[Federal Register Volume 86, Number 66 (Thursday, April 8, 2021)]
[Notices]
[Pages 18349-18362]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-07194]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91460; File No. SR-EMERALD-2021-11]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fee Schedule To Adopt Port Fees, Increase Certain Network 
Connectivity Fees, and Increase the Number of Additional Limited 
Service MIAX Emerald Express Interface Ports Available to Market Makers

April 2, 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 March 24, 2021, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

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

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

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

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule to: (1) Adopt Port 
fees; (2) increase the Exchange's network connectivity fees for its 10 
gigabit (``Gb'') ultra-low latency (``ULL'') fiber connection for 
Members \3\ and non-Members (collectively, the ``Proposed Access 
Fees''); and (3) increase the number of Additional Limited Service MIAX 
Emerald Express Interface (``MEI'') \4\ Ports available to Market 
Makers.\5\
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    \3\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
    \4\ MIAX Emerald Express Interface is a connection to the MIAX 
Emerald System that enables Market Makers to submit simple and 
complex electronic quotes to MIAX Emerald. ``Full Service MEI 
Ports'' means a port which provides Market Makers with the ability 
to send Market Maker simple and complex quotes, eQuotes, and quote 
purge messages to the MIAX Emerald System. Full Service MEI Ports 
are also capable of receiving administrative information. Market 
Makers are limited to two Full Service MEI Ports per Matching 
Engine. ``Limited Service MEI Ports'' means a port which provides 
Market Makers with the ability to send simple and complex eQuotes 
and quote purge messages only, but not Market Maker Quotes, to the 
MIAX Emerald System. Limited Service MEI Ports are also capable of 
receiving administrative information. Market Makers initially 
receive two Limited Service MEI Ports per Matching Engine. See the 
Definitions Section of the Fee Schedule.
    \5\ ``Market Maker'' refers to ``Lead Market Maker'' (``LMM''), 
``Primary Lead Market Maker'' (``PLMM'') and ``Registered Market 
Maker'' (``RMM''), collectively. See Exchange Rule 100 and 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 adopt Port 
fees, thereby terminating the Waiver Period \6\ for such fees, and 
increase the fees for its 10Gb ULL connection for Members and non-
Members, beginning October 1, 2020.\7\ On January 14, 2021, the 
Exchange announced that it would offer Market Makers the ability to 
purchase an additional six Limited Service MEI Ports,\8\ without 
changing the Limited Service MEI Port fee amount.
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    \6\ ``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.
    \7\ See MIAX Emerald Regulatory Circular 2020-41 available at 
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2020_41.pdf.
    \8\ See https://www.miaxoptions.com/alerts/2021/01/14/miax-emerald-options-announce-support-additional-mei-limited-service-ports. In a subsequent alert, the Exchange announced that the six 
Additional Limited Service MEI Ports would be available beginning 
February 16, 2021, pending filing with the Commission.
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    The Exchange initially filed its proposal to adopt certain Port 
fees and increase the fees for its 10Gb ULL connection on October 1, 
2020.\9\ The First Proposed Rule Change was published for comment in 
the Federal Register on October 20, 2020.\10\ The Exchange notes that 
the First Proposed Rule Change did not receive any comment letters. 
Nonetheless, the Exchange withdrew the First Proposed Rule Change on 
November 25, 2020 \11\ and resubmitted a replacement proposal.\12\ The 
Second Proposed Rule Change was published for comment in the Federal 
Register on December 14, 2020.\13\ The Exchange notes that the Second 
Proposed Rule Change did not receive any comment letters. Nonetheless, 
the Exchange withdrew the Second Proposed Rule Change on January 22, 
2021 \14\ and resubmitted a replacement proposal.\15\ The Third 
Proposed Rule Change was published for comment in the Federal Register 
on February 5, 2021.\16\ The Exchange withdrew the Third Proposed Rule 
Change on February 16, 2021 \17\ and

[[Page 18350]]

resubmitted a replacement proposal, which included the proposal to 
offer six Additional Limited Service MEI Ports available to Market 
Makers.\18\ On March 24, 2021, the Exchange withdrew the Fourth 
Proposed Rule Change and resubmitted this proposal to further clarify 
its expense and revenue projections and to make certain technical 
corrections.
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    \9\ See Securities Exchange Act Release No. 90184 (October 14, 
2020), 85 FR 66636 (October 20, 2020) (SR-EMERALD-2020-12) (the 
``First Proposed Rule Change'').
    \10\ See id.
    \11\ See Comment Letter from Joseph Ferraro, SVP, Deputy General 
Counsel, the Exchange, dated November 20, 2020, notifying the 
Commission that the Exchange would withdraw the First Proposed Rule 
Change.
    \12\ See Securities Exchange Act Release No. 90600 (December 8, 
2020), 85 FR 80831 (December 14, 2020) (SR-EMERALD-2020-17) (the 
``Second Proposed Rule Change'').
    \13\ See id.
    \14\ See Comment Letter from Joseph Ferraro, SVP, Deputy General 
Counsel, the Exchange, dated January 15, 2021, notifying the 
Commission that the Exchange would withdraw the Second Proposed Rule 
Change.
    \15\ See Securities Exchange Act Release No. 91032 (February 1, 
2021), 86 FR 8428 (February 5, 2021) (SR-EMERALD-2021-02) (the 
``Third Proposed Rule Change'').
    \16\ See id.
    \17\ See Comment Letter from Joseph Ferraro, SVP, Deputy General 
Counsel, the Exchange, dated February 16, 2021, notifying the 
Commission that the Exchange would withdraw the Third Proposed Rule 
Change.
    \18\ See Securities Exchange Act Release No. 91200 (February 24, 
2021), 86 FR 12221 (March 2, 2021) (SR-EMERALD-2021-07) (the 
``Fourth Proposed Rule Change'').
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Port Fees
    The Exchange proposes to adopt fees for ``Ports'', which are used 
by Members and non-Members to access the Exchange. MIAX Emerald 
provides four Port types: (i) The Financial Information Exchange 
(``FIX'') Port,\19\, which allows Members to electronically send orders 
in all products traded on the Exchange; (ii) the MEI Port, which allows 
Market Makers to submit electronic orders and quotes to the Exchange; 
(iii) the Clearing Trade Drop Port (``CTD'') Port,\20\ which provides 
real-time trade clearing information to the participants to a trade on 
MIAX Emerald and to the participants' respective clearing firms; and 
(iv) the FIX Drop Copy (``FXD'') Port,\21\ which provides a copy of 
real-time trade execution, correction and cancellation information 
through a FIX Port to any number of FIX Ports designated by an 
Electronic Exchange Member (``EEM'') \22\ to receive such messages. The 
Exchange also proposes to increase the monthly fee for each Additional 
Limited Service MEI Port per matching engine for Market Makers, as 
described below.
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    \19\ ``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.
    \20\ ``CTD Port'' or ``Clearing Trade Drop Port'' provides an 
Exchange Member with a real-time clearing trade updates. The updates 
include the Member's clearing trade messages on a low latency, real-
time basis. The trade messages are routed to a Member's connection 
containing certain information. The information includes, among 
other things, the following: (i) Trade date and time; (ii) symbol 
information; (iii) trade price/size information; (iv) Member type 
(for example, and without limitation, Market Maker, Electronic 
Exchange Member, Broker-Dealer); and (v) Exchange MPID for each side 
of the transaction, including Clearing Member MPID. See the 
Definitions Section of the Fee Schedule.
    \21\ The FIX Drop Copy (``FXD'') Port is a messaging interface 
that will provide a copy of real-time trade execution, trade 
correction and trade cancellation information to FXD Port users who 
subscribe to the service. FXD Port users are those users who are 
designated by an EEM to receive the information and the information 
is restricted for use by the EEM. FXD Port Fees will be assessed in 
any month the Member is credentialed to use the FXD Port in the 
production environment. See Fee Schedule, Section 5)d)iv).
    \22\ ``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.
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    Since the launch of the Exchange, all Port fees have been waived by 
the Exchange in order to incentivize market participants to connect to 
the Exchange, except for Additional Limited Service MEI Ports. However, 
also at launch, the Exchange introduced the structure of Port fees on 
its Fee Schedule (without proposing the actual fee amounts), in order 
to indicate to market participants that Port fees would ultimately 
apply upon expiration of the Waiver Period. The Exchange now proposes 
to assess monthly Port fees for Members and non-Members in each month 
the market participant is credentialed to use a Port in the production 
environment and based upon the number of credentialed Ports that a user 
is entitled to use. MIAX Emerald has Primary and Secondary Facilities 
and a Disaster Recovery Facility. Each type of Port provides access to 
all Exchange facilities for a single fee. The Exchange notes that, 
unless otherwise specifically set forth in the Fee Schedule, the Port 
fees include the information communicated through the Port. That is, 
unless otherwise specifically set forth in the Fee Schedule, there is 
no additional charge for the information that is communicated through 
the Port apart from what the user is assessed for each Port.\23\
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    \23\ An example of one such exception where there is an 
additional charge for information that is communicated through a 
Port is for certain market data products, such as ToM, AIS, and MOR, 
that are received via a direct connection to the Exchange. See 
Sections (6a)-(c) of the Fee Schedule.
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FIX Port Fees
    Since the launch of the Exchange, fees for FIX Ports have been 
waived for the Waiver Period. The Exchange now proposes to assess a 
monthly FIX Port fee to Members in each month the Member is 
credentialed to use a FIX Port in the production environment and based 
upon the number of credentialed FIX Ports, as follows: $550 for the 
first FIX Port; $350 for FIX Ports two through five; and $150 for each 
FIX Port over five.
    Below is the proposed table showing the FIX Port fees:

------------------------------------------------------------------------
                                                         MIAX Emerald
                                                      monthly  port fees
                                                           includes
                                                     connectivity to the
                   FIX port fees                     primary,  secondary
                                                        and  disaster
                                                        recovery data
                                                           centers
------------------------------------------------------------------------
1st FIX Port.......................................              $550.00
FIX Ports 2 through 5..............................               350.00
Additional FIX Ports over 5........................               150.00
------------------------------------------------------------------------

MEI Port Fees
    MIAX Emerald offers different options of MEI Ports depending on the 
services required by Market Makers. Since the launch of the Exchange, 
fees for MEI Ports have been waived for the Waiver Period. The Exchange 
now proposes to assess monthly MEI Port Fees to Market Makers based 
upon the number of classes or class volume accessed by the Market 
Maker. Market Makers are allocated two (2) Full Service MEI Ports \24\ 
and two (2) Limited Service MEI Ports \25\ per Matching Engine \26\ to 
which they connect. The Full Service MEI Ports, Limited Service MEI 
Ports and the Additional Limited Service MEI Ports all include access 
to the Exchange's Primary and Secondary data centers and its Disaster 
Recovery center.
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    \24\ See supra note 4.
    \25\ See id.
    \26\ A ``matching engine'' is a part of the MIAX Emerald 
electronic system that processes options quotes and trades on a 
symbol-by-symbol basis. Some matching engines will process option 
classes with multiple root symbols, and other matching engines will 
be dedicated to one single option root symbol (for example, options 
on SPY will be processed by one single matching engine that is 
dedicated only to SPY). A particular root symbol may only be 
assigned to a single designated matching engine. A particular root 
symbol may not be assigned to multiple matching engines. See the 
Definitions Section of the Fee Schedule.
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    Specifically, the Exchange proposes to adopt MEI Port fees 
assessable to Market Makers based upon the number of classes or class 
volume accessed by the Market Maker. The Exchange proposes to adopt the 
following MEI Port fees: (i) $5,000 for Market Maker Assignments in up 
to 5 option classes or up to 10% of option classes by volume; (ii) 
$10,000 for Market Maker Assignments in up to 10 option classes or up 
to 20% of option classes by volume; (iii) $14,000 for Market Maker 
Assignments in up to 40 option classes or up to 35% of option classes 
by volume; (iv) $17,500 for Market Maker Assignments in up to 100 
option classes or up to 50% of option classes by volume; and (v) 
$20,500 for Market Maker Assignments in over 100 option classes or over 
50% of option classes by volume up to all option classes listed on MIAX 
Emerald.
    The Exchange also proposes to adopt new footnote 
``[squf]'' for its MEI Port fees that will apply to the 
Market Makers

[[Page 18351]]

who fall within the following MEI Port fee levels, which represent the 
4th and 5th levels of the fee table: Market Makers who have (i) 
Assignments in up to 100 option classes or up to 50% of option classes 
by volume and (ii) Assignments in over 100 option classes or over 50% 
of option classes by volume up to all option classes listed on MIAX 
Emerald. Specifically, the Exchange proposes for these monthly MEI Port 
tier levels, if the Market Maker's total monthly executed volume during 
the relevant month is less than 0.025% of the total monthly executed 
volume reported by OCC in the customer account type for MIAX Emerald-
listed option classes for that month, then the fee will be $14,500 
instead of the fee otherwise applicable to such level.
    The purpose of this proposed lower monthly MEI Port fee is to 
provide a lower fixed cost to those Market Makers who are willing to 
quote the entire Exchange market (or substantial amount of the Exchange 
market), as objectively measured by either number of classes assigned 
or national ADV, but who do not otherwise execute a significant amount 
of volume on the Exchange. The Exchange believes that, by offering 
lower fixed costs to Market Makers that execute less volume, the 
Exchange will retain and attract smaller-scale Market Makers, which are 
an integral component of the option industry marketplace, but have been 
decreasing in number in recent years, due to industry consolidation and 
lower market maker profitability. Since these smaller-scale Market 
Makers utilize less Exchange capacity due to lower overall volume 
executed, the Exchange believes it is reasonable and appropriate to 
offer such Market Makers a lower fixed cost. The Exchange notes that 
other options exchanges assess certain of their fees at different 
rates, based upon a member's participation on that exchange,\27\ and, 
as such, this concept is not novel. The proposed changes to the MEI 
Port fees for Market Makers who fall within the 4th and 5th levels of 
the fee table are based upon a business determination of current Market 
Maker assignments and trading volume.
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    \27\ See, e.g., Cboe BZX Options Exchange (``BZX Options'') 
assesses the Participant Fee, which is a membership fee, according 
to a member's ADV. See Cboe BZX Options Exchange Fee Schedule under 
``Membership Fees''. The Participant Fee is $500 if the member ADV 
is less than 5000 contracts and $1,000 if the member ADV is equal to 
or greater than 5000 contracts.
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    For the calculation of the monthly MEI Port Fees that apply to 
Market Makers, the number of classes is defined as the greatest number 
of classes the Market Maker was assigned to quote in on any given day 
within the calendar month and the class volume percentage is based on 
the total national average daily volume in classes listed on MIAX 
Emerald in the prior calendar quarter.\28\ Newly listed option classes 
are excluded from the calculation of the monthly MEI Port Fee until the 
calendar quarter following their listing, at which time the newly 
listed option classes will be included in both the per class count and 
the percentage of total national average daily volume. The Exchange 
proposes to assess Market Makers the monthly MEI Port Fees based on the 
greatest number of classes listed on MIAX Emerald that the Market Maker 
was assigned to quote in on any given day within a calendar month and 
the applicable fee rate that is the lesser of either the per class 
basis or percentage of total national average daily volume measurement.
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    \28\ The Exchange will use the following formula to calculate 
the percentage of total national average daily volume that the 
Market Maker assignment is for purposes of the MEI Port Fee for a 
given month: Market Maker assignment percentage of national average 
daily volume = [total volume during the prior calendar quarter in a 
class in which the Market Maker was assigned]/[total national volume 
in classes listed on MIAX in the prior calendar quarter].
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    The Exchange charges $50 per month for each Additional Limited 
Service MEI Port per matching engine for Market Makers over and above 
the two (2) Limited Service MEI Ports per matching engine that are 
allocated with the Full Service MEI Ports. The Full Service MEI Ports, 
Limited Service MEI Ports and the Additional Limited Service MEI Ports 
all include access to the Exchange's Primary and Secondary data centers 
and its Disaster Recovery center. Currently, footnote ``*'' in the MEI 
Port Fee table provides that the fees for Additional Limited Service 
MEI Ports are not subject to the Waiver Period. Accordingly, in 
connection with this proposal, the Exchange proposes to delete footnote 
``*'' since the Exchange proposes to begin assessing MEI Port fees, 
which will no longer be subject to the Waiver Period. The Exchange also 
proposes to increase the monthly fee from $50 to $100 for each 
Additional Limited Service MEI Port per matching engine for Market 
Makers over and above the two (2) Limited Service MEI Ports per 
matching engine that are allocated with the Full Service MEI Ports.
    Below is the proposed table showing the MEI Port fees:

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

    The Exchange also proposes to offer six (6) Additional Limited 
Service MEI Ports to Market Makers. Currently, Market Makers are 
limited to six Additional Limited Service MEI Ports per Matching 
Engine, for a total of eight per Matching Engine. The Exchange 
originally provided Limited Service MEI Ports to enhance the MEI Port 
connectivity available to Market Makers. Limited Service MEI Ports have 
been well received by Market Makers since the Exchange launched 
operations in March of 2019. The Exchange now proposes to offer to 
Market Makers the ability to purchase an additional six (6) Limited 
Service MEI Ports per Matching Engine over and above the current six 
(6) Additional Limited Service MEI Ports per Matching Engine that are 
available for purchase by Market Makers. The Exchange proposes to make 
a corresponding change to Section 5)d)ii) of the Fee Schedule to 
specify

[[Page 18352]]

that Market Makers will now be limited to purchasing twelve (12) 
Additional Limited Service MEI Ports per Matching Engine, for a total 
of fourteen (14) per Matching Engine.
    The Exchange proposes to increase the number of Additional Limited 
Service MEI Ports because the Exchange is expanding its network. This 
network expansion is necessary due to increased customer demand and 
increased volatility in the marketplace, both of which have translated 
into increased message traffic rates across the network. Consequently, 
this network expansion, which increases the number of switches 
supporting customer-facing systems, is necessary in order to provide 
sufficient access to new and existing Members, to maintain a sufficient 
amount of network capacity head-room, and to continue to provide the 
same level of service across the Exchange's low-latency, high-
throughput technology environment. The Exchange notes that its 
affiliates, Miami International Securities Exchange, LLC (``MIAX'') and 
MIAX Pearl, LLC (``MIAX Pearl''), recently filed similar proposals to 
increase the number of Additional Limited Service Ports available for 
purchase due to similar network expansions and customer demand.\29\
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    \29\ See Securities Exchange Act Release Nos. 90811 (December 
29, 2020), 86 FR 344 (January 5, 2021) (SR-MIAX-2020-41) and 90812 
(December 29, 2020), 86 FR 338 (January 5, 2021) (SR-PEARL-2020-35).
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    The Exchange has 6 network switches that support the entire 
customer base of MIAX Emerald. The Exchange plans to increase this to 
12 switches, which will increase the number of available customer ports 
by 100%. The proposed increase in the number of available customer 
ports will enable the Exchange to continue to provide sufficient and 
equal access to the MIAX Emerald System to all Members. Absent the 
proposed increase in available MEI Ports, the Exchange projects that 
its current inventory will be depleted and it will lack sufficient 
capacity to continue to meet Members' access needs.
Purge Port Fees
    The Exchange also offers Market Makers the ability to request and 
be allocated two (2) Purge Ports \30\ per Matching Engine to which it 
connects. Purge Ports provide Market Makers with the ability to send 
quote purge messages to the MIAX Emerald System. Purge Ports are not 
capable of sending or receiving any other type of messages or 
information. Since the launch of the Exchange, fees for Purge Ports 
have been waived for the Waiver Period. The Exchange now proposes to 
amend its Fee Schedule to adopt fees for Purge Ports. For each month in 
which the MIAX Emerald Market Maker has been credentialed to use Purge 
Ports in the production environment and has been assigned to quote in 
at least one class, the Exchange proposes to assess the MIAX Emerald 
Market Maker a flat fee $1,500, regardless of the number of Purge Ports 
allocated to the MIAX Emerald Market Maker.
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    \30\ ``Purge Ports'' provide Market Makers with the ability to 
send quote purge messages to the MIAX Emerald System. Purge Ports 
are not capable of sending or receiving any other type of messages 
or information. See the Definitions Section of the Fee Schedule.
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CTD Port Fees
    The Exchange proposes to assess a CTD Port fee as a monthly fixed 
amount, not tied to transacted volume of the Member. This fixed fee 
structure is the same structure in place at Nasdaq PHLX with respect to 
the proposed CTD Port Fees.\31\ Since the launch of the Exchange, CTD 
Port Fees have been waived for the Waiver Period. CTD provides Exchange 
members with real-time clearing trade updates. The updates include the 
Member's clearing trade messages on a low latency, real-time basis. The 
trade messages are routed to a Member's connection containing certain 
information. The information includes, among other things, the 
following: (i) Trade date and time; (ii) symbol information; (iii) 
trade price/size information; (iv) Member type (for example, and 
without limitation, Market Maker, Electronic Exchange Member, Broker-
Dealer); (v) Exchange Member Participant Identifier (``MPID'') for each 
side of the transaction, including Clearing Member MPID; and (vi) 
strategy specific information for complex transactions. CTD Port fees 
will be assessed in any month the Member is credentialed to use the CTD 
Port in the production environment. The Exchange proposes to assess a 
CTD Port fee of $450 per month.
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    \31\ See Nasdaq PHLX Pricing Schedule, Options 7, Section 9, 
Other Member Fees, B. Port Fees.
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    Below is the proposed table for the CTD Port fees:

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

FXD Port Fee
    The Exchange proposes to assess an FXD Port Fee as a monthly fixed 
amount, not tied to transacted volume of the Member. This fixed fee 
structure is the same structure in place at Nasdaq PHLX with respect to 
FXD Port Fees.\32\ Since the launch of the Exchange, FXD Port Fees have 
been waived for the Waiver Period. FXD is a messaging interface that 
will provide a copy of real-time trade execution, trade correction and 
trade cancellation information to FXD Port users who subscribe to the 
service. FXD Port users are those users who are designated by an EEM to 
receive the information and the information is restricted for use by 
the EEM. FXD Port fees will be assessed in any month the Member is 
credentialed to use the FXD Port in the production environment. The 
Exchange proposes to assess an FXD Port fee of $500 per month. Below is 
the proposed table for the FXD Port fees:
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    \32\ Id.

------------------------------------------------------------------------
                                                    MIAX Emerald monthly
                                                     port fees includes
                                                     connectivity to the
                    Description                      primary, secondary
                                                        and disaster
                                                        recovery data
                                                           centers
------------------------------------------------------------------------
FIX Drop Copy Port................................              $500.00
------------------------------------------------------------------------

10Gb ULL Connectivity Fee
    The Exchange proposes to amend Sections 5(a) and (b) of the Fee 
Schedule to increase the monthly network connectivity fees for the 10Gb 
ULL fiber connection, which is charged to both Members and non-Members 
of the Exchange for connectivity to the Exchange's primary/secondary 
facility. The Exchange offers to both Members and non-Members two 
bandwidth alternatives for connectivity to the Exchange, to its primary 
and secondary facilities, consisting of a 1Gb fiber connection and a 
10Gb ULL fiber connection. The 10Gb ULL offering uses an ultra-low 
latency switch, which provides faster processing of messages sent to it 
in comparison to the switch used for the other types of connectivity. 
The Exchange now proposes to increase its monthly network connectivity 
fee for its 10Gb ULL connection to $10,000 for Members and non-Members.
* * * * *
    MIAX Emerald believes that exchanges, in setting fees of all types, 
should meet very high standards of transparency to demonstrate why each 
new fee or fee increase meets the requirements of the Act that fees be 
reasonable, equitably allocated, not unfairly discriminatory, and not 
create an undue burden on competition among members and markets. MIAX 
Emerald believes this high standard is especially important when an 
exchange imposes various access fees for market participants to access 
an exchange's

[[Page 18353]]

marketplace. MIAX Emerald deems Port fees and Connectivity fees to be 
access fees, and that Ports and Connectivity are inextricably linked 
components of the network. Accordingly, the Exchange believes that it 
is reasonable and appropriate that the costs and revenues for both 
should be considered together, as the services associated with 
connectivity and ports are linked pieces of the network's 
infrastructure, both of which are necessary for a market participant to 
access and use the trading System of the Exchange. Finally, both 
Connectivity fee and Port fee revenue are consolidated into a single 
line item (``Access Fees'') on the Exchange's financial statements. The 
Exchange believes that it is important to demonstrate that these fees 
are based on its costs to provide access to the Exchange's network 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 associated with 
the Proposed Access Fees. This analysis includes information regarding 
its methodology for determining the costs and revenues associated with 
the Proposed Access Fees.
    In order to determine the Exchange's costs associated with 
providing the Proposed Access Fees, the Exchange conducted an extensive 
cost review in which the Exchange analyzed every expense item in the 
Exchange's general expense ledger to determine whether each such 
expense relates to the Proposed Access Fees, and, if such expense did 
so relate, what portion (or percentage) of such expense actually 
supports the services included in the Proposed Access Fees. The sum of 
all such portions of expenses represents the total cost of the Exchange 
to provide the Proposed Access Fees. For the avoidance of doubt, no 
expense amount was allocated twice. The Exchange is also providing 
detailed information regarding the Exchange's cost allocation 
methodology--namely, information that explains the Exchange's rationale 
for determining that it was reasonable to allocate certain expenses 
described in this filing towards the total cost to the Exchange to 
provide the Proposed Access Fees.
    In order to determine the Exchange's projected revenues associated 
with providing the Proposed Access Fees, the Exchange analyzed the 
number of Members and non-Members currently utilizing the Exchange's 
services associated with the Proposed Access Fees, and, utilizing a 
recent monthly billing cycle representative of the Exchange's monthly 
revenue, 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 access needs of market participants, discounts 
that can be achieved through reaching certain tiers, 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 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 a recent monthly billing cycle representative of the 
Exchange's 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'').\33\ On May 21, 2019, the Commission issued the Staff Guidance 
on SRO Rule Filings Relating to Fees.\34\ On December 20, 2019, the 
Exchange adopted Connectivity Fees in a filing utilizing a cost-based 
justification framework that is substantially similar to the cost-based 
justification framework utilized for the instant Proposed Access 
Fees.\35\ 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 
do not result in excessive pricing or supra-competitive profit; and 
(iv) utilize a cost-based justification framework that is substantially 
similar to a framework previously used by the Exchange to establish 
Connectivity Fees. Accordingly, the Exchange believes that the 
Commission should find that the Proposed Fees are consistent with the 
Act.
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    \33\ 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).
    \34\ 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'').
    \35\ See Securities Exchange Act Release No. 87877 (December 31, 
2019), 84 FR 738 (January 7, 2020) (SR-EMERALD-2019-39).
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    The proposed rule change is immediately effective upon filing with 
the Commission pursuant to Section 19(b)(3)(A) of the Act.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \36\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \37\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among Exchange Members and 
issuers and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposal 
furthers the objectives of Section 6(b)(5) of the Act \38\ 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

[[Page 18354]]

investors and the public interest and is not designed to permit unfair 
discrimination between customer, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78f(b).
    \37\ 15 U.S.C. 78f(b)(4).
    \38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange launched trading on March 1, 2019. For the month of 
December 2020, the Exchange had a market share of only approximately 
3.58% of the U.S. options industry.\39\ The Exchange is not aware of 
any evidence that a market share of approximately 3.6% provides the 
Exchange with anti-competitive pricing power. If the Exchange were to 
attempt to establish unreasonable pricing, then no market participant 
would join or connect, and existing market participants would 
disconnect.
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    \39\ 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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    Separately, the Exchange is not aware of any reason why market 
participants could not simply drop their connections to an exchange (or 
not connect to an exchange) if an exchange were to establish prices for 
its non-transaction fees that, in the determination of such market 
participant, did not make business or economic sense for such market 
participant to connect to such exchange. No options market participant 
is required by rule, regulation, or competitive forces to be a Member 
of the Exchange. As evidence of the fact that market participants can 
and do disconnect from exchanges based on non-transaction fee pricing, 
R2G Services LLC (``R2G'') filed a comment letter after BOX's proposed 
rule changes to increase its connectivity fees (SR-BOX-2018-24, SR-BOX-
2018-37, and SR-BOX-2019-04).\40\ The R2G Letter stated, ``[w]hen BOX 
instituted a $10,000/month price increase for connectivity; we had no 
choice but to terminate connectivity into them as well as terminate our 
market data relationship. The cost benefit analysis just didn't make 
any sense for us at those new levels.'' \41\ Since the Exchange issued 
its notice for the Proposed Access Fees, one Member discontinued the 
use of the Exchange's connectivity and port services as a result of the 
Proposed Access Fees. Accordingly, these examples show that if an 
exchange sets too high of a fee for connectivity and/or other non-
transaction fees for its relevant marketplace, market participants can 
choose to disconnect from such exchange.
---------------------------------------------------------------------------

    \40\ See Letter from Stefano Durdic, R2G, to Vanessa Countryman, 
Acting Secretary, Commission, dated March 27, 2019 (the ``R2G 
Letter'').
    \41\ See id.
---------------------------------------------------------------------------

    The Exchange believes that its proposal is consistent with Section 
6(b)(4) of the Act because the Proposed Access Fees will not result in 
excessive or supra-competitive profit. The costs associated with 
providing access to Exchange Members and non-Members, as well as the 
general expansion of a state-of-the-art infrastructure, are extensive, 
have increased year-over-year, and are projected to increase year-over-
year in the future. In particular, the Exchange has experienced a 
material increase in its costs in 2020, in connection with a project to 
make its network environment more transparent and deterministic, based 
on customer 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 numerous areas. This includes expenditures and R&D in the following 
areas: (i) Implementation of an improved network design to ensure the 
minimum latency between multicast market data signals disseminated by 
the Exchange across the extranet switches; (ii) an improvement to the 
unicast jitter profile to reduce the occurrence of message sequence 
inversions from Members to the Exchange quoting gateway processors; 
(iii) introduction of new optical fiber network infrastructure that 
ensures the optical fiber path for participants within extremely tight 
tolerances; (iv) introduction of 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 (v) 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 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 a primary driver for 
the increase in network connectivity fees proposed by the Exchange.
    The Exchange believes the proposed increase to the 10Gb ULL 
connection is an equitable allocation of reasonable fees because 10Gb 
ULL purchasers: (1) Consume the most bandwidth and resources of the 
network; (2) transact the vast majority of the volume on the Exchange; 
and (3) require the high touch network support services provided by the 
Exchange and its staff, including more costly network monitoring, 
reporting and support services, resulting in a much higher cost to the 
Exchange. Further, the Exchange believes the Proposed Access Fees are 
equitably allocated because of customer demand for an even more 
transparent and deterministic network, as described above, which has 
resulted in higher CapEx, increasingly higher OpEx, and increased costs 
to engineering R&D. The Proposed Access Fees are equitably allocated in 
this regard because the majority of customer demand is coming from 
purchasers of the 10Gb ULL connections, which Member and non-Member 
firms transact the vast majority of volume on the Exchange. 
Accordingly, the Exchange believes it is reasonable, equitably 
allocated and not unfairly discriminatory to recoup the majority of its 
costs associated with the project to make the network more transparent 
and deterministic from market participants utilizing 10Gb ULL 
connections on the Exchange.
    The Exchange believes that the proposed increase to the 10Gb ULL 
fees are equitably allocated among users of the network connectivity 
alternatives, as the users of the 10Gb ULL connections consume the most 
bandwidth and resources of the network. Specifically, the Exchange 
notes that these users account for approximately greater than 99% of 
message traffic over the network, while the users of the 1Gb 
connections account for approximately less than 1% of message traffic 
over the network. In the Exchange's experience, users of the 1Gb 
connections do not have a business need for the high performance 
network solutions required by 10Gb ULL users. The Exchange's high 
performance network solutions and supporting infrastructure (including 
employee support), provides unparalleled system throughput and the 
capacity to handle approximately 18 million quote messages per second. 
On an average day, the Exchange handles over approximately 3 billion 
total messages.

[[Page 18355]]

Of those, users of the 10Gb ULL connections generate approximately 3 
billion messages, and users of the 1Gb connections generate 500,000 
messages. However, in order to achieve a consistent, premium network 
performance, the Exchange must build out and maintain a network that 
has the capacity to handle the message rate requirements of its most 
heavy network consumers. These billions of messages per day consume the 
Exchange's resources and significantly contribute to the overall 
network connectivity expense for storage and network transport 
capabilities. Given this difference in network utilization rate, the 
Exchange believes that it is reasonable, equitable, and not unfairly 
discriminatory that the 10Gb ULL users pay for the vast majority of the 
shared network resources from which all Member and non-Member users 
benefit, but is designed and maintained from a capacity standpoint to 
specifically handle the message rate and performance requirements of 
10Gb ULL users.
    The Exchange also believes that the connectivity fees are equitably 
allocated amongst users of the network connectivity alternatives, when 
these fees are viewed in the context of the overall trading volume on 
the Exchange. To illustrate, the purchasers of the 10Gb ULL 
connectivity account for approximately 98% of the volume on the 
Exchange for the month of October 2020. This overall volume percentage 
(98% of total Exchange volume) is in line with the amount of network 
connectivity revenue collected from 10Gb ULL purchasers (99% of total 
Exchange connectivity revenue). For example, utilizing a recent billing 
cycle, Exchange Members and non-Members that purchased 10Gb ULL 
connections accounted for approximately 99% of the total network 
connectivity revenue collected by the Exchange from all connectivity 
alternatives; and (ii) Members and non-Members that purchased 1Gb 
connections accounted for approximately 1% of the revenue collected by 
the Exchange from all connectivity alternatives.
    The Exchange further believes that the increased fee for the 10Gb 
ULL connection is an equitable allocation of reasonable fees as the 
fees for the various connectivity alternatives are directly related to 
the actual costs associated with providing the respective connectivity 
alternatives. That is, the cost to the Exchange of providing a 1Gb 
network connection is significantly lower than the cost to the Exchange 
of providing a 10Gb ULL network connection. Pursuant to its extensive 
cost review described above and in connection with the Exchange's new 
project to increase transparency and determinism, the Exchange believes 
that the average cost to provide a 10Gb ULL network connection is 
approximately 8 times more than the average cost to provide a 1Gb 
connection. The simple hardware and software component costs alone of a 
10Gb ULL connection are not 8 times more than the 1Gb connection. 
Rather, it is the associated premium-product level network monitoring, 
reporting, and support services costs that accompany a 10Gb ULL 
connection which cause it to be 8 times more costly to provide than the 
1Gb connection. Accordingly, the Exchange believes it is equitable to 
allocate those network infrastructure costs that accompany a 10Gb ULL 
connection to the purchasers of those connections, and not to 
purchasers of 1Gb connections.
    The Exchange differentiates itself by offering a ``premium-
product'' network experience, as an operator of a high performance, 
ultra-low latency network with unparalleled system throughput, which 
network can support access to three distinct options markets and 
multiple competing market-makers having affirmative obligations to 
continuously quote over 750,000 distinct trading products (per 
exchange), and the capacity to handle approximately 18 million quote 
messages per second. The ``premium-product'' network experience enables 
users of 10Gb ULL connections to receive the network monitoring and 
reporting services for those approximately 750,000 distinct trading 
products. There is a significant, quantifiable amount of R&D effort, 
employee compensation and benefits expense, and other expense 
associated with providing the high touch network monitoring and 
reporting services that are utilized by the 10Gb ULL connections 
offered by the Exchange. These value add services are fully-discussed 
herein, and the actual costs associated with providing these services 
are the basis for the differentiated amount of the fees for the various 
connectivity alternatives.
    In order to provide more detail and to quantify the Exchange's 
costs associated with providing access to the Exchange in general, the 
Exchange notes that there are material costs associated with providing 
the infrastructure and headcount to fully-support access to the 
Exchange. The Exchange incurs technology expense related to 
establishing and maintaining Information Security services, enhanced 
network monitoring and customer reporting, as well as Regulation SCI 
mandated processes, associated with its network technology. While some 
of the expense is fixed, much of the expense is not fixed, and thus 
increases as the services associated with the Proposed Access Fees 
increase. For example, new 10Gb ULL connections and Ports require the 
purchase of additional hardware to support those connections as well as 
enhanced monitoring and reporting of customer performance that MIAX 
Emerald and its affiliates provide. Further, as the total number of all 
connections and Ports increase, MIAX Emerald and its affiliates need to 
increase their data center footprint and consume more power, resulting 
in increased costs charged by their third-party data center provider. 
Accordingly, the cost to MIAX Emerald and its affiliates is not fixed. 
The Exchange believes the Proposed Access Fees are reasonable in order 
to offset the costs to the Exchange associated with providing access to 
its network infrastructure.
    Further, because the costs of operating its own data center are 
significant and not economically feasible for the Exchange at this 
time, the Exchange does not operate its own data centers, and instead 
contracts with a third-party data center provider. The Exchange notes 
that other competing exchange operators own/operate their data centers, 
which offers them greater control over their data center costs. Because 
those exchanges own and operate their data centers as profit centers, 
the Exchange is subject to additional costs. The Proposed Access Fees, 
charged for accessing the Exchange's data center network 
infrastructure, are directly related to the network and offset such 
costs.
    The Exchange invests significant resources in network R&D to 
improve the overall performance and stability of its network. For 
example, the Exchange has a number of network monitoring tools (some of 
which were developed in-house, and some of which are licensed from 
third-parties), that continually monitor, detect, and report network 
performance, many of which serve as significant value-adds to the 
Exchange's Members and enable the Exchange to provide a high level of 
customer service. These tools detect and report performance issues, and 
thus enable the Exchange to proactively notify a Member (and the SIPs) 
when the Exchange detects a problem with a Member's connectivity. In 
fact, the Exchange often receives inquiries from other industry 
participants regarding the status of networking issues outside of the 
Exchange's own network environment that are impacting the industry as a 
whole via the SIPs. This

[[Page 18356]]

includes inquiries from regulators because the Exchange has a superior, 
state-of the-art network that, through its enhanced monitoring and 
reporting solutions, often detects and identifies industry-wide 
networking issues ahead of the SIPs. The Exchange also incurs costs 
associated with the maintenance and improvement of existing tools and 
the development of new tools.
    Additionally, certain Exchange-developed network aggregation and 
monitoring tools provide the Exchange with the ability to measure 
network traffic with a much more granular level of variability. This is 
important as Exchange Members demand a higher level of network 
determinism and the ability to measure variability in terms of single 
digit nanoseconds. Also, routine R&D projects to improve the 
performance of the network's hardware infrastructure result in 
additional cost. In sum, the costs associated with maintaining and 
enhancing a state-of-the-art exchange network in the U.S. options 
industry is a significant expense for the Exchange that also increases 
year-over-year, and thus the Exchange believes that it is reasonable to 
offset those costs through the Proposed Access Fees. The Exchange 
invests in and offers a superior network infrastructure as part of its 
overall options exchange services offering, resulting in significant 
costs associated with maintaining this network infrastructure, which 
are directly tied to the amount of the Proposed Access Fees that must 
be charged to access it, in order to recover those costs.
    The Exchange believes it is reasonable to consider the expense and 
revenue for ports and connectivity alternatives together because ports 
and connectivity are inextricably linked components of the network 
infrastructure, and that both are necessary for a market participant to 
access the Exchange. The various types of connectivity and port 
alternatives that the Exchange offers provide a wide array of access 
alternatives necessary for a market participant to conduct its business 
using the Exchange, which is a business decision to be made by each 
particular type of market participant. The different types of 
connectivity and port alternatives allows Members to conduct their 
different business strategies--some Members put an emphasis on speed, 
while others emphasize other strategies, such as redundancy and 
certainty of execution. The Exchange does not require a Member to have 
a certain framework for accessing the Exchange, but provides various 
connectivity and port alternatives for each Member's distinct business 
lines.
    The Exchange offers various types of ports with differing prices 
because each port accomplishes different tasks, are suited to different 
types of Members, and consume varying capacity amounts of the network. 
For instance, MEI ports allow for a higher throughput and can handle 
much higher quote/order rates than FIX ports. Members that are Market 
Makers or high frequency trading firms utilize these ports (typically 
coupled with 10Gb ULL connectivity) because they transact in 
significantly higher amounts of messages being sent to and from the 
Exchange, versus FIX port users, who are traditionally customers 
sending only orders to the Exchange (typically coupled with 1Gb 
connectivity). The different types of ports cater to the different 
types of Exchange Memberships and different capabilities of the various 
Exchange Members. Market Makers have quoting and other obligations that 
traditional customers do not. Market Makers, therefore, need ports and 
connections that can handle using far more of the network's capacity 
for message throughput, risk protections, and the amount of information 
that has to be assessed. Market Makers account for the vast majority of 
network capacity utilization and volume executed on the Exchange, as 
discussed throughout.\42\ Accordingly, the Exchange believes that it is 
reasonable and appropriate to charge market participants more for MEI 
ports versus FIX ports and other lower capacity ports.
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    \42\ See supra page 72 (discussing how purchasers of the 10Gb 
ULL connectivity accounted for approximately 98% of the volume on 
the Exchange for the month of October 2020; 99% of total Exchange 
connectivity revenue; Members and non-Members that purchased 10Gb 
ULL connections accounted for approximately 99% of the total network 
connectivity revenue collected by the Exchange from all connectivity 
alternatives; and Members and non-Members that purchased 1Gb 
connections accounted for approximately 1% of the revenue collected 
by the Exchange from all connectivity alternatives).
---------------------------------------------------------------------------

    The Exchange believes that its proposal to increase the number of 
Additional Limited Service Ports available to Market Makers is 
consistent with the objectives of Section 6(b)(5) of the Act \43\ 
because the proposed addition of Limited Service MEI Ports will be 
available to all Market Makers and the current fees for the Additional 
Limited Service MEI Ports 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 proposes to increase the number 
of available Limited Service MEI Ports because the Exchange is 
expanding its network. This network expansion is necessary due to 
increased customer demand and increased volatility in the marketplace, 
both of which have translated into increased message traffic rates 
across the network. Consequently, this network expansion, which 
increases the number of switches supporting customer facing systems, is 
necessary in order to provide sufficient and equal access to new and 
existing Members, to maintain a sufficient amount of network capacity 
head-room, and to continue to provide the same level of service across 
the Exchange's low-latency, high-throughput technology environment.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Currently, the Exchange has 6 network switches that support the 
entire customer base of MIAX Emerald. The Exchange plans to increase 
this to 12 switches, which will increase the number of available 
customer ports by 100%. This increase in the number of available 
customer ports will enable the Exchange to continue to provide 
sufficient and equal access to the MIAX Emerald System for all Members. 
Absent the proposed increase in available MEI Ports, the Exchange 
projects that its current inventory will be depleted and it will lack 
sufficient capacity to continue to meet Members' access needs. Further, 
the Exchange notes the decision of whether to purchase any Additional 
Limited Service MEI Ports is completely optional and it is a business 
decision for each Market Maker to determine whether Additional Limited 
Service MEI Ports are necessary to meet their business requirements.
    The Exchange further believes that the availability of the 
Additional Limited Service MEI Ports is equitable and not unfairly 
discriminatory because it will enable Market Makers to maintain 
uninterrupted access to the MIAX Emerald System and consequently 
enhance the marketplace by helping Market Makers to better manage risk, 
thus preserving the integrity of the MIAX Emerald markets, all to the 
benefit of and protection of investors and the public as a whole. The 
Exchange also believes that its proposal is consistent with Section 
6(b)(4) of the Act because only Market Makers that voluntarily purchase 
Additional Limited Service MEI Ports will be charged the monthly fee 
per port.
    As stated above, the Exchange proposes to expand its network by 
making available six Additional Limit Service MEI Ports due to 
increased customer demand and increased volatility in the marketplace, 
both of which have translated into increased message traffic rates 
across the network. The cost to expand the network in this

[[Page 18357]]

manner is greater than the revenue the Exchange anticipates the 
Additional Limited Service MEI Ports will generate. Specifically, the 
Exchange estimates it has already incurred a one-time cost of 
approximately $175,000 in capital expenditures (``CapEx'') on hardware, 
software, and other items to expand the network to make available the 
six Additional Limited Service MEI Ports. This estimated cost also 
includes expense associated with providing the necessary engineering 
and support personnel to transition those Market Makers who wish to 
acquire any number of Additional Limited Service MEI Ports.
    The Exchange cannot predict with certainty how many Market Makers 
will purchase the Additional Limited Service MEI Ports, in what 
quantity, or if Market Makers will add/drop Limited Service MEI Ports 
from month to month. However, utilizing a recent monthly billing cycle, 
the Exchange notes four Market Makers purchased all six of the 
Additional Limited Service MEI Ports, and two Market Makers purchased 
two out of six of the Additional Limited Service MEI Ports, which will 
be subject to the proposed fee of $100 per month per Additional Limited 
Service MEI Port for each Matching Engine. Therefore, utilizing the 
recent monthly billing cycle, Market Makers purchased 28 total 
Additional Limited Service MEI Ports. The Exchange has 12 Matching 
Engines.\44\ Assuming that each Market Maker that purchased the 28 
Additional Limited Service MEI Ports connected to all 12 Matching 
Engines at a rate of $100 per month, the Exchange projects monthly 
revenue for the Additional Limited Service MEI Ports of approximately 
$33,600 (28 Additional LSPs x 12 Matching Engines x $100 = $33,600 per 
month). On a going-forward basis and assuming no Market Maker drops or 
adds Additional Limited Service MEI Ports, the Exchange projects to 
collect an additional $403,200 in annualized revenue from the 
Additional Limited Service MEI Ports that are part of this proposal.
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    \44\ The Exchange notes that several Market Makers, including 
those that purchased the Additional Limited Service MEI Ports, do 
not connect to all 12 Matching Engines. It is a business decision of 
each Market Maker whether to purchase one or more types of ports 
that connect to each Matching Engine.
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    The Exchange only has four primary sources of revenue: Transaction 
fees, access fees (of which the Proposed Access Fees constitute the 
majority), regulatory fees, and market data fees. Accordingly, the 
Exchange must cover all of its expenses from these four primary sources 
of revenue.
    The 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 that the 
Exchange projects to incur in connection with providing these services 
versus the total annual revenue that the Exchange projects to collect 
in connection with providing these services. For 2020,\45\ the total 
annual expense for providing the services associated with the Proposed 
Access Fees for MIAX Emerald is projected to be approximately $9.3 
million. The $9.3 million in expense includes expense associated with 
providing all ports and all connectivity alternatives. The Exchange is 
unable to separate out its expense by connectivity alternative, as all 
connectivity alternatives are intricately combined in a single network 
infrastructure. Nevertheless, the Exchange attributes the majority of 
connectivity expense to the 10Gb ULL connections because the majority 
of network capacity is used by 10Gb ULL purchasers.\46\ The $9.3 
million in projected total annual expense is comprised of the 
following, all of which are directly related to the services associated 
with the Proposed Access Fees: (1) Third-party expense, relating to 
fees paid by MIAX Emerald to third-parties for certain products and 
services; and (2) internal expense, 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 
revenue and costs, which utilize the same presentation methodology as 
set forth in the Exchange's previously-issued Audited Unconsolidated 
Financial Statements.\47\ The $9.3 million in projected total annual 
expense is directly related to the services associated with the 
Proposed Access Fees, and not any other product or service offered by 
the Exchange. It does not include general costs of operating matching 
systems and other trading technology, and no expense amount was 
allocated twice.
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    \45\ The Exchange has not yet finalized its 2020-year end 
results.
    \46\ See supra note 42.
    \47\ 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.
---------------------------------------------------------------------------

    As discussed, the Exchange conducted an extensive cost review in 
which the Exchange analyzed every expense item in the Exchange's 
general expense ledger (this includes over 150 separate and distinct 
expense items) to determine whether each such expense relates to the 
services associated with the Proposed Access Fees, and, if such expense 
did so relate, what portion (or percentage) of such expense actually 
supports those services, and thus bears a relationship that is, ``in 
nature and closeness,'' directly related to those services. The sum of 
all such portions of expenses represents the total cost of the Exchange 
to provide services associated with the Proposed Access Fees.
    For 2020, total third-party expense, relating to fees paid by MIAX 
Emerald to third-parties for certain products and services for the 
Exchange to be able to provide the services associated with the 
Proposed Access Fees, is projected to be $1,932,519. This includes, but 
is not limited to, a portion of the fees paid to: (1) Equinix, for data 
center services, for the primary, secondary, and disaster recovery 
locations of the MIAX Emerald trading system infrastructure; (2) Zayo 
Group Holdings, Inc. (``Zayo'') for network services (fiber and 
bandwidth products and services) linking MIAX Emerald's office 
locations in Princeton, NJ and Miami, FL to all data center locations; 
(3) Secure Financial Transaction Infrastructure (``SFTI''),\48\ which 
supports connectivity and feeds for the entire U.S. options industry; 
(4) various other services providers (including Thompson Reuters, NYSE, 
Nasdaq, and Internap), which provide content, connectivity services, 
and infrastructure services for critical components of options 
connectivity and network services; and (5) various other hardware and 
software providers (including Dell and Cisco, which support the 
production environment in which Members and non-Members connect to the 
network to trade, receive market data, etc.).
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    \48\ In fact, on October 22, 2019, the Exchange was notified by 
SFTI that it is again raising its fees charged to the Exchange by 
approximately 11%, without having to show that such fee change 
complies with the Act by being reasonable, equitably allocated, and 
not unfairly discriminatory. It is unfathomable to the Exchange 
that, given the critical nature of the infrastructure services 
provided by SFTI, that its fees are not required to be rule-filed 
with the Commission pursuant to Section 19(b)(1) of the Act and Rule 
19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4, 
respectively.
---------------------------------------------------------------------------

    For clarity, only a portion of all fees paid to such third-parties 
is included in

[[Page 18358]]

the third-party expense herein, and no expense amount is allocated 
twice. Accordingly, MIAX Emerald does not allocate its entire 
information technology and communication costs to the services 
associated with the Proposed Access Fees.
    The Exchange believes it is reasonable to allocate such third-party 
expense described above towards the total cost to the Exchange to 
provide the services associated with the Proposed Access Fees. In 
particular, the Exchange believes it is reasonable to allocate the 
identified portion of the Equinix expense because Equinix operates the 
data centers (primary, secondary, and disaster recovery) that host the 
Exchange's network infrastructure. This includes, among other things, 
the necessary storage space, which continues to expand and increase in 
cost, power to operate the network infrastructure, and cooling 
apparatuses to ensure the Exchange's network infrastructure maintains 
stability. Without these services from Equinix, the Exchange would not 
be able to operate and support the network and provide the services 
associated with the Proposed Access Fees to its Members and non-Members 
and their customers. The Exchange did not allocate all of the Equinix 
expense toward the cost of providing the services associated with the 
Proposed Access Fees, only that portion which the Exchange identified 
as being specifically mapped to providing the services associated with 
the Proposed Access Fees, approximately 73% of the total Equinix 
expense (68% allocated towards the cost of providing the provision of 
network connectivity and 5% allocated towards the cost of providing 
ports). 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, Miami International Securities Exchange, 
LLC (``MIAX'') and MIAX Pearl, LLC (``MIAX Pearl''), as well as the 
data center and disaster recovery locations. As such, all of the trade 
data, including the billions of messages each day per exchange, flow 
through Zayo's infrastructure over the Exchange's network. Without 
these services from Zayo, the Exchange would not be able to operate and 
support the network and provide the services associated with the 
Proposed Access Fees. The Exchange did not allocate all of the Zayo 
expense toward the cost of providing the services associated with the 
Proposed Access Fees, only the portion which the Exchange identified as 
being specifically mapped to providing the Proposed Access Fees, 
approximately 66% of the total Zayo expense (62% allocated towards the 
cost of providing the provision of network connectivity and 4% 
allocated towards the cost of providing ports). The Exchange believes 
this allocation is reasonable because it represents the Exchange's 
actual cost to provide the services associated with the Proposed Access 
Fees, and not any other service, as supported by its cost review.
    The Exchange believes it is reasonable to allocate the identified 
portions of the SFTI expense and various other service providers' 
(including Thompson Reuters, NYSE, Nasdaq, and Internap) expense 
because those entities provide connectivity and feeds for the entire 
U.S. options industry, as well as the content, connectivity services, 
and infrastructure services for critical components of the network. 
Without these services from SFTI and various other service providers, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and non-Members and their customers. The 
Exchange did not allocate all of the SFTI and other service providers' 
expense toward the cost of providing the services associated with the 
Proposed Access Fees, only the portions which the Exchange identified 
as being specifically mapped to providing the services associated with 
the Proposed Access Fees, approximately 94% of the total SFTI and other 
service providers' expense (89% allocated towards the cost of providing 
the provision of network connectivity and 5% allocated towards the cost 
of providing ports).\49\ 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.
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    \49\ The Exchange notes an increase to the SFTI and other 
service providers' expense percentage contained herein versus the 
same expense category percentage the Exchange used in its initial 
filing to adopt connectivity fees. See Securities Exchange Act 
Release No. 87877 (December 31, 2019), 85 FR 738 (January 7, 2020) 
(SR-EMERALD-2019-39). This is because at the time the Exchange 
performed its cost analysis for the initial connectivity fee filing, 
the Exchange was operational for only part of the year. Since that 
time, the Exchange has been fully operational, increased market 
share and number of market participants, and undertaken significant 
performance upgrades, resulting in increased expense. Accordingly, 
the Exchange believes it is appropriate to analyze its SFTI and 
other service providers' expense more in line with its affiliate 
options exchanges, MIAX and MIAX PEARL.
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    The Exchange believes it is reasonable to allocate the identified 
portion of the other hardware and software provider expense because 
this includes costs for dedicated hardware licenses for switches and 
servers, as well as dedicated software licenses for security monitoring 
and reporting across the network. Without this hardware and software, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and non-Members and their customers. The 
Exchange did not allocate all of the hardware and software provider 
expense toward the cost of providing the services associated with the 
Proposed Access Fees, only the portions which the Exchange identified 
as being specifically mapped to providing the services associated with 
the Proposed Access Fees, approximately 57% of the total hardware and 
software provider expense (54% allocated towards the cost of providing 
the provision of network connectivity and 3% allocated towards the cost 
of providing ports). The Exchange believes this allocation is 
reasonable because it represents the Exchange's actual cost to provide 
the services associated with the Proposed Access Fees.
    For 2020, total projected internal expense, relating to the 
internal costs of MIAX Emerald to provide the services associated with 
the Proposed Access Fees, is projected to be $7,367,259. This includes, 
but is not limited to, costs associated with: (1) Employee compensation 
and benefits for full-time employees that support the services 
associated with the Proposed Access Fees, including staff in network 
operations, trading operations, development, system operations, 
business, as well as staff in general corporate departments (such as 
legal, regulatory, and finance) that support those employees and 
functions (including an increase as a result of the higher determinism 
project); (2) depreciation and amortization of hardware and software 
used to provide the services associated with the Proposed Access Fees, 
including equipment, servers, cabling, purchased software and 
internally developed software used in the production environment to 
support the network for trading; and (3) occupancy costs for leased 
office space for staff that provide the services associated with the 
Proposed Access Fees. The breakdown of these costs is more fully-
described below. For clarity, only a portion of all such internal 
expenses are included in

[[Page 18359]]

the internal expense herein, and no expense amount is allocated twice. 
Accordingly, MIAX Emerald does not allocate its entire costs contained 
in those items to the services associated with the Proposed Access 
Fees.
    The Exchange believes it is reasonable to allocate such internal 
expense described above towards the total cost to the Exchange to 
provide the services associated with the Proposed Access Fees. In 
particular, MIAX Emerald's employee compensation and benefits expense 
relating to providing the services associated with the Proposed Access 
Fees is projected to be $4,489,924, which is only a portion of the 
$9,354,009 total projected expense for employee compensation and 
benefits. The Exchange believes it is reasonable to allocate the 
identified portion of such expense because this includes the time spent 
by employees of several departments, including Technology, Back Office, 
Systems Operations, Networking, Business Strategy Development (who 
create the business requirement documents that the Technology staff use 
to develop network features and enhancements), Trade Operations, 
Finance (who provide billing and accounting services relating to the 
network), and Legal (who provide legal services relating to the 
network, such as rule filings and various license agreements and other 
contracts). As part of the extensive cost review conducted by the 
Exchange, the Exchange reviewed the amount of time spent by each 
employee on matters relating to the provision of services associated 
with the Proposed Access Fees. Without these employees, the Exchange 
would not be able to provide the services associated with the Proposed 
Access Fees to its Members and non-Members and their customers. The 
Exchange did not allocate all of the employee compensation and benefits 
expense toward the cost of the services associated with the Proposed 
Access Fees, only the portions which the Exchange identified as being 
specifically mapped to providing the services associated with the 
Proposed Access Fees, approximately 48% of the total employee 
compensation and benefits expense (39% allocated towards the cost of 
providing the provision of network connectivity and 9% allocated 
towards the cost of providing ports). The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the services associated with the Proposed Access Fees, 
and not any other service, as supported by its cost review.
    MIAX Emerald's depreciation and amortization expense relating to 
providing the services associated with the Proposed Access Fees is 
projected to be $2,630,687, which is only a portion of the $3,812,590 
total projected expense for depreciation and amortization. The Exchange 
believes it is reasonable to allocate the identified portion of such 
expense because such expense includes the actual cost of the computer 
equipment, such as dedicated servers, computers, laptops, monitors, 
information security appliances and storage, and network switching 
infrastructure equipment, including switches and taps that were 
purchased to operate and support the network and provide the services 
associated with the Proposed Access Fees. Without this equipment, the 
Exchange would not be able to operate the network and provide the 
services associated with the Proposed Access Fees to its Members and 
non-Members and their customers. The Exchange did not allocate all of 
the depreciation and amortization expense toward the cost of providing 
the services associated with the Proposed Access Fees, only the portion 
which the Exchange identified as being specifically mapped to providing 
the services associated with the Proposed Access Fees, approximately 
69% of the total depreciation and amortization expense, as these 
services would not be possible without relying on such equipment (65% 
allocated towards the cost of providing the provision of network 
connectivity and 4% allocated towards the cost of providing ports). The 
Exchange believes this allocation is reasonable because it represents 
the Exchange's actual cost to provide the services associated with the 
Proposed Access Fees, and not any other service, as supported by its 
cost review.
    MIAX Emerald's occupancy expense relating to providing the services 
associated with the Proposed Access Fees is projected to be $246,648, 
which is only a portion of the $474,323 total projected expense for 
occupancy. The Exchange believes it is reasonable to allocate the 
identified portion of such expense because such expense represents the 
portion of the Exchange's cost to rent and maintain a physical location 
for the Exchange's staff who operate and support the network, including 
providing the services associated with the Proposed Access Fees. This 
amount consists primarily of rent for the Exchange's Princeton, NJ 
office, as well as various related costs, such as physical security, 
property management fees, property taxes, and utilities. The Exchange 
operates its Network Operations Center (``NOC'') and Security 
Operations Center (``SOC'') from its Princeton, New Jersey office 
location. A centralized office space is required to house the staff 
that operates and supports the network. The Exchange currently has 
approximately 150 employees. Approximately two-thirds of the Exchange's 
staff are in the Technology department, and the majority of those staff 
have some role in the operation and performance of the services 
associated with the Proposed Access Fees. Without this office space, 
the Exchange would not be able to operate and support the network and 
provide the services associated with the Proposed Access Fees to its 
Members and non-Members and their customers. Accordingly, the Exchange 
believes it is reasonable to allocate the identified portion of its 
occupancy expense because such amount represents the Exchange's actual 
cost to house the equipment and personnel who operate and support the 
Exchange's network infrastructure and the services associated with the 
Proposed Access Fees. The Exchange did not allocate all of the 
occupancy expense toward the cost of providing the services associated 
with the Proposed Access Fees, only the portion which the Exchange 
identified as being specifically mapped to operating and supporting the 
network, approximately 52% of the total occupancy expense (48% 
allocated towards the cost of providing the provision of network 
connectivity and 4% allocated towards the cost of providing ports). 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.
    The Exchange notes that a material portion of its total overall 
expense is allocated to the provision of services associated with the 
Proposed Access Fees. The Exchange believes this is reasonable and in 
line, as the Exchange operates a technology-based business that 
differentiates itself from its competitors based on its trading systems 
that rely on its high performance network, resulting in significant 
technology expense. Over two-thirds of Exchange staff are technology-
related employees. The majority of the Exchange's expense is 
technology-based. As described above, the Exchange has only four 
primary sources of fees in to recover its costs, thus the Exchange 
believes it is reasonable to allocate a material portion of its total

[[Page 18360]]

overall expense towards the Proposed Access Fees.
    The Exchange's monthly projected revenue for the Proposed Access 
Fees is based on the following projected purchases by Members and non-
Members, which is based on a recent billing cycle: (i) 62 10Gb ULL 
connections; (ii) 14 CTD Ports; (iii) 8 FXD Ports; (iv) 113 FIX Ports; 
(v) 363 Limited Service MEI Ports; (vi) 37 Full Service MEI Ports; \50\ 
and (vii) 10 Purge Ports. As described above, the fee charged to each 
Market Maker for MEI Ports can vary from month to month depending on 
the number of classes in which the Market Maker was assigned to quote 
on any given day within the calendar month, and upon certain class 
volume percentages. The Exchange also provides a further discount for a 
Market Maker's MEI Port fees 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. The 
Exchange has at least one Member consistently quoting in the highest 
tier for MEI Port fees, but receiving this discount, resulting in lower 
revenue for the Exchange. Further, the projected revenue from FIX Port 
fees is subject to change from month to month depending on the number 
of FIX Ports purchased.
---------------------------------------------------------------------------

    \50\ The Exchange's projections included 9 firms or their 
affiliates purchasing Full Service MEI Ports. Of those firms, the 
Exchange projects that 6 firms will achieve the highest tier in the 
MEI Port fee table, 2 firms will achieve the lowest tier in the MEI 
Port fee table, and 1 firm will achieve the middle tier in the MEI 
Port fee table.
---------------------------------------------------------------------------

    Accordingly, based on current assumptions and approximations, the 
Exchange projects total monthly Port revenue (including the Additional 
Limited Service MEI Port revenue described above and the cancellation 
of Ports by one Member) of approximately $268,200 and total 10Gb ULL 
connectivity revenue of approximately $620,000 (including the 
cancellation of one 10Gb ULL connection by one Member). The Exchange 
notes that the port revenue projections are subject to change depending 
on the number of classes that Market Makers are quoting in and the 
tiers achieved. As such, the projection of $268,200 per month is not a 
static number and can fluctuate month to month. Further, as noted 
above, one Member dropped its connections and ports as a direct result 
of the introduction of the Proposed Access Fees. Accordingly, 
reflecting that cancellation of approximately $324,000 per year 
($27,000 total per month in connectivity and port fees), and including 
the revenue from the proposed Additional Limited Service MEI Ports, the 
Exchange projects annualized revenue of approximately $10,658,400 from 
all connectivity alternatives and port types.\51\ This is broken down 
as follows:
---------------------------------------------------------------------------

    \51\ This revenue projection includes revenue from all 
connectivity sources, including all 10Gb ULL connections discussed 
above (after giving effect to the recent cancellation), two 1Gb 
connections (the Exchange is not increasing fees for 1Gb 
connections, however, those connections are included in total 
connectivity revenue in order to have a true comparison between all 
connectivity revenue and all connectivity expense), and all port 
types discussed above (after giving effect to the recent 
cancellation).

 $268,200/month x 12 months = $3,218,400/annually for all ports 
(including the subtraction of one Member who dropped ports, plus the 
Additional LSPs described above)
 $620,000/month x 12 months = $7,440,000/annually for all 
connectivity (including the subtraction of one Member who dropped its 
10Gb ULL connection)
 $3,218,400 + $7,440,000 = $10,658,400/annually for the 
Proposed Access Fees

    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. As described above, on a going-forward, fully-
annualized basis, the Exchange projects that its annualized revenue for 
providing the services associated with the Proposed Access Fees would 
be approximately $10,658,400, based on a recent billing cycle. The 
Exchange projects that its annualized expense for providing the 
services associated with the Proposed Access Fees would be 
approximately $9.3 million per annum. Accordingly, on a fully-
annualized basis, the Exchange believes its total projected revenue for 
the providing the services associated with the Proposed Access Fees 
will not result in excessive pricing or supra-competitive profit, as 
the Exchange will make only a 12.7% profit margin on the Proposed 
Access Fees ($10,658,400-$9.3 million = $1,358,400 per annum). This 
profit margin does not take into account the cost of the CapEx the 
Exchange projected to spend in 2020 of $1.85 million on the project to 
make the Exchange's network more deterministic, or the amounts the 
Exchange is projected to spend each year on CapEx going forward for 
that project. This profit margin also does not take into account the 
cost of the CapEx of $175,000 for adding the six Additional Limited 
Service MEI Ports.
    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 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 
operating and supporting the network, including providing the services 
associated with the Proposed Access Fees because the Exchange performed 
a line-by-line item analysis of all the expenses of the Exchange, and 
has determined the expenses that directly relate to operation and 
support of the network. Further, the Exchange notes that, without the 
specific third-party and internal items listed above, the Exchange 
would not be able to operate and support the network, including 
providing the services associated with the Proposed Access Fees to its 
Members and non-Members and their customers. Each of these expense 
items, including physical hardware, software, employee compensation and 
benefits, occupancy costs, and the depreciation and amortization of 
equipment, have been identified through a line-by-line item analysis to 
be integral to the operation and support of the network. The Proposed 
Access Fees are intended to recover the Exchange's costs of operating 
and supporting the network. Accordingly, the Exchange believes that the 
Proposed Access Fee Increases are fair and reasonable because they do 
not result in excessive pricing or supra-competitive profit, when 
comparing the actual network operation and support costs to the 
Exchange versus the projected annual revenue from the Proposed Access 
Fees, including the increased amount.
    The Exchange also points out that it is not seeking to recoup any 
of its past costs associated with the provision of any Ports during the 
Waiver Period. The

[[Page 18361]]

Exchange currently has 35 Members,\52\ all of whom did not pay Port 
fees during the Waiver Period from the time these firms all became 
Members of the Exchange. Further, the majority of firms that are 
Members of the Exchange's affiliate options exchanges, MIAX and MIAX 
Pearl, also became Members of those exchanges during similar Waiver 
Periods for the MIAX and MIAX Pearl Port fees. Accordingly, the 
Exchange (and MIAX and MIAX Pearl) have assumed approximately 100% of 
the costs associated with providing Ports for the majority of Member 
firms 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 
Port fees that are reasonably related to (and designed to recover) the 
Exchange's cost associated with the provision of such Ports.
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    \52\ See https://www.miaxoptions.com/exchange-members/emerald.
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change would 
place certain market participants at the Exchange at a relative 
disadvantage compared to other market participants or affect the 
ability of such market participants to compete.
Intra-Market Competition
    The Exchange believes that the Proposed Access Fees do not place 
certain market participants at a relative disadvantage to other market 
participants because the Proposed Access Fees do not favor certain 
categories of market participants in a manner that would impose a 
burden on competition; rather, the allocation of the Proposed Access 
Fees reflects the network resources consumed by the various size of 
market participants--lowest bandwidth consuming members pay the least, 
and highest bandwidth consuming members pays the most, particularly 
since higher bandwidth consumption translates to higher costs to the 
Exchange.
Inter-Market Competition
    The Exchange believes the Proposed Access Fees do not place an 
undue burden on competition on other SROs that is not necessary or 
appropriate. In particular, options market participants are not forced 
to connect to (and purchase market data from) all options exchanges. 
The Exchange had one of its member firms cancel its membership with the 
Exchange as a direct result of the Proposed Access Fees. The Exchange 
also notes that it has far less Members as compared to the much greater 
number of members at other options exchanges. Not only does MIAX 
Emerald have less than half the number of members as certain other 
options exchanges, but there are also a number of the Exchange's 
Members that do not connect directly to MIAX Emerald. There are a 
number of large market makers and broker-dealers that are members of 
other options exchange but not Members of MIAX Emerald. The Exchange is 
also unaware of any assertion that its existing fee levels or the 
Proposed Access Fees would somehow unduly impair its competition with 
other options exchanges. To the contrary, if the fees charged are 
deemed too high by market participants, they can simply disconnect, as 
described above.
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 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 
December 2020, the Exchange had a market share of approximately 3.58% 
of executed multiply-listed equity options \53\ 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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    \53\ See supra note 39.
---------------------------------------------------------------------------

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,\54\ and Rule 19b-4(f)(2) \55\ 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.
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \55\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-EMERALD-2021-11 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-2021-11. 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

[[Page 18362]]

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-2021-11 and should be submitted 
on or before April 29, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\56\
---------------------------------------------------------------------------

    \56\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-07194 Filed 4-7-21; 8:45 am]
BILLING CODE 8011-01-P


