[Federal Register Volume 86, Number 190 (Tuesday, October 5, 2021)]
[Notices]
[Pages 55052-55061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21619]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93188; File No. SR-EMERALD-2021-31]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fee Schedule To Adopt a Tiered-Pricing Structure for Additional 
Limited Service MIAX Emerald Express Interface Ports

September 29, 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 September 28, 2021, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

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

[[Page 55053]]

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

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

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule to adopt a tiered-
pricing structure for additional Limited Service MIAX Emerald Express 
Interface (``MEI'') Ports \3\ available to Market Makers.\4\ The 
Exchange believes a tiered-pricing structure will encourage Market 
Makers to be more efficient and economical when determining how to 
connect to the Exchange. This should also enable the Exchange to better 
monitor and provide access to the Exchange's network to ensure 
sufficient capacity and headroom in the System.\5\
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    \3\ The MIAX Emerald Express Interface (``MEI'') is a connection 
to the MIAX Emerald System that enables Market Makers to submit 
simple and complex electronic quotes to MIAX Emerald. See the 
Definitions Section of the Fee Schedule.
    \4\ The term ``Market Makers'' refers to Lead Market Makers 
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered 
Market Makers (``RMMs'') collectively. See the Definitions Section 
of the Fee Schedule and Exchange Rule 100.
    \5\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See the Definitions 
Section of the Fee Schedule and Exchange Rule 100.
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    The Exchange initially filed the proposed fee changes on August 2, 
2021, with the changes being immediately effective.\6\ The First 
Proposed Rule Change was published for comment in the Federal Register 
on August 19, 2021.\7\ The Commission received one comment letter on 
the First Proposed Rule Change.\8\ The Exchange withdrew the First 
Proposed Rule Change on September 27, 2021 and resubmitted its 
proposal.\9\ The Exchange withdrew the Second Proposed Rule Change and 
now submits this proposal, which is immediately effective.
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    \6\ See Securities Exchange Act Release No. 92662 (August 13, 
2021), 86 FR 46726 (August 19, 2021) (SR-EMERALD-2021-25) (the 
``First Proposed Rule Change'').
    \7\ Id.
    \8\ See Letter from Richard J. McDonald, Susquehanna 
International Group, LLC (``SIG''), to Vanessa Countryman, 
Secretary, Commission, dated September 7, 2021 (``SIG Comment 
Letter'').
    \9\ See SR-EMERALD-2021-30 (the ``Second Proposed Rule 
Change'').
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Additional Limited Service MEI Port Tiered-Pricing Structure
    The Exchange proposes to amend the fees for additional Limited 
Service MEI Ports. Currently, the Exchange allocates two (2) Full 
Service MEI Ports \10\ and two (2) Limited Service MEI Ports \11\ per 
matching engine \12\ to which each Market Maker connects. Market Makers 
may also request additional Limited Service MEI Ports for each matching 
engine to which they connect. The Full Service MEI Ports, Limited 
Service MEI Ports and the additional Limited Service MEI Ports all 
include access to the Exchange's primary and secondary data centers and 
its disaster recovery center. Market Makers may request additional 
Limited Service MEI Ports for which they are assessed a $100 monthly 
fee for each additional Limited Service MEI Port for each matching 
engine.
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    \10\ ``Full Service MEI Ports'' means a port which provides 
Market Makers with the ability to send Market Maker simple and 
complex quotes, eQuotes, and quote purge messages to the MIAX 
Emerald System. Full Service MEI Ports are also capable of receiving 
administrative information. Market Makers are limited to two Full 
Service MEI Ports per Matching Engine. See the Definitions Section 
of the Fee Schedule.
    \11\ ``Limited Service MEI Ports'' means a port which provides 
Market Makers with the ability to send simple and complex eQuotes 
and quote purge messages only, but not Market Maker Quotes, to the 
MIAX Emerald System. Limited Service MEI Ports are also capable of 
receiving administrative information. Market Makers initially 
receive two Limited Service MEI Ports per Matching Engine. See the 
Definitions Section of the Fee Schedule.
    \12\ ``Matching Engine'' means a part of the MIAX Emerald 
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 now proposes to move from a flat monthly fee per 
additional Limited Service MEI Port for each matching engine to a 
tiered-pricing structure for additional Limited Service MEI Ports for 
each matching engine under which the monthly fee would vary depending 
on the number of additional Limited Service MEI Ports the Market Maker 
elects to purchase. Specifically, the Exchange will continue to provide 
the first and second additional Limited Service MEI Ports for each 
matching engine free of charge, as described above, per the initial 
allocation of Limited Service MEI Ports that Market Makers receive. The 
Exchange now proposes the following tiered-pricing structure: (i) The 
third and fourth additional Limited Service MEI Ports for each matching 
engine will increase from the current flat monthly fee of $100 to $200 
per port; (ii) the fifth and sixth additional Limited Service MEI Ports 
for each matching engine will increase from the current flat monthly 
fee of $100 to $300 per port; and (iii) the seventh to the twelfth 
additional Limited Service MEI Ports will increase from the current 
monthly flat fee of $100 to $400 per port (collectively, the ``Proposed 
Access Fees'').
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \13\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \14\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among Exchange Members and 
issuers and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposal 
furthers the objectives of Section 6(b)(5) of the Act \15\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
    \15\ 15 U.S.C. 78f(b)(5).
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    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues if they 
deem fee levels at a particular venue to be excessive. In such an 
environment, the Exchange must continually adjust its fees for services 
and products, in addition to order flow, to remain competitive with 
other exchanges. The Exchange believes that the proposed changes 
reflect this competitive environment.
    The Exchange believes the proposal to move from a flat fee per 
month to a tiered-pricing structure is reasonable, equitably allocated 
and not unfairly discriminatory because the Exchange believes the 
proposed structure would encourage firms to be more economical and 
efficient in the number of additional Limited Service MEI Ports

[[Page 55054]]

they purchase. The Exchange believes this will enable the Exchange to 
better monitor and provide access to the Exchange's network to ensure 
sufficient capacity and headroom in the System.
    The Exchange notes that firms that are primarily order routers 
seeking best-execution do not utilize Limited Service MEI Ports on MIAX 
Emerald. Therefore, the fees described in the proposed tiered-pricing 
structure will only be allocated to market making firms that engage in 
advanced trading strategies and typically request multiple Limited 
Service MEI Ports, beyond the two per matching engine that are free. 
Accordingly, the firms engaged in market making business generate 
higher costs by utilizing more of the Exchange's resources. The market 
making firms that purchase higher amounts of Limited Service MEI Ports 
tend to have specific business oriented market making and trading 
strategies, as opposed to firms engaging solely in order routing as 
part of their best-execution obligations. The use of such additional 
Limited Service MEI Ports is a voluntary business decision of each 
market maker.
    The Exchange believes that exchanges, in setting fees of all types, 
should meet very high standards of transparency to demonstrate why each 
new fee or fee increase meets the requirements of the Act that fees be 
reasonable, equitably allocated, not unfairly discriminatory, and not 
create an undue burden on competition among market participants. The 
Exchange believes this high standard is especially important when an 
exchange imposes various access fees for market participants to access 
an exchange's marketplace. The Exchange deems port fees to be access 
fees. It records these fees as part of its ``Access Fees'' revenue in 
its financial statements. The Exchange believes that it is important to 
demonstrate that these fees are based on its costs and reasonable 
business needs. The Exchange believes the Proposed Access Fees will 
allow the Exchange to offset expense the Exchange has and will incur, 
and that the Exchange is providing sufficient transparency (as 
described below) into how the Exchange determined to charge such fees. 
Accordingly, the Exchange is providing an analysis of its revenues, 
costs, and profitability associated with the Proposed Access Fees. This 
analysis includes information regarding its methodology for determining 
the costs and revenues associated with the Proposed Access Fees.
    In order to determine the Exchange's costs to provide the access 
services associated with the Proposed Access Fees, the Exchange 
conducted an extensive cost review in which the Exchange analyzed 
nearly every expense item in the Exchange's general expense ledger to 
determine whether each such expense relates to the Proposed Access 
Fees, and, if such expense did so relate, what portion (or percentage) 
of such expense actually supports the access services. The sum of all 
such portions of expenses represents the total cost to the Exchange to 
provide the access services associated with the Proposed Access Fees. 
For the avoidance of doubt, no expense amount was allocated twice. The 
Exchange is also providing detailed information regarding the 
Exchange's cost allocation methodology--namely, information that 
explains the Exchange's rationale for determining that it was 
reasonable to allocate certain expenses described in this filing 
towards the cost to the Exchange to provide the access services 
associated with the Proposed Access Fees.
    In order to determine the Exchange's projected revenues associated 
with the Proposed Access Fees, the Exchange analyzed the number of 
Market Makers currently utilizing Limited Service MEI Ports, and, 
utilizing a recent monthly billing cycle representative of 2021 monthly 
revenue, extrapolated annualized revenue on a going-forward basis. The 
Exchange does not believe it is appropriate to factor into its analysis 
future revenue growth or decline into its projections for purposes of 
these calculations, given the uncertainty of such projections due to 
the continually changing access needs of market participants, discounts 
that can be achieved due to lower trading volume and vice versa, market 
participant consolidation, etc. Additionally, the Exchange similarly 
does not factor into its analysis future cost growth or decline. The 
Exchange is presenting its revenue and expense associated with the 
Proposed Access Fees in this filing in a manner that is consistent with 
how the Exchange presents its revenue and expense in its Audited 
Unconsolidated Financial Statements. The Exchange's most recent Audited 
Unconsolidated Financial Statement is for 2020. However, since the 
revenue and expense associated with the Proposed Access Fees were not 
in place in 2020 or for the first seven months of 2021, the Exchange 
believes its 2020 Audited Unconsolidated Financial Statement is not 
representative of its current total annualized revenue and costs 
associated with the Proposed Access Fees. Accordingly, the Exchange 
believes it is more appropriate to analyze the Proposed Access Fees 
utilizing its 2021 revenue and costs, as described herein, which 
utilize the same presentation methodology as set forth in the 
Exchange's previously-issued Audited Unconsolidated Financial 
Statements. Based on this analysis, the Exchange believes that the 
Proposed Access Fees are fair and reasonable because they will not 
result in excessive pricing or supra-competitive profit when comparing 
the Exchange's total annual expense associated with providing the 
services associated with the Proposed Access Fees versus the total 
projected annual revenue the Exchange will collect for providing those 
services.
* * * * *
    On March 29, 2019, the Commission issued its Order Disapproving 
Proposed Rule Changes to Amend the Fee Schedule on the BOX Market LLC 
Options Facility to Establish BOX Connectivity Fees for Participants 
and Non-Participants Who Connect to the BOX Network (the ``BOX 
Order'').\16\ On May 21, 2019, the Commission issued the Staff Guidance 
on SRO Rule Filings Relating to Fees.\17\ Accordingly, the Exchange 
believes that the Proposed Access Fees are consistent with the Act 
because they (i) are reasonable, equitably allocated, not unfairly 
discriminatory, and not an undue burden on competition; (ii) comply 
with the BOX Order and the Guidance; (iii) are supported by evidence 
(including comprehensive revenue and cost data and analysis) that they 
are fair and reasonable because they will not result in excessive 
pricing or supra-competitive profit; and (iv) utilize a cost-based 
justification framework that is substantially similar to a framework 
previously used by the Exchange, and its affiliates MIAX PEARL, LLC 
(``MIAX Pearl'') and Miami International Securities Exchange, LLC 
(``MIAX''), to establish or increase other non-transaction fees.\18\ 
Accordingly, the Exchange believes that the Commission should find that 
the Proposed Access Fees are consistent with the Act.
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    \16\ See Securities Exchange Act Release No. 85459 (March 29, 
2019), 84 FR 13363 (April 4, 2019) (SR-BOX-2018-24, SR-BOX-2018-37, 
and SR-BOX-2019-04).
    \17\ See Staff Guidance on SRO Rule Filings Relating to Fees 
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
    \18\ See Securities Exchange Act Release Nos. 90981 (January 25, 
2021), 86 FR 7582 (January 29, 2021) (SR-PEARL-2021-01) (proposal to 
increase connectivity fees); 90980 (January 25, 2021), 86 FR 7602 
(January 29, 2021) (SR-MIAX-2021-02) (proposal to increase 
connectivity fees).
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* * * * *
    As of September 27, 2021, the Exchange had a market share of only

[[Page 55055]]

4.99% of the U.S. equity options industry for the month of September 
2021.\19\ The Exchange is not aware of any evidence that a market share 
of approximately 4-5% provides the Exchange with anti-competitive 
pricing power. If the Exchange were to attempt to establish 
unreasonable pricing, then no market participant would join or access 
the Exchange, and existing market participants would discontinue all or 
some of their access services. If the Exchange were to attempt to 
establish unreasonable pricing for any of its means provided to access 
the Exchange, market participants may look to access the Exchange via 
other means such as through a third party service provider, or look to 
connect to the Exchange via a competing exchange with cheaper access 
alternatives that also provides routing services to the Exchange. In 
addition, existing market participants that are connected to the 
Exchange may choose to disconnect from the Exchange or reduce their 
number of connections to the Exchange as a means to reduce their 
overall costs.
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    \19\ See ``The market at a glance,'' available at https://www.miaxoptions.com/ (last visited September 27, 2021).
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    The proposed tiered-pricing structure and proposed fees for 
additional Limited Service MEI Ports are less than or similar to fees 
charged by competing options exchanges for similar access on those 
exchanges. The Exchange believes that it provides a better value 
through its enhanced network monitoring, customer reporting, and 
superior network infrastructure than markets with higher market shares 
and more expensive access alternatives. For example, NYSE American, LLC 
(``Amex'') (equity options market share of 7.86% as of September 23, 
2021 for the month of September) \20\ and NYSE Arca, Inc. (``Arca'') 
(equity options market share of 12.58% as of September 23, 2021 for the 
month of September) \21\ both charge $450 per port for order/quote 
entry ports 1-40 and $150 per port for ports 41 and greater,\22\ all on 
a per matching engine basis, with Amex and Arca having 17 match engines 
and 19 match engines, respectively.\23\ Similarly, The Nasdaq Stock 
Market LLC (``NASDAQ'') (equity options market share of 7.81% as of 
September 23, 2021 for the month of September) \24\ charges $1,500 per 
port for SQF ports 1-5, $1,000 per SQF port for ports 6-20, and $500 
per SQF port for ports 21 and greater,\25\ all on a per matching engine 
basis, with NASDAQ having multiple matching engines.\26\ The NASDAQ SQF 
Interface Specification provides that PHLX/NOM/BX Options trading 
infrastructures may consist of multiple matching engines with each 
matching engine trading only a range of option underlyings. Further, 
the SQF infrastructure is such that the firms connect to one or more 
servers residing directly on the matching engine infrastructure. Since 
there may be multiple matching engines, firms will need to connect to 
each engine's infrastructure in order to establish the ability to quote 
the symbols handled by that engine.\27\
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    \20\ See ``The market at a glance,'' available at https://www.miaxoptions.com/ (last visited September 23, 2021).
    \21\ See id.
    \22\ See NYSE American Options Fee Schedule, Section V.A., Port 
Fees; NYSE Arca Options Fee Schedule, Port Fees.
    \23\ See NYSE Technology FAQ and Best Practices: Options, 
Section 5.1 (How many matching engines are used by each exchange?) 
(September 2020) (providing a link to an Excel file detailing the 
number of matching engines per options exchange).
    \24\ See supra note 20.
    \25\ See Nasdaq Stock Market, Nasdaq Options 7 Pricing Schedule, 
Section 3, Nasdaq Options Market--Ports and Other Services.
    \26\ See Nasdaq Specialized Quote Interface (SQF) Specification, 
Version 6.4 (October 2017), Section 2, Architecture (the ``NASDAQ 
SQF Interface Specification'').
    \27\ See id.
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    In the each of the above cases, the Exchange's highest tier in the 
proposed tiered-pricing structure is lower than that of competing 
options exchanges. Further, as described in more detail below, those 
exchanges generate higher operating profit margins and higher ``access 
fees'' than the Exchange, even with the proposed fee change. Despite 
proposing lower or similar fees to that of competing options exchanges 
with similar market share, the Exchange believes that it provides a 
better overall value to its Members and non-Members via a highly 
deterministic System, enhanced network monitoring and customer 
reporting, and a superior network infrastructure than markets with 
higher market shares and more expensive access alternatives. Each of 
the port rates in place at competing options exchanges were filed with 
the Commission for immediate effectiveness and remain in place today.
    Separately, the Exchange is not aware of any reason why market 
participants could not simply drop their access (or not initially 
access an exchange) if an exchange were to establish prices for its 
non-transaction fees that, in the determination of such market 
participant, did not make business or economic sense for such market 
participant to access such exchange. No options market participant is 
required by rule, regulation, or competitive forces to be a Member of 
the Exchange. As evidence of the fact that market participants can and 
do drop their access to exchanges based on non-transaction fee pricing, 
R2G Services LLC (``R2G'') filed a comment letter after BOX's proposed 
rule changes to increase its connectivity fees (SR-BOX-2018-24, SR-BOX-
2018-37, and SR-BOX-2019-04). The R2G Letter stated, ``[w]hen BOX 
instituted a $10,000/month price increase for connectivity; we had no 
choice but to terminate connectivity into them as well as terminate our 
market data relationship. The cost benefit analysis just didn't make 
any sense for us at those new levels.'' Similarly, the Exchange noted 
in a recent filing that once MIAX Emerald issued a notice that it was 
instituting MEI Port fees, among other non-transaction fees, one MIAX 
Emerald Member dropped its access to MIAX Emerald as a result of those 
fees.\28\ Accordingly, these examples show that if a market participant 
believes, based on its business model, that an exchange charges too 
high of a fee for ports and/or other non-transaction fees, including 
other access fees for its relevant marketplace, market participants can 
choose to drop their access to such exchange.
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    \28\ See Securities Exchange Act Release No. 91460 (April 2, 
2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-11) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Its Fee Schedule To Adopt Port Fees, Increase Certain Network 
Connectivity Fees, and Increase the Number of Additional Limited 
Service MIAX Emerald Express Interface Ports Available to Market 
Makers) (adopting tiered MEI Port fee structure ranging from $5,000 
to $20,500 per month).
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    In order to provide more detail and to quantify the Exchange's 
costs associated with providing access to the Exchange in general, the 
Exchange notes that there are material costs associated with providing 
the infrastructure and headcount to fully-support access to the 
Exchange. The Exchange incurs technology expense related to 
establishing and maintaining Information Security services, enhanced 
network monitoring and customer reporting, as well as Regulation SCI 
mandated processes, associated with its network technology. While some 
of the expense is fixed, much of the expense is not fixed, and thus 
increases as the services associated with the Proposed Access Fees 
increase. For example, new Members to the Exchange may require the 
purchase of additional hardware to support those Members as well as 
enhanced monitoring and reporting of customer performance that the 
Exchange and its affiliates provide. Further, as the total number 
Members increases, the Exchange and its affiliates

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may need to increase their data center footprint and consume more 
power, resulting in increased costs charged by their third-party data 
center provider. Accordingly, the cost to the Exchange and its 
affiliates to provide access to its System for market participants is 
not fixed. The Exchange believes the Proposed Access Fees are a 
reasonable attempt to offset a portion of the costs to the Exchange 
associated with providing access to its network infrastructure.
    The Exchange only has four primary sources of revenue: Transaction 
fees, access fees (which includes the Proposed Access Fees), regulatory 
fees, and market data fees. Accordingly, the Exchange must cover all of 
its expenses from these four primary sources of revenue.
    The Exchange believes that the Proposed Access Fees are fair and 
reasonable because they will not result in excessive pricing or supra-
competitive profit, when comparing the total annual expense that the 
Exchange projects to incur in connection with providing these access 
services versus the total annual revenue that the Exchange projects to 
collect in connection with services associated with the Proposed Access 
Fees. For 2021, \29\ the total annual expense for providing the access 
services associated with the Proposed Access Fees is projected to be 
approximately $0.88 million. The approximately $0.88 million in 
projected total annual expense is comprised of the following, all of 
which are directly related to the access services associated with the 
Proposed Access Fees: (1) Third-party expense, relating to fees paid by 
the Exchange to third-parties for certain products and services; and 
(2) internal expense, relating to the internal costs of the Exchange to 
provide the services associated with the Proposed Access Fees.\30\ As 
noted above, the Exchange believes it is more appropriate to analyze 
the Proposed Access Fees utilizing its 2021 revenue and costs, which 
utilize the same presentation methodology as set forth in the 
Exchange's previously-issued Audited Unconsolidated Financial 
Statements.\31\ The $0.88 million in projected total annual expense is 
directly related to the access services associated with the Proposed 
Access Fees, and not any other product or service offered by the 
Exchange. It does not include general costs of operating matching 
systems and other trading technology, and no expense amount was 
allocated twice.
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    \29\ The Exchange has not yet finalized its 2021 year end 
results.
    \30\ The percentage allocations used in this proposed rule 
change may differ from past filings from the Exchange or its 
affiliates due to, among other things, changes in expenses charged 
by third-parties, adjustments to internal resource allocations, and 
different system architecture of the Exchange as compared to its 
affiliates.
    \31\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the 
information technology and communication costs line item under the 
section titled ``Operating Expenses Incurred Directly or Allocated 
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing 
its financial statements for 2018. See Securities Exchange Act 
Release No. 87877 (December 31, 2019), 85 FR 738 (January 7, 2020) 
(SR-EMERALD-2019-39). Accordingly, the third-party expense described 
in this filing is attributed to the same line item for the 
Exchange's 2021 Form 1 Amendment, which will be filed in 2022.
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    As discussed, the Exchange conducted an extensive cost review in 
which the Exchange analyzed nearly every expense item in the Exchange's 
general expense ledger (this includes over 150 separate and distinct 
expense items) to determine whether each such expense relates to the 
access services associated with the Proposed Access Fees, and, if such 
expense did so relate, what portion (or percentage) of such expense 
actually supports those services, and thus bears a relationship that 
is, ``in nature and closeness,'' directly related to those services. 
The sum of all such portions of expenses represents the total cost of 
the Exchange to provide access services associated with the Proposed 
Access Fees.
    For 2021, 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 the access services associated with the 
Proposed Access Fees, is projected to be $0.05 million. 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, New Jersey and Miami, Florida, to all data 
center locations; (3) Secure Financial Transaction Infrastructure 
(``SFTI''),\32\ which supports connectivity and feeds for the entire 
U.S. options industry; (4) various other services providers (including 
Thompson Reuters, NYSE, Nasdaq, and Internap), which provide content, 
connectivity services, and infrastructure services for critical 
components of options connectivity and network services; and (5) 
various other hardware and software providers (including Dell and 
Cisco, which support the production environment in which Members 
connect to the network to trade, receive market data, etc.). 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 access services 
associated with the Proposed Access Fees.
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    \32\ In fact, on October 22, 2019, the Exchange was notified by 
SFTI that it is again raising its fees charged to the Exchange by 
approximately 11%, without having to show that such fee change 
complies with the Act by being reasonable, equitably allocated, and 
not unfairly discriminatory. It is unfathomable to the Exchange 
that, given the critical nature of the infrastructure services 
provided by SFTI, that its fees are not required to be rule-filed 
with the Commission pursuant to Section 19(b)(1) of the Act and Rule 
19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4, 
respectively.
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    For clarity, only a portion of all fees paid to such third-parties 
is included in the third-party expense herein, and no expense amount is 
allocated twice. Accordingly, the Exchange does not allocate its entire 
information technology and communication costs to the access services 
associated with the Proposed Access Fees. Further, the Exchange notes 
that, with respect to the expenses included herein, those expenses only 
cover the MIAX Emerald market; expenses associated with MIAX Pearl for 
its options and equities markets and MIAX, are accounted for separately 
and are not included within the scope of this filing. As noted above, 
the percentage allocations used in this proposed rule change may differ 
from past filings from the Exchange or its affiliates due to, among 
other things, changes in expenses charged by third-parties, adjustments 
to internal resource allocations, and different system architecture of 
the Exchange as compared to its affiliates. Further, as part its 
ongoing assessment of costs and expenses, the Exchange recently 
conducted a periodic thorough review of its expenses and resource 
allocations which, in turn, resulted in a revised percentage 
allocations in this filing.
    The Exchange believes it is reasonable to allocate such third-party 
expense described above towards the total cost to the Exchange to 
provide the access services associated with the Proposed Access Fees. 
In particular, the Exchange believes it is reasonable to allocate the 
identified portion of the Equinix expense because Equinix operates the 
data centers (primary, secondary, and disaster recovery) that host the 
Exchange's network infrastructure. This includes, among other things, 
the necessary storage space, which continues to expand and increase in

[[Page 55057]]

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 access 
services associated with the Proposed Access Fees to its Members and 
their customers. The Exchange did not allocate all of the Equinix 
expense toward the cost of providing the access services associated 
with the Proposed Access Fees, only that portion which the Exchange 
identified as being specifically mapped to providing the access 
services associated with the Proposed Access Fees, approximately 2.05% 
of the total applicable Equinix expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the access services associated with the Proposed Access 
Fees, and not any other service, as supported by its cost review.\33\
---------------------------------------------------------------------------

    \33\ As noted above, the percentage allocations used in this 
proposed rule change may differ from past filings from the Exchange 
or its affiliates due to, among other things, changes in expenses 
charged by third-parties, adjustments to internal resource 
allocations, and different system architecture of the Exchange as 
compared to its affiliates. Again, as part its ongoing assessment of 
costs and expenses, the Exchange recently conducted a periodic 
thorough review of its expenses and resource allocations which, in 
turn, resulted in a revised percentage allocations in this filing.
---------------------------------------------------------------------------

    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, 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 access services associated with the 
Proposed Access Fees. The Exchange did not allocate all of the Zayo 
expense toward the cost of providing the access services associated 
with the Proposed Access Fees, only the portion which the Exchange 
identified as being specifically mapped to providing the Proposed 
Access Fees, approximately 1.64% of the total applicable Zayo expense. 
The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the access services 
associated with the Proposed Access Fees, and not any other service, as 
supported by its cost review.\34\
---------------------------------------------------------------------------

    \34\ Id.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified 
portions of the SFTI expense and various other service providers' 
(including Thompson Reuters, NYSE, Nasdaq, and Internap) expense 
because those entities provide connectivity and feeds for the entire 
U.S. options industry, as well as the content, connectivity services, 
and infrastructure services for critical components of the network. 
Without these services from SFTI and various other service providers, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and their customers. The Exchange did not 
allocate all of the SFTI and other service providers' expense toward 
the cost of providing the access services associated with the Proposed 
Access Fees, only the portions which the Exchange identified as being 
specifically mapped to providing the access services associated with 
the Proposed Access Fees, approximately 2.05% of the total applicable 
SFTI and other service providers' expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the access services associated with the Proposed Access 
Fees.\35\
---------------------------------------------------------------------------

    \35\ Id.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified 
portion of the other hardware and software provider expense because 
this includes costs for dedicated hardware licenses for switches and 
servers, as well as dedicated software licenses for security monitoring 
and reporting across the network. Without this hardware and software, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and their customers. The Exchange did not 
allocate all of the hardware and software provider expense toward the 
cost of providing the access services associated with the Proposed 
Access Fees, only the portions which the Exchange identified as being 
specifically mapped to providing the access services associated with 
the Proposed Access Fees, approximately 1.23% of the total applicable 
hardware and software provider expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the access services associated with the Proposed Access 
Fees.\36\
---------------------------------------------------------------------------

    \36\ Id.
---------------------------------------------------------------------------

    For 2021, total projected internal expense, relating to the 
internal costs of the Exchange to provide the access services 
associated with the Proposed Access Fees, is projected to be $0.83 
million. This includes, but is not limited to, costs associated with: 
(1) Employee compensation and benefits for full-time employees that 
support the access services associated with the Proposed Access Fees, 
including staff in network operations, trading operations, development, 
system operations, and business 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 access services associated with the Proposed Access 
Fees, including equipment, servers, cabling, purchased software and 
internally developed software used in the production environment to 
support the network for trading; and (3) occupancy costs for leased 
office space for staff that provide the access services associated with 
the Proposed Access Fees. The breakdown of these costs is more fully-
described below. For clarity, only a portion of all such internal 
expenses are included in the internal expense herein, and no expense 
amount is allocated twice. Accordingly, the Exchange does not allocate 
its entire costs contained in those items to the access services 
associated with the Proposed Access Fees.
    The Exchange believes it is reasonable to allocate such internal 
expense described above towards the total cost to the Exchange to 
provide the access services associated with the Proposed Access Fees. 
In particular, the Exchange's employee compensation and benefits 
expense relating to providing the access services associated with the 
Proposed Access Fees is projected to be approximately $0.76 million, 
which is only a portion of the $9.74 million 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), and Trade Operations. 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 
access services associated with the Proposed Access Fees. Without these 
employees,

[[Page 55058]]

the Exchange would not be able to provide the access services 
associated with the Proposed Access Fees to its Members and their 
customers. The Exchange did not allocate all of the employee 
compensation and benefits expense toward the cost of the access 
services associated with the Proposed Access Fees, only the portions 
which the Exchange identified as being specifically mapped to providing 
the access services associated with the Proposed Access Fees, 
approximately 7.81% of the total applicable employee compensation and 
benefits expense. The Exchange believes this allocation is reasonable 
because it represents the Exchange's actual cost to provide the access 
services associated with the Proposed Access Fees, and not any other 
service, as supported by its cost review.\37\
---------------------------------------------------------------------------

    \37\ Id.
---------------------------------------------------------------------------

    The Exchange's depreciation and amortization expense relating to 
providing the services associated with the Proposed Access Fees is 
projected to be $0.06 million, which is only a portion of the $3.13 
million 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 
access services associated with the Proposed Access Fees. Without this 
equipment, the Exchange would not be able to operate the network and 
provide the access services associated with the Proposed Access Fees to 
its Members and their customers. The Exchange did not allocate all of 
the depreciation and amortization expense toward the cost of providing 
the access services associated with the Proposed Access Fees, only the 
portion which the Exchange identified as being specifically mapped to 
providing the access services associated with the Proposed Access Fees, 
approximately 1.92% of the total applicable depreciation and 
amortization expense, as these access services would not be possible 
without relying on such. The Exchange believes this allocation is 
reasonable because it represents the Exchange's actual cost to provide 
the access services associated with the Proposed Access Fees, and not 
any other service, as supported by its cost review.\38\
---------------------------------------------------------------------------

    \38\ Id.
---------------------------------------------------------------------------

    The Exchange's occupancy expense relating to providing the services 
associated with the Proposed Access Fees is projected to be $0.01 
million, which is only a portion of the $0.52 million 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 access services associated with the 
Proposed Access Fees. This amount consists primarily of rent for the 
Exchange's Princeton, NJ office, as well as various related costs, such 
as physical security, property management fees, property taxes, and 
utilities. The Exchange operates its Network Operations Center 
(``NOC'') and Security Operations Center (``SOC'') from its Princeton, 
New Jersey office location. A centralized office space is required to 
house the staff that operates and supports the network. The Exchange 
currently has approximately 150 employees. Approximately two-thirds of 
the Exchange's staff are in the Technology department, and the majority 
of those staff have some role in the operation and performance of the 
access services associated with the Proposed Access Fees. Without this 
office space, the Exchange would not be able to operate and support the 
network and provide the access services associated with the Proposed 
Access Fees to its Members and their customers. Accordingly, the 
Exchange believes it is reasonable to allocate the identified portion 
of its occupancy expense because such amount represents the Exchange's 
actual cost to house the equipment and personnel who operate and 
support the Exchange's network infrastructure and the access services 
associated with the Proposed Access Fees. The Exchange did not allocate 
all of the occupancy expense toward the cost of providing the access 
services associated with the Proposed Access Fees, only the portion 
which the Exchange identified as being specifically mapped to operating 
and supporting the network, approximately 1.93% of the total applicable 
occupancy expense. The Exchange believes this allocation is reasonable 
because it represents the Exchange's cost to provide the access 
services associated with the Proposed Access Fees, and not any other 
service, as supported by its cost review.\39\
---------------------------------------------------------------------------

    \39\ Id.
---------------------------------------------------------------------------

    The Exchange notes that a material portion of its total overall 
expense is allocated to the provision of access services (including 
connectivity, ports, and trading permits). The Exchange believes this 
is reasonable and in line, as the Exchange operates a technology-based 
business that differentiates itself from its competitors based on its 
trading systems that rely on access to a high performance network, 
resulting in significant technology expense. Over two-thirds of 
Exchange staff are technology-related employees. The majority of the 
Exchange's expense is technology-based. As described above, the 
Exchange has only four primary sources of fees to recover their costs; 
thus, the Exchange believes it is reasonable to allocate a material 
portion of their total overall expense towards access fees.
    Accordingly, based on the facts and circumstances presented, the 
Exchange believes that its provision of the access services associated 
with the Proposed Access Fees will not result in excessive pricing or 
supra-competitive profit. To illustrate, on a going-forward, fully-
annualized basis, the Exchange projects that annualized revenue for 
providing the access services associated with the Proposed Access Fees 
would be approximately $2.07 million per annum, based on a recent 
billing cycle. This revenue number includes the revenue the Exchange 
projects to collect only from the fees the Exchange will charge for 
additional Limited Service MEI Ports after the first two Limited 
Service MEI Ports that Market Makers receive for free. The Exchange 
projects that its annualized expense for providing the services 
associated with the Proposed Access Fees will be approximately $0.88 
million per annum. This expense includes the costs related to all 
Limited Service MEI Ports, including the two Limited Service MEI Ports 
that Market Makers receive for free. Accordingly, on a fully-annualized 
basis, the Exchange believes its total projected revenue for providing 
the access services associated with the Proposed Access Fees will not 
result in excessive pricing or supra-competitive profit, as the 
Exchange will make a profit margin of approximately 58% ($2.07 million 
in total revenue minus $.088 [sic] million in expense = $1.19 million 
in profit per annum). Additionally, this profit margin does not take 
into account the cost of capital expenditures (``CapEx'') the Exchange 
projects to spend each year on CapEx going forward.

[[Page 55059]]

    For the avoidance of doubt, none of the expenses included herein 
relating to the access services associated with the Proposed Access 
Fees relate to the provision of any other services offered by the 
Exchange or its affiliates. Stated differently, no expense amount of 
the Exchange is allocated twice. The Exchange notes that, with respect 
to expenses associated with the Exchange's affiliates, MIAX Pearl and 
MIAX, those expenses are accounted for separately and are not included 
within the scope of this filing. Stated differently, no expense amount 
of the Exchange is also allocated to MIAX Pearl or MIAX.
    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 access 
services associated with the Proposed Access Fees because the Exchange 
performed a line-by-line item analysis of nearly every expense of the 
Exchange, and has determined the expenses that directly relate to 
providing access to the Exchange. Further, the Exchange notes that, 
without the specific third-party and internal items listed above, the 
Exchange would not be able to provide the access services associated 
with the Proposed Access Fees to its Members and their customers. Each 
of these expense items, including physical hardware, software, employee 
compensation and benefits, occupancy costs, and the depreciation and 
amortization of equipment, have been identified through a line-by-line 
item analysis to be integral to providing access services. The Proposed 
Access Fees are intended to recover the Exchange's costs of providing 
access to its System. Accordingly, the Exchange believes that the 
Proposed Access Fees are fair and reasonable because they do not result 
in excessive pricing or supra-competitive profit, when comparing the 
actual costs to the Exchange versus the projected annual revenue from 
the Proposed Access Fees.
    The Exchange believes the proposed changes are reasonable, 
equitably allocated and not unfairly discriminatory, and do not result 
in a ``supra-competitive'' \40\ profit. Of note, the Guidance defines 
``supra-competitive profit'' as profits that exceed the profits that 
can be obtained in a competitive market.\41\ With the proposed changes, 
the Exchange anticipates that its profit margin will be approximately 
58%, inclusive of the Proposed Access Fees. In order to achieve a 
consistent, premium network performance, the Exchange must build out 
and continue to maintain a network that has the capacity to handle the 
message rate requirements of not only firms that consume minimal ports 
resources of the Exchange, but also those firms that most heavily 
consume port resources of the Exchange, network consumers, and 
purchasers of numerous Limited Service MEI Ports, which handle billions 
of messages per day across the Exchange's network. These billions of 
messages per day consume the Exchange's resources and significantly 
contribute to the overall network port expense for storage and network 
transport capabilities. Given that purchasers of the greatest amount of 
Limited Service MEI Ports utilize the most resources across the 
network, the Exchange believes that it is reasonable to operate at a 
profit margin of approximately 58% for these ports, inclusive of the 
Proposed Access Fees. Such profit margin should enable the Exchange to 
continue to invest in its network and systems, maintain its current 
infrastructure, support future enhancements to ports and network 
connectivity, and continue to offer enhanced customer reporting and 
monitoring services.
---------------------------------------------------------------------------

    \40\ See supra note 17.
    \41\ See id.
---------------------------------------------------------------------------

    While the proposed fees are similar or less than that of other 
options exchanges,\42\ as discussed above, the incremental increase in 
revenue generated from the 58% profit margin for Limited Service MEI 
Ports will allow the Exchange to further invest in its System 
architecture and matching engine functionality to the benefit of all 
market participants. The ability to continue to invest in technology 
and systems will also enable the Exchange to improve the determinism 
and overall performance of not only its logical ports, but overall 
performance including the resiliency and efficiency of its matching 
engines. The revenue generated under the proposed rule change would 
also provide the Exchange with the resources necessary to further 
innovate and enhance its systems and seek additional improvements or 
functionality to offer market participants generally. The Exchange 
believes that these investments, in turn, will benefit all investors by 
encouraging other exchanges to further invest, innovate, and improve 
their own systems in response.
---------------------------------------------------------------------------

    \42\ See supra notes 22 and 25.
---------------------------------------------------------------------------

    Based on the 2020 Audited Financial Statements of competing options 
exchanges (since the 2021 Audited Financial Statements will likely not 
become publicly available until early July 2022, after the Exchange has 
submitted this filing), the Exchange's revenue that is derived from its 
access fees is in line with the revenue that is derived from access 
fees of competing exchanges. For example, the total revenue from 
``access fees'' \43\ for 2020 for MIAX Emerald was $7,244,000. MIAX 
Emerald projects that the total revenue from ``access fees'' for 2021 
for MIAX Emerald will be $20,910,179, inclusive of the Proposed Access 
Fees described herein. The Exchanges notes that the projected 2021 
``access fee'' revenue also includes projected revenue due to the 
Exchange's recent proposal to move to a tiered-pricing structure for 
its 10Gb ULL connectivity (SR-EMERALD-2021-29).
---------------------------------------------------------------------------

    \43\ As described in the Exchange's Audited Financial 
Statements, fees for ``access services'' are assessed to exchange 
members for the opportunity to trade and use other related functions 
of the exchanges. See https://www.sec.gov/Archives/edgar/vprr/2100/21000461.pdf.
---------------------------------------------------------------------------

    The Exchange's 2021 projected revenue from access fees is still 
less than, or similar to, the access fee revenues generated by access 
fees charged by other U.S. options exchanges. For example, the Cboe 
Exchange, Inc. (``Cboe'') reported $70,893,000 in ``access and capacity 
fee'' \44\ revenue for 2020. Cboe C2 Exchange, Inc. (``C2'') reported 
$19,016,000 in ``access and capacity fee'' revenue for 2020.\45\ Cboe 
BZX Exchange, Inc. (``BZX'') reported $38,387,000 in ``access and 
capacity fee'' revenue for 2020.\46\ Cboe EDGX Exchange, Inc. 
(``EDGX'') reported $26,126,000 in ``access and capacity fee'' revenue 
for 2020.\47\ PHLX reported $20,817,000 in ``Trade Management 
Services'' revenue for 2019.\48\ The Exchange notes it is unable to 
compare ``access fee'' revenues with PHLX (or other affiliated NASDAQ 
exchanges) because after 2019, the ``Trade Management Services'' line 
item was bundled into a much larger line item in

[[Page 55060]]

PHLX's Form 1, simply titled ``Market services.'' \49\
---------------------------------------------------------------------------

    \44\ According to Cboe, access and capacity fees represent fees 
assessed for the opportunity to trade, including fees for trading-
related functionality. See Form 1 Amendment, at https://www.sec.gov/Archives/edgar/vprr/2100/21000465.pdf.
    \45\ See id.
    \46\ See id.
    \47\ See id.
    \48\ According to PHLX, ``Trade Management Services'' includes 
``a wide variety of alternatives for connectivity to and accessing 
[the PHLX] markets for a fee. These participants are charged monthly 
fees for connectivity and support in accordance with [PHLX's] 
published fee schedules.'' See Form 1 Amendment, at https://www.sec.gov/Archives/edgar/vprr/2001/20012246.pdf.
    \49\ See Form 1 Amendment, at https://www.sec.gov/Archives/edgar/vprr/2100/21000475.pdf.
---------------------------------------------------------------------------

    The Exchange also believes that, based on the 2020 Audited 
Financial Statements of competing options exchanges, the Exchange's 
overall operating margin is in line with or less than the operating 
margins of competing options exchanges, including the revenue and 
expense associated with the Proposed Access Fees. For example, the 2020 
operating margin for MIAX Emerald was -12%.\50\ Based on competing 
exchanges' Form 1 Amendments, ISE's operating profit margin for 2020 
was approximately 85%; PHLX's operating profit margin for 2020 was 
approximately 49%; NASDAQ's operating profit margin for 2020 was 
approximately 62%; Arca's operating profit margin for 2020 was 
approximately 55%; Amex's operating profit margin for 2020 was 
approximately 59%; Cboe Exchange, Inc.'s (``Cboe'') operating profit 
margin for 2020 was approximately 74%; and Cboe BZX Exchange, Inc.'s 
(``BZX'') operating profit margin for 2020 was approximately 52%.
---------------------------------------------------------------------------

    \50\ This information is provided in response to the SIG Comment 
Letter. See supra note 8.
---------------------------------------------------------------------------

    The Exchange further believes its proposed fees are reasonable, 
equitably allocated and not unfairly discriminatory because the 
Exchange believes that it benefits overall competition in the 
marketplace to allow relatively new entrants like the Exchange and its 
affiliates, MIAX Pearl and MIAX, to propose fees that may help these 
new entrants recoup their substantial investment in building out costly 
infrastructure. The Exchange and its affiliates have historically set 
their fees purposefully low in order to attract business and market 
share. The Exchange notes that the concept of a tiered-pricing 
structure for ports is not new or novel.\51\
---------------------------------------------------------------------------

    \51\ See Cboe BZX Exchange, Inc. (``BZX'') Options Fee Schedule, 
Options Logical Port Fees, Ports with Bulk Quoting Capabilities 
(charging $1,500/month for the 1st and 2nd port, $2,500/month for 
the 3rd port or more); Cboe Exchange, Inc. (``Cboe'') Fee Schedule, 
Logical Connectivity Fees (charging $750/month per port for BOE/FIX 
Logical Ports 1 to 5 and $800/month per port for BOE/FIX Logical 
Ports greater than 5; charging $1,500/month per port for BOE Bulk 
Logical Ports 1 to 5, $2,500/month per port for BOE Bulk Logical 
Ports 6 to 30, and $3,000/month per port for BOE Bulk Logical Ports 
greater than 30); The Nasdaq Stock Market LLC (``Nasdaq''), Options 
7, Pricing Schedule, Section 3 Nasdaq Options Market--Ports and 
Other Services (charging $1,500/month per port for first 5 ports, 
$1,000/month per port for the next 15 ports, and $500/month per port 
for all ports over 20).
---------------------------------------------------------------------------

    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues if they 
deem fee levels at a particular venue to be excessive. In such an 
environment, the Exchange must continually adjust its fees for services 
and products, in addition to order flow, to remain competitive with 
other exchanges. The Exchange believes that the proposed changes 
reflect this competitive environment.
    The Exchange believes the proposal to move from a flat fee per 
month to a tiered-pricing structure is reasonable, equitably allocated 
and not unfairly discriminatory because the Exchange believes the 
proposed structure would encourage firms to be more economical and 
efficient in the number of Limited Service MEI Ports they purchase. The 
Exchange believes this will enable the Exchange to better monitor and 
provide 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, as 
well as to ensure sufficient capacity and headroom in the System.
    There is also no regulatory requirement that any market participant 
access any one options exchange, that each Market Maker access the 
Exchange utilizing more than the two free Limited Service MEI Ports 
that the Exchange provides, access the Exchange in a particular 
capacity, or trade any particular product offered on the Exchange. 
Moreover, membership is not a requirement to participate on the 
Exchange. A market participant may submit orders to the Exchange via a 
Sponsored User.\52\ Indeed, the Exchange is unaware of any one options 
exchange whose membership includes every registered broker-dealer. 
Based on a recent analysis conducted by Cboe, as of October 21, 2020, 
only three (3) of the broker-dealers, out of approximately 250 broker-
dealers, were members of at least one exchange that lists options for 
trading and were members of all 16 options exchanges.\53\ Additionally, 
the Cboe Fee Filing found that several broker-dealers were members of 
only a single exchange that lists options for trading and that the 
number of members at each exchange that trades options varies 
greatly.\54\
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    \52\ See Exchange Rule 210. The Sponsored User is subject to the 
fees, if any, of the Sponsoring Member. The Exchange notes that the 
Sponsoring Member is not required to publicize, let alone justify or 
file with the Commission its fees, and as such could charge the 
Sponsored User any fees it deems appropriate, even if such fees 
would otherwise be considered supra-competitive, or otherwise 
potentially unreasonable or uncompetitive.
    \53\ See Securities Exchange Act Release No. 90333 (November 4, 
2020), 85 FR 71666 (November 10, 2020) (SR-CBOE-2020-105) (the 
``Cboe Fee Filing''). The Cboe Fee Filing cited to the October 2020 
Active Broker Dealer Report, provided by the Commission's Office of 
Managing Executive, on October 8, 2020.
    \54\ Id.
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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 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    With respect to intra-market competition, the Exchange does not 
believe that the proposed rule change would place certain market 
participants at the Exchange at a relative disadvantage compared to 
other market participants or affect the ability of such market 
participants to compete. As stated above, the Exchange does not believe 
its proposed pricing will impose a barrier to entry to smaller 
participants and notes that the proposed pricing structure for is 
associated with relative usage of the various market participants. 
Firms that are primarily order routers seeking best-execution do not 
utilize Limited Service MEI Ports on MIAX Emerald and therefore will 
not pay the fees associated with the tiered-pricing structure. Rather, 
the fees described in the proposed tiered-pricing structure will only 
be allocated to market making firms that engage in advanced trading 
strategies and typically request multiple Limited Service MEI Ports, 
beyond the two that are free. Accordingly, the firms engaged in market 
making business generate higher costs by utilizing more of the 
Exchange's resources. The market making firms that purchase higher 
amounts of Limited Service MEI Ports tend to have specific business 
oriented market making and trading strategies, as opposed to firms 
engaging solely in best-execution order routing business. Additionally, 
the use of such additional Limited Service MEI Ports is entirely 
voluntary.
    The Exchange also does not believe that the proposed rule change 
will result in any burden on inter-market competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. As 
discussed above, options market participants are not forced to access 
all options exchanges. The Exchange operates in a highly competitive 
environment, and as discussed above, its ability to price access and 
ports is constrained by competition among exchanges and third parties. 
There are other options markets of which market participants may access

[[Page 55061]]

in order to trade options. There is also a possible range of 
alternative strategies, including routing to the exchange through 
another participant or market center or accessing the Exchange 
indirectly. For example, there are 15 other U.S. options exchanges, 
which the Exchange must consider in its pricing discipline in order to 
compete for market participants. In this competitive environment, 
market participants are free to choose which competing exchange to use 
to satisfy their business needs. As a result, the Exchange believes 
this proposed rule change permits fair competition among national 
securities exchanges. Accordingly, the Exchange does not believe its 
proposed fee changes impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange received one comment on the proposed rule change.\55\ 
The Exchange notes that the Exchange, and its affiliates, MIAX Pearl 
and MIAX, justified similar fee changes in the past with similar, if 
not identical, justifications in previous filings that have been 
noticed by the Commission for public comment and are currently in 
effect.\56\ Nonetheless, the Exchange has sought to address the 
commenters concerns via the enhanced justification and additional 
information included in this proposal.
---------------------------------------------------------------------------

    \55\ See the SIG Comment Letter, supra note 8.
    \56\ See Securities Exchange Act Release Nos. 90980 (January 25, 
2021), 86 FR 7602 (January 29, 2021) (SR-MIAX-2021-02); 90981 
(January 25, 2021), 86 FR 7582 (January 29, 2021) (SR-PEARL-2021-
01); 91033 (February 1, 2021), 86 FR 8455 (February 5, 2021) (SR-
EMERALD-2021-03); 91460 (April 2, 2021), 86 FR 18349 (April 8, 2021) 
(SR-EMERALD-2021-11).
---------------------------------------------------------------------------

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,\57\ and Rule 19b-4(f)(2) \58\ 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.
---------------------------------------------------------------------------

    \57\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \58\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-EMERALD-2021-31 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-EMERALD-2021-31. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-EMERALD-2021-31 and should be submitted 
on or before October 26, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\59\
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    \59\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21619 Filed 10-4-21; 8:45 am]
BILLING CODE 8011-01-P


