the proposed 
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 providing these market data products. The proposed fees 
are intended to recover the Exchange's costs of providing market data 
to Exchange Members and their customers. Accordingly, the Exchange 
believes that the proposed fees are fair and reasonable because they do 
not result in excessive pricing or supra-competitive profit, when 
comparing the actual costs to the Exchange versus the projected annual 
revenue from the proposed fees.
    Further, the Exchange no longer believes it is necessary to waive 
these fees to attract market participants to MIAX Emerald 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 fees will uniformly 
apply to all market participants of the Exchange. The Exchange also 
notes that the Exchange's affiliate, MIAX, charges similar market data 
fees.\29\
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    \29\ See MIAX Fee Schedule, Section 6(a)-(c).
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    The Exchange also points out that it is not seeking to recoup any 
of its past costs associated with the provision of any market data fees 
during the Waiver Period. The Exchange currently has 13 subscriptions 
for its ToM data product; 11 subscriptions for its AIS data product; 
and 8 subscriptions for its MOR data product. All of these subscribers 
have not paid any market data fees during the Waiver Period. Further, 
the majority of firms that are subscribers of the Exchange's affiliate 
options exchanges, MIAX and MIAX PEARL, also received free market data 
during similar Waiver Periods for the MIAX and MIAX PEARL market data 
fees. Accordingly, the Exchange (and MIAX and MIAX PEARL) have assumed 
100% of the costs associated with providing market data for the 
majority of subscribers of the Exchange, MIAX, and MIAX PEARL during 
their respective Waiver Periods. Accordingly, the Exchange believes 
that it is reasonable, equitable, and not unfairly discriminatory to 
now adopt market data fees that are reasonably related to (and designed 
to recover) the Exchange's cost associated with the provision of such 
market data.

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 fees do not put any market 
participants at a relative disadvantage compared to other market 
participants. As noted above, the proposed fee schedule would apply to 
all subscribers of the ToM, AIS and MOR data feeds, and customers may 
choose whether to subscribe to any or all of the feeds. The Exchange 
also believes that the proposed fees neither favor nor penalize one or 
more categories of market participants in a manner that would impose an 
undue market on competition. Further, the Exchange's proposed market 
data fee levels, as described herein, are comparable to fee levels 
charged by other options exchanges for the same or similar services, 
including those fees assessed by the Exchange's affiliate, MIAX.\30\
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    \30\ See id.
---------------------------------------------------------------------------

    The Exchange believes that the proposed market data fees do not 
place certain market participants at a relative disadvantage to other 
market participants because the fees do not apply unequally to 
different size market participants, but instead would allow the 
Exchange charge for the time and resource necessary for providing 
market data to the market participants that request such data. 
Accordingly, the Exchange believes that the proposed market data fees 
do not favor certain categories of market participants in a manner that 
would impose a burden on competition.
Inter-Market Competition
    The Exchange believes the proposed fees do not place an undue 
burden on competition on other SROs that is not necessary or 
appropriate. The Exchange notes that its data feed prices are generally 
lower than other options exchanges' data feed prices for their 
comparable data feed products.\31\ The Exchange notes that it has far 
less Members as compared to the much greater number of members at other 
options exchanges resulting in fewer market data subscribers. The 
Exchange is also unaware of any assertion that its proposed market data 
fees would somehow unduly impair its competition with other options 
exchanges. To the contrary, if the proposed market data fees are deemed 
too high by market participants, they can simply discontinue their 
market data subscriptions with the Exchange, as one such Member has 
already done (as described above).
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    \31\ See supra note 18.
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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.

[[Page 11040]]

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,\32\ and Rule 19b-4(f)(2) \33\ 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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    \32\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \33\ 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-2021-05 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-2021-05. 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-2021-05, and should be submitted 
on or before March 16, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
---------------------------------------------------------------------------

    \34\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-03549 Filed 2-22-21; 8:45 am]
BILLING CODE 8011-01-P


