[Federal Register Volume 86, Number 94 (Tuesday, May 18, 2021)]
[Notices]
[Pages 26967-26973]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10380]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91858; File No. SR-PEARL-2021-23]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX 
Pearl Fee Schedule To Remove the Cap on the Number of Additional 
Limited Service Ports Available to Market Makers

May 12, 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 May 10, 2021, MIAX PEARL, LLC (``MIAX Pearl'' 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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[[Page 26968]]

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 Pearl Options 
Fee Schedule (the ``Fee Schedule'') to remove the cap on the number of 
additional Limited Service MIAX Express Order Interface (``MEO'') Ports 
(defined below) available to Members.\3\ The Exchange does not propose 
to amend the fees for additional Limited Service MEO Ports.
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    \3\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of these 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See Exchange Rule 100.
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    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
Pearl'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 Section 5)d) of the Fee Schedule to 
remove the cap on the number of additional Limited Service MEO Ports 
available to Members. The Exchange does not propose to amend the fees 
charged for any additional Limited Service MEO Ports purchased by 
Members.
    The Exchange initially filed this proposal to remove the cap on the 
number of additional Limited Service MEO Ports available to Members on 
April 9, 2021.\4\ On April 22, 2021, the Exchange withdrew the First 
Proposed Rule Change and refiled this proposal (without increasing the 
actual fee amounts) to provide further clarification regarding the 
Exchange's revenues, costs, and profitability any time more Limited 
Service MEO Ports become available, in general, (including information 
regarding the Exchange's methodology for determining the costs and 
revenues for additional Limited Service MEO Ports).\5\ On May 3, 2021, 
the Exchange withdrew the Second Proposed Rule Change and refiled this 
proposal to further clarify its cost methodology.\6\ On May 10, 2021, 
the Exchange withdrew the Third Proposed Rule Change and refiled this 
proposal.
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    \4\ See SR-PEARL-2021-17 (the ``First Proposed Rule Change'').
    \5\ See SR-PEARL-2021-20 (the ``Second Proposed Rule Change'').
    \6\ See SR-PEARL-2021-22 (the ``Third Proposed Rule Change'').
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    Currently, the Exchange offers different options of MEO Ports 
depending on the services required by an Exchange Member, including a 
Full Service MEO Port-Bulk,\7\ a Full Service MEO Port-Single,\8\ and a 
Limited Service MEO Port.\9\ A Member may be allocated two (2) Full-
Service MEO Ports of either type, Bulk and/or Single, per Matching 
Engine,\10\ and up to eight (8) Limited Service MEO Ports, per Matching 
Engine. The two (2) Full-Service MEO Ports that may be allocated per 
Matching Engine to a Member currently may consist of: (a) Two (2) Full 
Service MEO Ports--Bulk; or (b) two (2) Full Service MEO Ports--Single. 
The Exchange also has a third option, option (c), which permits a 
Member to have one (1) Full Service MEO Port--Bulk, and one (1) Full 
Service MEO Port--Single.
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    \7\ ``Full Service MEO Port--Bulk'' means an MEO port that 
supports all MEO input message types and binary bulk order entry. 
See the Definitions Section of the Fee Schedule.
    \8\ ``Full Service MEO Port--Single'' means an MEO port that 
supports all MEO input message types and binary order entry on a 
single order-by-order basis, but not bulk orders. See the 
Definitions Section of the Fee Schedule.
    \9\ ``Limited Service MEO Port'' means an MEO port that supports 
all MEO input message types, but does not support bulk order entry 
and only supports limited order types, as specified by the Exchange 
via Regulatory Circular. See the Definitions Section of the Fee 
Schedule.
    \10\ The term ``Matching Engine'' means a part of the MIAX Pearl 
electronic system that processes options orders and trades on a 
symbol-by-symbol basis. Some Matching Engines will process option 
classes with multiple root symbols, and other Matching Engines may 
be dedicated to one single option root symbol (for example, options 
on SPY may 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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    The Exchange currently provides Members the first two (2) requested 
Limited Service MEO Ports free of charge and charges $200 per month for 
Limited Service MEO Ports three (3) and four (4), $300 per month for 
Limited Service MEO Ports five (5) and six (6), and $400 per month for 
Limited Service MEO Ports seven (7) to ten (10). These fees have been 
unchanged since they were adopted in 2018.\11\
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    \11\ See Securities Exchange Act Release No. 83867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
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    The Exchange originally added the Limited Service MEO Ports to 
enhance the MEO Port connectivity made available to Members, and 
subsequently made additional Limited Service MEO Ports available to 
Members.\12\ Limited Service MEO Ports have been well received by 
Members since their addition. Members are currently limited to 
purchasing eight (8) additional Limited Service MEO Ports per Matching 
Engine, for a total of ten (10) per Matching Engine.\13\
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    \12\ See Securities Exchange Act Release Nos. 90812 (December 
29, 2020), 86 FR 338 (January 5, 2021) (SR-PEARL-2020-35) (the 
``Cost Analysis Filing'').
    \13\ See Fee Schedule, Section 5)d).
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    The Exchange now proposes to amend Section 5)d) of the Fee Schedule 
to remove the cap on the number of additional Limited Service MEO Ports 
that are available to Members. The Exchange notes that no other 
exchange provides similar caps concerning connectivity and access in 
their rulebooks or fee schedules.\14\ Including the cap on the number 
of additional Limited Service MEO Ports in the Fee Schedule 
unnecessarily hampers the Exchange's ability to adjust access to the 
Exchange's network in order to ensure that the Exchange meets its 
obligations under the Act such that access to the Exchange is offered 
on terms that are not unfairly discriminatory \15\ among its Members, 
as well as to ensure sufficient capacity and headroom in the 
System.\16\

[[Page 26969]]

The Exchange monitors the System's performance and makes adjustments to 
its System based on market conditions and Member demand. Accordingly, 
the Exchange's obligations under the Act to provide access on terms 
that are not unfairly discriminatory and market conditions are key 
drivers of the System's architecture and expansion. Thus the Exchange 
believes a cap in the Fee Schedule is inconsistent with other exchanges 
access offerings and not an appropriate mechanism to govern access to 
the Exchange.
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    \14\ See Cboe Exchange, Inc. Fee Schedule, available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf; Cboe BZX 
Exchange, Inc. Options Fee Schedule, available at https://www.cboe.com/us/options/membership/fee_schedule/bzx/; Cboe C2 
Exchange, Inc. Fee Schedule, available at https://www.cboe.com/us/options/membership/fee_schedule/ctwo/; Cboe EDGX Exchange, Inc. 
Options Fee Schedule, available at https://www.cboe.com/us/options/membership/fee_schedule/edgx/; The Nasdaq Stock Market LLC Options 
Fee Schedule, available at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/Nasdaq%20Options%207; Nasdaq PHLX LLC Options 
Fee Schedule, available at https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207; NYSE Arca, Inc. Options Fee 
Schedule, available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf; NYSE American LLC 
Options Fee Schedule, available at https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf.
    \15\ See 15 U.S.C. 78f(b)(5).
    \16\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
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    The Exchange also notes that adjusting the amount of available 
Limited Service MEO Ports does not change on a material basis the 
overall profitability of Limited Service MEO Ports. Any increase in 
revenue associated with adding more Limited Service MEO Ports is 
generally offset by the cost of purchasing and operating such new 
equipment and providing the services associated with Limited Service 
MEO Ports. When the Exchange provides fewer Limited Service MEO Ports, 
its overall expense is lower, but is generally offset by lower revenues 
associated with Limited Service MEO Ports. The Exchange's recent filing 
\17\ to increase the number of additional Limited Service MEO Ports 
provides clear evidence of that fact.
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    \17\ See supra note 12.
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    All fees related to MEO Ports shall remain unchanged and Members 
that voluntarily purchase additional Limited Service MEO Ports will 
remain subject to the existing monthly fees per Limited Service MEO 
Port as described in Section 5)d) of the Fee Schedule.
    The Exchange proposes to amend the port fee table in Section 5)d) 
of the Fee Schedule to remove the cap of 10 Limited Service MEO Ports 
as the total number that Members may purchase. With the proposed 
changes, the port fee table will read as follows:

------------------------------------------------------------------------
                                            Monthly port fees includes
                                           connectivity to the primary,
              Type of port                   secondary and  disaster
                                              recovery data centers
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FIX Port [supcaret]....................  Per Port: 1st $275, 2nd to 5th
                                          $175, 6th or more $75.
Full Service MEO Port--Bulk *..........  Tier 1 $3,000.
                                         Tier 2 $4,500.
                                         Tier 3 $5,000.
Full Service MEO Port--Single *........  Tier 1 $2,000.
                                         Tier 2 $3,375.
                                         Tier 3 $3,750.
Limited Service MEO Port **............  1st to 2nd $0, 3rd to 4th $200,
                                          5th to 6th $300, 7 or more
                                          $400.
MEO Purge Port ***.....................  $750.
CTD Port [supcaret]....................  Per Port: $450.
FXD Port [supcaret]....................  Per Port: $250.
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    The Exchange also proposes to make corresponding changes to the 
paragraph below the port fee table in Section 5)d) of the Fee Schedule 
such that, with the proposed amendments, the explanatory paragraph will 
read as follows:
    Members may be allocated two (2) Full-Service MEO Ports of either 
type per Matching Engine and may request Limited Service MEO Ports for 
which MIAX Pearl will assess Members Limited Service MEO Port fees per 
Matching Engine based on the table above. The two (2) Full-Service MEO 
Ports that may be allocated per Matching Engine to a Member may consist 
of: (a) Two (2) Full Service MEO Ports--Bulk; (b) two (2) Full Service 
MEO Ports--Single; or (c) one (1) Full Service MEO Port--Bulk and one 
(1) Full Service MEO Port--Single.
    The Exchange notes that it does not propose to make any changes to 
the MIAX Pearl Equities Fee Schedule as part of this proposal.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \18\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \19\ in that it is designed to promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general protect investors and the public interest and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers and dealers.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal is consistent with the 
objectives of Section 6(b)(5) of the Act \20\ because the proposal to 
remove the cap on the number of additional Limited Service MEO Ports 
available to Members will apply equally to all Members, regardless of 
type or size, and will allow the Exchange to offer access to its System 
on terms that are not unfairly discriminatory. The Exchange does not 
propose to change the amount of fees charged for additional Limited 
Service MEO Ports. The existing fees will apply equally to all Members 
that choose to purchase additional Limited Service MEO Ports, which is 
a business decision of each Member and not a requirement of the 
Exchange.
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    \20\ Id.
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    The Exchange believes that its proposal is consistent with the 
requirements under Section 6(b)(5) of the Exchange Act that the 
Exchange provide access on terms that are not unfairly 
discriminatory.\21\ Including the cap on the number of additional 
Limited Service MEO Ports in the Fee Schedule unnecessarily burdens the 
Exchange from being able to adjust the connectivity and access to the 
Exchange's System in order to ensure that the Exchange is able to 
provide access \22\ to Members on non-discriminatory terms and ensure 
sufficient capacity and headroom in the System. The Exchange constantly 
monitors the System's performance based on market conditions and needs 
to make adjustments based on customer demand. Adjusting the amount of 
available Limited Service MEO Ports does not change on a material basis 
the overall profitability of Limited Service MEO Ports. Any increase in 
revenue associated with adding more Limited Service MEO Ports is 
generally offset by the cost of purchasing and operating such new 
equipment and providing the services associated with Limited Service 
MEO Ports. When the Exchange provides fewer Limited Service MEO Ports, 
its overall expense is lower, but is generally offset by lower revenues 
associated with Limited Service MEO Ports. The Exchange's recent filing 
\23\ to increase the number of additional Limited Service MEO Ports 
provides clear evidence of that fact. Accordingly, the Exchange's 
obligations under

[[Page 26970]]

Section 6(b)(5) of the Act \24\ and market conditions are key drivers 
of the System's architecture and expansion and thus the Exchange 
believes a cap in the Fee Schedule is not an appropriate mechanism to 
govern access to the Exchange.
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    \21\ Id.
    \22\ Id.
    \23\ See supra note 12.
    \24\ See 15 U.S.C. 78f(b).
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    Other exchanges, like MIAX Pearl, are required to provide access 
and connectivity pursuant to the same requirements under Section 
6(b)(5) of the Act regardless of whether a their rules or fee schedules 
set forth caps on access.\25\ Further, the Exchange anticipates that it 
will continue to expand its System and provide Members and other market 
participants with additional access, including Limited Service MEO 
Ports, based on customer demand and in response to changing market 
conditions. The Exchange represents that any expansion or reduction in 
the number of additional Limited Service MEO Ports will be conducted in 
a similar manner that ensures fair access to its System.\26\ The 
Exchange will also continuously assess its connectivity options and 
availability to ensure that they meet the needs of all market 
participants seeking to access the Exchange.
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    \25\ Id.
    \26\ Id.
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    The Exchange believes that its proposal is consistent with Section 
6(b)(4) of the Act because only Members that voluntarily purchase 
additional Limited Service MEO Ports will be charged the existing 
monthly fees per port, which has been unchanged since they were adopted 
in 2018.\27\ The Exchange does not propose to amend the fees applicable 
to additional Limited Service MEO Ports, which were filed with the 
Commission and became effective after notice and public comment.\28\ As 
stated above, the Exchange anticipates that in the future, it may 
provide more Limited Service MEO Ports due to customer demand and 
increased volatility in the marketplace, which will result in increased 
message traffic rates across the network.
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    \27\ See supra note 11.
    \28\ See id.
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    The Exchange further believes its proposal is consistent with 
Section 6(b)(4) of the Act in that any time the Exchange makes 
available more Limited Service MEO Ports, such ports that are 
voluntarily purchased by Members will not result in the Exchange making 
a supracompetitive profit. The Exchange recently 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 additional Limited Service MEO Ports, and, if such expense did so 
relate, what portion (or percentage) of such expense actually supports 
additional Limited Service MEO Ports, and thus bears a relationship 
that is, ``in nature and closeness,'' directly related to those 
services.
    To provide continuity with the Exchange's most recent filing to add 
two additional Limited Service MEO Ports \29\ and this filing, the 
Exchange performed this cost review anticipating that Members may 
purchase two additional Limited Service MEO Ports.\30\ The sum of all 
such portions of expenses represents the total cost of the Exchange to 
provide services associated with two additional Limited Service MEO 
Ports pursuant to this proposed rule change. Assuming the costs 
outlined in this proposal remain unchanged, the Exchange represents 
that the below cost and revenue analysis would continue to be true 
should the Exchange make additional Limited Service MEO Ports available 
beyond the analysis for two additional Limited Service MEO Ports 
discussed below.\31\
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    \29\ See supra note 12.
    \30\ The cost review in this proposal is based on two additional 
Limited Service MEO Ports because two additional Limited Service MEO 
Ports were purchased since the First Proposed Rule Change was 
submitted on April 12, 2021.
    \31\ As stated above, currently the number of available Limited 
Service MEO Ports does not change on a material basis the overall 
profitability of Limited Service MEO Ports; however, the Exchange 
represents that it will continue to monitor its costs and revenue 
analysis for material changes.
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    For the avoidance of doubt, none of the expenses included herein 
relating to the services associated with providing two additional 
Limited Service MEO Ports also relate to the provision of any other 
services offered by the Exchange. Stated differently, no expense amount 
of the Exchange is allocated twice. The Exchange notes that it made 
certain representations in a previous filing \32\ regarding its expense 
allocation for the provision of network connectivity services. The 
Exchange represents that none of the expenses allocated to the 
provision of network connectivity services are also allocated to the 
provision of ports--that is, there is no overlap of any such expenses 
that are included in the costs associated with services the Exchange 
provides for connectivity and for the services the Exchange provides 
for ports.
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    \32\ See Securities Exchange Act Release No. 87876 (December 31, 
2019), 85 FR 757 (January 7, 2020) (SR-PEARL-2019-36).
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    Specifically, utilizing 2020 \33\ expense figures, total third-
party expense relating to fees paid by the Exchange to third-parties 
for certain products and services for the Exchange to be able to 
provide two additional Limited Service MEO Ports is approximately 
$11,611. 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 Exchange's trading 
system infrastructure; (2) Zayo Group Holdings, Inc. (``Zayo'') for 
network services (fiber and bandwidth products and services) linking 
the Exchange's office locations in Princeton, NJ and Miami, FL to all 
data center locations; (3) Secure Financial Transaction Infrastructure 
(``SFTI''),\34\ which supports network feeds for the entire U.S. 
options industry; (4) various other services providers (including 
Thompson Reuters, NYSE, Nasdaq, and Internap), which provide content, 
network services, and infrastructure services for critical components 
of options 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.). For clarity, only a 
portion of all fees paid to such third-parties is included in the 
third-party expense herein, and no expense amount is allocated twice. 
Accordingly, the Exchange does not allocate its entire information 
technology and communication costs to the services associated with 
providing two additional Limited Service MEO Ports.
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    \33\ The Exchange has not yet finalized its 2020 year-end 
results. The Exchange is utilizing year-end 2020 expenses because 
expenses incurred within 2021 have not yet been reviewed and full 
year 2021 expenses have not yet been fully projected. Therefore, the 
2020 year-end expenses are the most accurate to date.
    \34\ In fact, on October 22, 2019, the Exchange was notified by 
SFTI that it is again raising its fees charged to the Exchange by 
approximately 11%, without having to show that such fee change 
complies with the Act by being reasonable, equitably allocated, and 
not unfairly discriminatory. It is unfathomable to the Exchange 
that, given the critical nature of the infrastructure services 
provided by SFTI, that its fees are not required to be rule-filed 
with the Commission pursuant to Section 19(b)(1) of the Act and Rule 
19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4, 
respectively.
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    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 two additional Limited Service MEO 
Ports. In particular, the Exchange believes it is reasonable to 
allocate the identified portion of the

[[Page 26971]]

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 two 
additional Limited Service MEO Ports 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 two 
additional Limited Service MEO Ports, only that portion which the 
Exchange identified as being specifically mapped to providing the 
services associated with two additional Limited Service MEO Ports, 
approximately 0.5% of the total Equinix expense. The Exchange believes 
this allocation is reasonable because it represents the Exchange's 
actual cost to provide the services associated with two additional 
Limited Service MEO Ports, 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 the 
Exchange with its affiliates, MIAX and MIAX Emerald, 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 two 
additional Limited Service MEO Ports. The Exchange did not allocate all 
of the Zayo expense toward the cost of providing the services 
associated with two additional Limited Service MEO Ports, only the 
portion which the Exchange identified as being specifically mapped to 
providing two additional Limited Service MEO Ports, approximately 0.4% 
of the total Zayo expense. The Exchange believes this allocation is 
reasonable because it represents the Exchange's actual cost to provide 
the services associated with two additional Limited Service MEO Ports, 
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, network 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 two 
additional Limited Service MEO Ports, only the portions which the 
Exchange identified as being specifically mapped to providing the 
services associated with two additional Limited Service MEO Ports, 
approximately 0.5% of the total SFTI and other service providers' 
expense. The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the services 
associated with two additional Limited Service MEO Ports.
    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 
two additional Limited Service MEO Ports, only the portions which the 
Exchange identified as being specifically mapped to providing the 
services associated with two additional Limited Service MEO Ports, 
approximately 0.3% of the total hardware and software provider expense. 
The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the services 
associated with two additional Limited Service MEO Ports.
    For 2020, total projected internal expense relating to the internal 
costs of the Exchange to provide the services associated with two 
additional Limited Service MEO Ports is approximately $64,797. 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 providing two additional Limited Service MEO 
Ports, 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 two additional Limited Service MEO Ports, 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 two additional 
Limited Service MEO Ports. The breakdown of these costs is more fully-
described below. For clarity, only a portion of all such internal 
expenses are included in the internal expense herein, and no expense 
amount is allocated twice. Accordingly, the Exchange does not allocate 
its entire costs contained in those items to the services associated 
with providing two additional Limited Service MEO Ports.
    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 two additional Limited Service MEO 
Ports. In particular, the Exchange's employee compensation and benefits 
expense relating to providing the services associated with two 
additional Limited Service MEO Ports is approximately $50,553, which is 
only a portion of the $8,425,565 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 two additional Limited Service 
MEO

[[Page 26972]]

Ports. Without these employees, the Exchange would not be able to 
provide the services associated with two additional Limited Service MEO 
Ports 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 providing two 
additional Limited Service MEO Ports, only the portions which the 
Exchange identified as being specifically mapped to providing the 
services associated with two additional Limited Service MEO Ports, 
approximately 0.6% of the total employee compensation and benefits 
expense. The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the services 
associated with two additional Limited Service MEO Ports, and not any 
other service, as supported by its cost review.
    The Exchange's depreciation and amortization expense relating to 
providing the services associated with two additional Limited Service 
MEO Ports is approximately $12,779, which is only a portion of the 
$2,555,832 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 two additional Limited Service MEO Ports. 
Without this equipment, the Exchange would not be able to operate the 
network and provide the services associated with two additional Limited 
Service MEO Ports 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 two 
additional Limited Service MEO Ports, only the portion which the 
Exchange identified as being specifically mapped to providing the 
services associated with the two additional Limited Service MEO Ports, 
approximately 0.5% of the total depreciation and amortization expense, 
as these services would not be possible without relying on such 
equipment. The Exchange believes this allocation is reasonable because 
it represents the Exchange's actual cost to provide the services 
associated with two additional Limited Service MEO Ports, and not any 
other service, as supported by its cost review.
    The Exchange's occupancy expense relating to providing the services 
associated with providing two additional Limited Service MEO Ports is 
approximately $1,465, which is only a portion of the $366,245 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 two 
additional Limited Service MEO Ports. 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 160 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 providing 
additional Limited Service MEO Ports. Without this office space, the 
Exchange would not be able to operate and support the network and 
provide the services associated with two additional Limited Service MEO 
Ports 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 two additional Limited Service MEO Ports. The Exchange 
did not allocate all of the occupancy expense toward the cost of 
providing the services associated with two additional Limited Service 
MEO Ports, only the portion which the Exchange identified as being 
specifically mapped to operating and supporting the network, 
approximately 0.4% of the total occupancy expense. The Exchange 
believes this allocation is reasonable because it represents the 
Exchange's cost to provide the services associated with two additional 
Limited Service MEO Ports, and not any other service, as supported by 
its cost review. Accordingly, based on the facts and circumstances 
presented, the Exchange believes that its provision of the services 
associated with two additional Limited Service MEO Ports will not 
result in excessive pricing or supra-competitive profit.
    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 two additional Limited Service MEO Ports 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 two additional Limited 
Service MEO Ports 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.
    To provide continuity with the Exchange's most recent filing to add 
two additional Limited Service MEO Ports \35\ and this filing, the 
Exchange is basing its projected revenue from additional Limited 
Service MEO Ports that may be purchased by Members as though seven 
Members purchased two additional Limited Service MEO Ports each. The 
Exchange notes that any time it needs to expand its network by making 
available two additional Limit Service MEO Ports due to increased 
customer demand and increased volatility in the marketplace, which 
translates into increased message traffic rates across the network, 
there is an initial build out cost. The cost to expand the network in 
this manner is greater than the revenue the Exchange anticipates the 
additional Limited Service MEO Ports will generate. Specifically, the 
Exchange estimates it will incur 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 two additional 
Limited Service MEO Ports.

[[Page 26973]]

This estimated cost also includes expense associated with providing the 
necessary engineering and support personnel to transition those Members 
who wish to acquire two additional Limited Service MEO Ports. Further, 
the Exchange projects that the annualized revenue from the two 
additional Limited Service MEO Ports will be approximately $67,200 
(assuming seven Members purchase the two additional Limited Service MEO 
Ports). Therefore, the Exchange's upfront cost in expanding its network 
to provide its Members with two additional Limited Service MEO Ports--
approximately $175,000--is significant relative to the anticipated 
annualized revenue the Exchange expects to bring in from two additional 
Limited Service MEO Ports--approximately $67,200. Further, the Exchange 
anticipates it will incur approximately $76,408 in annualized ongoing 
operating expense (``OpEx'') in order to support the expanded network 
and two additional Limited Service MEO Ports. Thus, even excluding the 
upfront CapEx of $175,000, the Exchange is not generating a supra-
competitive profit from the provision of two additional Limited Service 
MEO Ports. In fact, even excluding the one-time CapEx cost of $175,000, 
the Exchange anticipates generating an annual loss from the provision 
of two additional Limited Service MEO Ports of ($9,208)--that is, 
$67,200 in revenue minus $76,408 in expense equates to a loss of 
($9,208) to support the additional ports annually.
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    \35\ See supra note 12.
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    The Exchange also notes that no other exchange has a similar cap on 
the amount of ports that firms can purchase in their rulebooks or fee 
schedules and those exchanges have the same requirements under Section 
6(b)(5) of the Exchange Act \36\ as MIAX Pearl.\37\
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    \36\ 15 U.S.C. 78f(b)(5).
    \37\ See supra note 14.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
proposed rule change will not impose a burden on competition but will 
benefit competition by enhancing the Exchange's ability to compete by 
providing additional services to market participants. It is not 
intended to address a competitive issue. Rather, the proposal is 
intended to allow the Exchange to increase its inventory of MEO Ports 
to meet increased Member demand and increased message traffic resulting 
from greater marketplace volatility. The Exchange also does not believe 
that the proposed rule change will impose a burden on intramarket 
competition because additional Limited Service MEO Ports are available 
to all Members on an equal basis. It is a business decision of each 
Member whether to pay for the additional Limited Service MEO Ports.

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,\38\ and Rule 19b-4(f)(2) \39\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \38\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \39\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-PEARL-2021-23 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-PEARL-2021-23. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-PEARL-2021-23 and should be submitted on 
or before June 8, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10380 Filed 5-17-21; 8:45 am]
BILLING CODE 8011-01-P


