[Federal Register Volume 86, Number 94 (Tuesday, May 18, 2021)]
[Notices]
[Pages 26973-26979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10379]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91857; File No. SR-MIAX-2021-19]


Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Its 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, Miami International Securities

[[Page 26974]]

Exchange, LLC (``MIAX'' 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 Options Fee 
Schedule (the ``Fee Schedule'') to remove the cap on the number of 
additional Limited Service MIAX Express Interface (``MEI'') Ports 
(defined below) available to Market Makers.\3\ The Exchange does not 
propose to amend the fees for additional Limited Service MEI Ports.
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    \3\ The term ``Market Makers'' refers to Lead Market Makers 
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered 
Market Makers (``RMMs'') collectively. 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, 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 delete footnote 30 of Section 5)d)ii) of 
the Fee Schedule to remove the cap on the number of additional Limited 
Service MEI Ports available to Market Makers. The Exchange does not 
propose to amend the fees charged for any additional Limited Service 
MEI Ports purchased by Market Makers.
    The Exchange initially filed this proposal to remove the cap on the 
number of additional Limited Service MEI Ports available to Market 
Makers on April 9, 2021.\4\ On April 12, 2021, the Exchange withdrew 
the First Proposed Rule Change and refiled this proposal to make a 
technical correction.\5\ On April 22, 2021, the Exchange withdrew the 
Second 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 MEI Ports become available, in general, (including 
information regarding the Exchange's methodology for determining the 
costs and revenues for additional Limited Service MEI Ports).\6\ On May 
3, 2021, the Exchange withdrew the Third Proposed Rule Change and 
refiled this proposal to further clarify its cost methodology.\7\ On 
May 10, 2021, the Exchange withdrew the Fourth Proposed Rule Change and 
refiled this proposal.
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    \4\ See SR-MIAX-2021-10 (the ``First Proposed Rule Change'').
    \5\ See SR-MIAX-2021-11 (the ``Second Proposed Rule Change'').
    \6\ See SR-MIAX-2021-15 (the ``Third Proposed Rule Change'').
    \7\ See SR-MIAX-2021-17 (the ``Fourth Proposed Rule Change'').
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    Currently, the Exchange assesses monthly MEI Port Fees on Market 
Makers based upon the number of MIAX matching engines \8\ used by the 
Market Maker. The Exchange allocates two (2) Full Service MEI Ports \9\ 
and two (2) Limited Service MEI Ports \10\ per matching engine to which 
each Market Maker connects. 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. Market Makers may request additional Limited 
Service MEI Ports for which they are assessed the existing $100 monthly 
fee for each additional port they request. This fee has been unchanged 
since 2016.\11\
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    \8\ A ``matching engine'' is a part of the MIAX 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 Fee Schedule, Section 
5)d)ii), note 29.
    \9\ Full Service MEI Ports provide Market Makers with the 
ability to send Market Maker quotes, eQuotes, and quote purge 
messages to the MIAX System. Full Service MEI Ports are also capable 
of receiving administrative information. Market Makers are limited 
to two Full Service MEI Ports per matching engine. See Fee Schedule, 
Section 5)d)ii), note 27.
    \10\ Limited Service MEI Ports provide Market Makers with the 
ability to send eQuotes and quote purge messages only, but not 
Market Maker Quotes, to the MIAX 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 Fee Schedule, Section 5)d)ii), note 28.
    \11\ See Securities Exchange Act Release No. 79666 (December 22, 
2016), 81 FR 96133 (December 29, 2016) (SR-MIAX-2016-47).
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    The Exchange originally added the Limited Service MEI Ports to 
enhance the MEI Port connectivity available to Market Makers, and 
subsequently made additional Limited Service MEI Ports available to 
Market Makers.\12\ Limited Service MEI Ports have been well received by 
Market Makers since their addition. Market Makers are currently limited 
to purchasing eight (8) additional Limited Service MEI 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. 70137 (August 8, 
2013), 78 FR 49586 (August 14, 2013) (SR-MIAX-2013-39); 70903 
(November 20, 2013), 78 FR 70615 (November 26, 2013) (SR-MIAX-2013-
52); 78950 (September 27, 2016), 81 FR 68084 (October 3, 2016) (SR-
MIAX-2016-33); and 79198 (October 31, 2016), 81 FR 76988 (November 
4, 2016) (SR-MIAX-2016-37); 90811 (December 29, 2020), 86 FR 344 
(January 5, 2021) (SR-MIAX-2020-41).
    \13\ See Fee Schedule, Section 5)d)ii).
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    The Exchange now proposes to delete footnote 30 in Section 5)d)ii) 
of the Fee Schedule to remove the cap on the number of additional 
Limited Service MEI Ports that are available to Market Makers. 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 MEI 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

[[Page 26975]]

terms that are not unfairly discriminatory \15\ among its Members,\16\ 
as well as to ensure sufficient capacity and headroom in the 
System.\17\ 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 ``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.
    \17\ 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 MEI Ports does not change on a material basis the 
overall profitability of Limited Service MEI Ports. Any increase in 
revenue associated with adding more Limited Service MEI Ports is 
generally offset by the cost of purchasing and operating such new 
equipment and providing the services associated with Limited Service 
MEI Ports. When the Exchange provides fewer Limited Service MEI Ports, 
its overall expense is lower, but is generally offset by lower revenues 
associated with Limited Service MEI Ports. The Exchange's recent filing 
\18\ to increase the number of additional Limited Service MEI Ports 
provides clear evidence of that fact.
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    \18\ See Securities Exchange Act Release No. 90811 (December 29, 
2020), 86 FR 344 (January 5, 2021) (SR-MIAX-2020-41) (the ``Cost 
Analysis Filing'').
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    All fees related to MEI Ports shall remain unchanged and Market 
Makers that voluntarily purchase additional Limited Service MEI Ports 
will remain subject to the existing $100 monthly fee per port.
    The Exchange also proposes to make corresponding changes to 
footnotes 31 and 32 in Sections 5)d)ii) and 5)d)iv) of the Fee 
Schedule, respectively, in light of the Exchange's proposal to delete 
current footnote 30. Accordingly, with the proposed changes, footnote 
31 will be changed to footnote 30 and footnote 32 will be changed to 
footnote 31.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \19\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \20\ in that it is designed to promote just and 
equitable principles of trade, 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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    \19\ 15 U.S.C. 78f(b).
    \20\ 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 \21\ because the proposal to 
remove the cap on the number of additional Limited Service MEI Ports 
available to Market Makers will apply equally to all Market Makers, 
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 MEI Ports. The existing fee of $100 per 
month will apply equally to all Market Makers that choose to purchase 
additional Limited Service MEI Ports, which is a business decision of 
each Market Maker and not a requirement of the Exchange.
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    \21\ 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.\22\ Including the cap on the number of additional 
Limited Service MEI 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 \23\ 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 MEI Ports does not change on a material basis 
the overall profitability of Limited Service MEI Ports. Any increase in 
revenue associated with adding more Limited Service MEI Ports is 
generally offset by the cost of purchasing and operating such new 
equipment and providing the services associated with Limited Service 
MEI Ports. When the Exchange provides fewer Limited Service MEI Ports, 
its overall expense is lower, but is generally offset by lower revenues 
associated with Limited Service MEI Ports. The Exchange's recent filing 
\24\ to increase the number of additional Limited Service MEI Ports 
provides clear evidence of that fact. Accordingly, the Exchange's 
obligations under Section 6(b)(5) of the Act \25\ 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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    \22\ Id.
    \23\ Id.
    \24\ See supra note 18.
    \25\ See 15 U.S.C. 78f(b).
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    Other exchanges, like MIAX, 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.\26\ Further, the Exchange anticipates that it will 
continue to expand its System and provide Market Makers and other 
market participants with additional access, including Limited Service 
MEI 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 MEI Ports will be conducted in 
a similar manner that ensures fair access to its System.\27\ 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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    \26\ Id.
    \27\ Id.
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    The Exchange 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 existing $100 
monthly fee per port, which has been unchanged since 2016.\28\ The 
Exchange does not propose to amend the fees applicable to additional 
Limited Service MEI Ports, which were filed with the Commission and 
became effective after notice and public comment.\29\ As stated above, 
the Exchange anticipates that in the future, it may provide more 
Limited Service MEI 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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    \28\ See supra note 11.
    \29\ See supra notes 11 and 12.
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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

[[Page 26976]]

Exchange makes available more Limited Service MEI Ports, such ports 
that are voluntarily purchased by Market Makers 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 MEI Ports, and, if 
such expense did so relate, what portion (or percentage) of such 
expense actually supports additional Limited Service MEI 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 MEI Ports \30\ and this filing, the 
Exchange performed this cost review anticipating that Market Makers may 
purchase two additional Limited Service MEI Ports.\31\ The sum of all 
such portions of expenses represents the total cost of the Exchange to 
provide services associated with two additional Limited Service MEI 
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 MEI Ports available 
beyond the analysis for two additional Limited Service MEI Ports 
discussed below.\32\
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    \30\ See supra note 18.
    \31\ The cost review in this proposal is based on two additional 
Limited Service MEI Ports because two additional Limited Service MEI 
Ports were purchased since the First Proposed Rule Change was 
submitted on April 12, 2021.
    \32\ As stated above, currently the number of available Limited 
Service MEI Ports does not change on a material basis the overall 
profitability of Limited Service MEI 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 MEI 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 \33\ 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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    \33\ See Securities Exchange Act Release No. 87875 (December 31, 
2019), 85 FR 770 (January 7, 2020) (SR-MIAX-2019-51).
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    Specifically, utilizing 2020 \34\ 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 MEI Ports is approximately 
$12,537. 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''),\35\ 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 MEI Ports.
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    \34\ 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.
    \35\ 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 MEI 
Ports. 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 two additional Limited Service MEI 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 MEI Ports, only 
that portion which the Exchange identified as being specifically mapped 
to providing the services associated with two additional Limited 
Service MEI 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 MEI 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 Pearl 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 MEI Ports. The Exchange did not allocate all 
of the Zayo expense toward the cost of providing the services 
associated with two additional Limited Service MEI Ports, only the 
portion which the Exchange identified as being specifically mapped to 
providing two additional Limited Service MEI Ports, approximately 0.4% 
of the total Zayo expense. The Exchange believes this allocation is 
reasonable because it

[[Page 26977]]

represents the Exchange's actual cost to provide the services 
associated with two additional Limited Service MEI 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 MEI Ports, only the portions which the 
Exchange identified as being specifically mapped to providing the 
services associated with two additional Limited Service MEI 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 MEI 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 MEI Ports, only the portions which the 
Exchange identified as being specifically mapped to providing the 
services associated with two additional Limited Service MEI 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 MEI 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 MEI Ports is approximately $91,291. 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 MEI 
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 MEI 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 MEI 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 MEI 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 MEI 
Ports. In particular, the Exchange's employee compensation and benefits 
expense relating to providing the services associated with two 
additional Limited Service MEI Ports is approximately $65,434, which is 
only a portion of the $10,905,680 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 
MEI Ports. Without these employees, the Exchange would not be able to 
provide the services associated with two additional Limited Service MEI 
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 MEI Ports, only the portions which the 
Exchange identified as being specifically mapped to providing the 
services associated with two additional Limited Service MEI 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 MEI 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 
MEI Ports is approximately $23,937, which is only a portion of the 
$4,787,419 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 MEI Ports. 
Without this equipment, the Exchange would not be able to operate the 
network and provide the services associated with two additional Limited 
Service MEI 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 MEI Ports, only the portion which the 
Exchange identified as being specifically mapped to providing the 
services associated with the two additional Limited Service MEI Ports, 
approximately 0.5% of the total

[[Page 26978]]

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 MEI 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 MEI Ports is 
approximately $1,920, which is only a portion of the $480,036 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 MEI 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 MEI 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 MEI 
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 MEI Ports. The Exchange 
did not allocate all of the occupancy expense toward the cost of 
providing the services associated with two additional Limited Service 
MEI 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 MEI 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 MEI 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 MEI 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 MEI 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 MEI Ports \36\ and this filing, the 
Exchange is basing its projected revenue from additional Limited 
Service MEI Ports that may be purchased by Market Makers as though 
seven Market Makers purchased two additional Limited Service MEI Ports 
each. The Exchange notes that any time it needs to expand its network 
by making available two additional Limit Service MEI 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 MEI 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 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 two 
additional Limited Service MEI Ports. Further, the Exchange projects 
that the annualized revenue from the two additional Limited Service MEI 
Ports will be approximately $16,800 (assuming seven Market Makers 
purchase the two additional Limited Service MEI Ports). Therefore, the 
Exchange's upfront cost in expanding its network to provide its Members 
with two additional Limited Service MEI Ports--approximately $175,000--
is significant relative to the anticipated annualized revenue the 
Exchange expects to bring in from two additional Limited Service MEI 
Ports--approximately $16,800. Further, the Exchange anticipates it will 
incur approximately $103,828 in annualized ongoing operating expense 
(``OpEx'') in order to support the expanded network and two additional 
Limited Service MEI 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 MEI 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 MEI Ports of ($87,028)--that is, $16,800 in 
revenue minus $103,828 in expense equates to a loss of ($87,028) to 
support the additional ports annually.
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    \36\ See supra note 18.
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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 \37\ as MIAX.\38\
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    \37\ 15 U.S.C. 78f(b)(5).
    \38\ 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

[[Page 26979]]

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 MEI 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 MEI Ports are available 
to all Market Makers on an equal basis. It is a business decision of 
each Market Maker whether to pay for the additional Limited Service MEI 
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,\39\ and Rule 19b-4(f)(2) \40\ 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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    \39\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \40\ 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-MIAX-2021-19 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-MIAX-2021-19. 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-MIAX-2021-19 and should be submitted on 
or before June 8, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10379 Filed 5-17-21; 8:45 am]
BILLING CODE 8011-01-P


