[Federal Register Volume 86, Number 219 (Wednesday, November 17, 2021)]
[Notices]
[Pages 64235-64248]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25020]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93556; File No. SR-PEARL-2021-53]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX 
Pearl Options Fee Schedule To Increase the Monthly Fees for MIAX 
Express Network Full Service Ports

November 10, 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 November 1, 2021, MIAX PEARL, LLC (``MIAX Pearl'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Pearl Options 
Fee Schedule (the ``Fee Schedule'') to amend the fees for the 
Exchange's MIAX Express Network Full Service (``MEO'') \3\ Ports.
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    \3\ ``MEO Interface'' or ``MEO'' means a binary order interface 
for certain order types as set forth in Rule 516 into the MIAX Pearl 
System. See the Definitions Section of the Fee Schedule and Exchange 
Rule 100.
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    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
Pearl's principal office, and at the Commission's Public Reference 
Room. HD1>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 increase the 
fees for its Full Service MEO Ports, Bulk and Single (the ``Proposed 
Access Fees''), which allow Members \4\ to submit electronic orders in 
all products to the Exchange. The Exchange currently offers different 
types of MEO Ports depending on the services required by the Member, 
including a Full Service MEO Port--Bulk,\5\ a Full Service MEO Port--
Single,\6\ and a Limited Service MEO Port.\7\ For one monthly price, a 
Member may be allocated two (2) Full-Service MEO Ports of either type 
per matching engine \8\ and may request Limited Service MEO Ports for 
which MIAX Pearl will assess Members Limited Service MEO Port fees per 
matching

[[Page 64236]]

engine based on a sliding scale for the number of Limited Service MEO 
Ports utilized each month. The two (2) Full-Service MEO Ports that may 
be allocated per matching engine to a Member may consist of: (a) Two 
(2) Full Service MEO Ports--Bulk; (b) two (2) Full Service MEO Ports--
Single; or (c) one (1) Full Service MEO Port--Bulk and one (1) Full 
Service MEO Port--Single.
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    \4\ ``Member'' means an individual or organization that is 
registered with the Exchange pursuant to Chapter II of Exchange 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See the Definitions Section of 
the Fee Schedule and Exchange Rule 100.
    \5\ ``Full Service MEO Port--Bulk'' means an MEO port that 
supports all MEO input message types and binary bulk order entry. 
See the Definitions Section of the Fee Schedule.
    \6\ ``Full Service MEO Port--Single'' means an MEO port that 
supports all MEO input message types and binary order entry on a 
single order-by-order basis, but not bulk orders. See the 
Definitions Section of the Fee Schedule.
    \7\ ``Limited Service MEO Port'' means an MEO port that supports 
all MEO input message types, but does not support bulk order entry 
and only supports limited order types, as specified by the Exchange 
via Regulatory Circular. See the Definitions Section of the Fee 
Schedule.
    \8\ A ``Matching Engine'' is a part of the MIAX Pearl electronic 
system that processes options orders and trades on a symbol-by-
symbol basis. Some Matching Engines will process option classes with 
multiple root symbols, and other Matching Engines may be dedicated 
to one single option root symbol. 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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    Unlike other options exchanges that provide similar port 
functionality and charge fees on a per port basis,\9\ the Exchange 
offers Full Service MEO Ports as a package and provides Members with 
the option to receive up to two Full Service MEO Ports (described 
above) per matching engine to which that Member connects. The Exchange 
currently has twelve (12) matching engines, which means Members may 
receive up to twenty-four (24) Full Service MEO Ports for a single 
monthly fee, that can vary based on certain volume percentages, as 
described below. For illustrative purposes and as described in more 
detail below, the Exchange currently assesses a fee of $5,000 per month 
for Members that reach the highest Full Service MEO Port--Bulk Tier, 
regardless of the number of Full Service MEO Ports allocated to the 
Member. For example, assuming a Member connects to all twelve (12) 
matching engines during a month, with two Full Service MEO Ports per 
matching engine, this results in a cost of $208.33 per Full Service MEO 
Port ($5,000 divided by 24) for the month. This fee has been unchanged 
since the Exchange adopted Full Service MEO Port fees in 2018.\10\ The 
Exchange now proposes to increase Full Service MEO Port fees as further 
described below, with the highest monthly fee of $10,000 for the Full 
Service MEO Port--Bulk. Members will continue to receive two (2) Full 
Service MEO Ports to each matching engine to which they connect for the 
single flat monthly fee. Assuming a Member connects to all twelve (12) 
matching engines during the month, with two Full Service MEO Ports per 
matching engine, this would result in a cost of $416.67 per Full 
Service MEO Port ($10,000 divided by 24).
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    \9\ See Cboe Exchange, Inc. Fee Schedule, Logical Connectivity 
Fees ($750 per port per month for the first 5 BOE/FIX Logical Ports 
and $800 per port per month for each port over 5; $1,500 per port 
per month for the first 5 BOE Bulk Logical Ports, $2,500 per port 
per month for ports 6-30, and $3,000 per port per month for each 
port over 30); Cboe BXZ Exchange, Inc. (``BZX'') Options Fee 
Schedule, Options Logical Port Fees, Logical Ports ($750 per port 
per month), Ports with Bulk Quoting Capabilities ($1,500 per port 
per month for the first and second ports, $2,500 per port per month 
for three or more); Cboe EDGX Exchange, Inc. (``EDGX'') Options Fee 
Schedule, Options Logical Port Fees, Logical Ports ($500 per port 
per month), Ports with Bulk Quoting Capabilities ($600 per port per 
month). See also Nasdaq Stock Market LLC, Options 7, Pricing 
Schedule, Section 3 ($1,500 per port per month for the first 5 SQF 
ports; $1,000 per port per month for SQF ports 15-20; and $500 per 
port per month for all SQF ports over 21).
    \10\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
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    The Exchange assesses Members Full Service MEO Port Fees, either 
for a Full Service MEO Port--Bulk and/or for a Full Service MEO Port--
Single, based upon the monthly total volume executed by a Member and 
its Affiliates \11\ on the Exchange across all origin types, not 
including Excluded Contracts,\12\ as compared to the Total Consolidated 
Volume (``TCV''),\13\ in all MIAX Pearl-listed options. The Exchange 
adopted a tier-based fee structure based upon the volume-based tiers 
detailed in the definition of ``Non-Transaction Fees Volume-Based 
Tiers'' described in the Definitions section of the Fee Schedule. The 
Exchange assesses these and other monthly Port fees on Members in each 
month the market participant is credentialed to use a Port in the 
production environment.
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    \11\ ``Affiliate'' means (i) an affiliate of a Member of at 
least 75% common ownership between the firms as reflected on each 
firm's Form BD, Schedule A, or (ii) the Appointed Market Maker of an 
Appointed EEM (or, conversely, the Appointed EEM of an Appointed 
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market 
Maker (who does not otherwise have a corporate affiliation based 
upon common ownership with an EEM) that has been appointed by an EEM 
and an ``Appointed EEM'' is an EEM (who does not otherwise have a 
corporate affiliation based upon common ownership with a MIAX Pearl 
Market Maker) that has been appointed by a MIAX Pearl Market Maker, 
pursuant to the following process. A MIAX Pearl Market Maker 
appoints an EEM and an EEM appoints a MIAX Pearl Market Maker, for 
the purposes of the Fee Schedule, by each completing and sending an 
executed Volume Aggregation Request Form by email to 
[email protected] no later than 2 business days prior to 
the first business day of the month in which the designation is to 
become effective. Transmittal of a validly completed and executed 
form to the Exchange along with the Exchange's acknowledgement of 
the effective designation to each of the Market Maker and EEM will 
be viewed as acceptance of the appointment. The Exchange will only 
recognize one designation per Member. A Member may make a 
designation not more than once every 12 months (from the date of its 
most recent designation), which designation shall remain in effect 
unless or until the Exchange receives written notice submitted 2 
business days prior to the first business day of the month from 
either Member indicating that the appointment has been terminated. 
Designations will become operative on the first business day of the 
effective month and may not be terminated prior to the end of the 
month. Execution data and reports will be provided to both parties. 
See the Definitions Section of the Fee Schedule.
    \12\ ``Excluded Contracts'' means any contracts routed to an 
away market for execution. See the Definitions Section of the Fee 
Schedule.
    \13\ ``TCV'' means total consolidated volume calculated as the 
total national volume in those classes listed on MIAX Pearl for the 
month for which the fees apply, excluding consolidated volume 
executed during the period of time in which the Exchange experiences 
an Exchange System Disruption (solely in the option classes of the 
affected Matching Engine). See the Definitions Section of the Fee 
Schedule.
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    Current Full Service MEO Port--Bulk Fees. Currently, the Exchange 
assesses Members monthly Full Service MEO Port--Bulk fees as follows:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $3,000;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $4,500; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $5,000.
    Proposed Full Service MEO Port--Bulk Fees. The Exchange now 
proposes to assess Members monthly Full Service MEO Port--Bulk fees as 
follows:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $5,000;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $7,500; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $10,000.
    Current Full Service MEO Port--Single Fees. Currently, the Exchange 
assesses Members monthly Full Service MEO Port--Single fees as follows:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $2,000;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $3,375; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $3,750.
    Proposed Full Service MEO Port--Single Fees. The Exchange now 
proposes to assess Members monthly Full Service MEO Port--Single fees 
as follows:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $2,500;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers,

[[Page 64237]]

or volume above 0.30% up to 0.60%, $3,500; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $4,500.
    The Exchange offers various types of ports with differing prices 
because each port accomplishes different tasks, are suited to different 
types of Members, and consume varying capacity amounts of the network. 
For instance, MEO ports allow for a higher throughput and can handle 
much higher quote/order rates than FIX ports. Members that are Market 
Makers \14\ or high frequency trading firms utilize these ports 
(typically coupled with 10Gb ULL connectivity) because they transact in 
significantly higher amounts of messages being sent to and from the 
Exchange, versus FIX port users, who are traditionally customers 
sending only orders to the Exchange (typically coupled with 1Gb 
connectivity). The different types of ports cater to the different 
types of Exchange Memberships and different capabilities of the various 
Exchange Members. Certain Members need ports and connections that can 
handle using far more of the network's capacity for message throughput, 
risk protections, and the amount of information that the System has to 
assess. Those Members may account for the vast majority of network 
capacity utilization and volume executed on the Exchange, as discussed 
throughout.
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    \14\ The term ``Market Maker'' means a Member registered with 
the Exchange for the purpose of making markets in options contracts 
traded on the Exchange and that is vested with the rights and 
responsibilities specified in Chapter VI of Exchange Rules. See the 
Definitions Section of the Fee Schedule and Exchange Rule 100.
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    The Exchange now proposes to increase its monthly Full Service MEO 
Port fees since it has not done so since the fees were adopted in 
2018,\15\ which are designed to recover a portion of the costs 
associated with directly accessing the Exchange. The Exchange notes 
that its affiliates, Miami International Securities Exchange, LLC 
(``MIAX'') and MIAX Emerald, LLC (``MIAX Emerald''), charge fees for 
their high throughput, low latency MEI Ports in a similar fashion as 
the Exchange charges for its MEO Ports--generally, the more active user 
the Member (i.e., the greater number/greater national ADV of classes 
assigned to quote on MIAX and MIAX Emerald), the higher the MEI Port 
fee.\16\ This concept is not new or novel. The Exchange also notes that 
the proposed increased fees for the Exchange's Full Service MEO Ports 
are in line with, or cheaper than, the similar port fees or similar 
membership fees charged by other options exchanges.\17\
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    \15\ See supra note 10.
    \16\ See MIAX Fee Schedule, Section 5 (d)(ii); MIAX Emerald Fee 
Schedule, Section 5 (d)(ii).
    \17\ See supra note 9.
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    The Exchange has historically undercharged for Full Service MEO 
Ports as compared to other options exchanges \18\ because the Exchange 
provides Full Service MEO Ports as a package for a single monthly fee. 
As described above, this package includes two Full Service MEO Ports 
for each of the Exchange's twelve (12) matching engines. The Exchange 
understands other options exchanges charge fees on a per port basis. 
For example, NYSE American, LLC (``NYSE American'') and NYSE Arca, Inc. 
(``NYSE Arca'') both charge $450 per port for order/quote entry ports 
1-40 and $150 per port for ports 41 and greater,\19\ all on a per 
matching engine basis, with NYSE American and NYSE Arca having 17 match 
engines and 19 match engines, respectively.\20\ Similarly, The Nasdaq 
Stock Market LLC (``NASDAQ'') charges $1,500 per port for Specialized 
Quote Interface (``SQF'') ports 1-5, $1,000 per SQF port for ports 6-
20, and $500 per SQF port for ports 21 and greater,\21\ all on a per 
matching engine basis, with NASDAQ having multiple matching 
engines.\22\ The NASDAQ SQF Interface Specification also provides that 
NASDAQ's affiliates, Nasdaq PHLX LLC (``Nasdaq Phlx'') and Nasdaq BX, 
Inc. (``Nasdaq BX''), have trading infrastructures that may consist of 
multiple matching engines with each matching engine trading only a 
range of option underlyings.\23\ Further, the NASDAQ SQF Interface 
Specification provides that the SQF infrastructure is such that the 
firms connect to one or more servers residing directly on the matching 
engine infrastructure.\24\ 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.\25\ The proposed monthly fee increases for Full Service MEO 
Ports would bring the Exchange's fees more in line with that of other 
options exchanges, while maintaining a competitive fee structure for 
Full Service MEO Ports.
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    \18\ See id.
    \19\ See NYSE American Options Fee Schedule, Section V.A., Port 
Fees; NYSE Arca Options Fee Schedule, Port Fees.
    \20\ 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).
    \21\ See Nasdaq Stock Market, Nasdaq Options 7 Pricing Schedule, 
Section 3, Nasdaq Options Market--Ports and Other Services.
    \22\ See Nasdaq Specialized Quote Interface (SQF) Specification, 
Version 6.5b (updated February 13, 2020), Section 2, Architecture, 
available at https://www.nasdaq.com/docs/2020/02/18/Specialized-Quote-Interface-SQI-6.5b.pdf (the ``NASDAQ SQF Interface 
Specification'').
    \23\ See id.
    \24\ See id.
    \25\ See id.
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Implementation
    The proposed fees will become effective on November 1, 2021.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \26\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \27\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees and other charges among its members and issuers and other persons 
using its facilities. The Exchange also believes the proposal furthers 
the objectives of Section 6(b)(5) of the Act in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest and is not designed to permit unfair discrimination between 
customers, issuers, brokers and dealers.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(4) and (5).
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    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 are 
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 the Full Service MEO 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

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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 of 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 
Members currently utilizing Full Service MEO 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 majority of 2021 (other than July and 
August 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. The Exchange notes that this is the same justification 
process utilized by the Exchange's affiliate, MIAX Emerald, in a filing 
recently noticed by the Commission when MIAX Emerald adopted MEI Port 
fees.\28\
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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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* * * * *
    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'').\29\ On May 21, 2019, the Commission issued the Staff Guidance 
on SRO Rule Filings Relating to Fees.\30\ 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 and MIAX 
Emerald, to establish or increase other non-transaction fees. 
Accordingly, the Exchange believes that the Commission should find that 
the Proposed Access Fees are consistent with the Act.
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    \29\ 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).
    \30\ See Staff Guidance on SRO Rule Filings Relating to Fees 
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
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* * * * *
    Over the course of 2021, the Exchange's market share has fluctuated 
between approximately 3-6% of the U.S. equity options industry.\31\ The 
Exchange is not aware of any evidence that a market share of 
approximately 3-6% provides the Exchange with anti-competitive pricing 
power. If the Exchange were to attempt to establish unreasonable 
pricing, then no market participant would join or connect, and existing 
market participants would disconnect.
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    \31\ See ``The market at a glance,'' available at https://www.miaxoptions.com/ (last visited October 27, 2021).
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    The Exchange believes the proposed fees are equitable and 
reasonable because the proposed highest tiered fee is less than or 
equal to similar fees charged for access on other options exchanges 
with comparable market shares, some of which charge on a per port 
basis, unlike the Exchange. For example, NYSE American (equity options 
market share of 7.73% as of October 27, 2021 for the month of October) 
\32\ charges $450 per port for order/quote entry ports 1-40 and $150 
per port for ports 41 and greater,\33\ all on a per matching engine 
basis, with NYSE American having 17 match engines.\34\ Similarly, 
NASDAQ (equity options market share of 8.12% as of October 27, 2021 for 
the month of October) \35\ 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,\36\ all on a per matching engine basis, with NASDAQ having 
multiple matching engines.\37\ 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

[[Page 64239]]

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.\38\
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    \32\ See id.
    \33\ See supra note 19.
    \34\ See supra note 20.
    \35\ See supra note 21.
    \36\ See supra note 21.
    \37\ See supra note 22.
    \38\ See id.
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    In the each of the above cases, the Exchange's highest tiered port 
fee, as proposed, is similar to or less than the port fees of competing 
options exchanges with like market share. Further, as described in more 
detail below, many competing exchanges generate higher overall 
operating profit margins and higher ``access fees'' than the Exchange, 
inclusive of the projected revenues associated with the proposed fees. 
The Exchange believes that it provides a premium network experience 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 fees. Each of the port fee 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 to an exchange (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's 
affiliate, MIAX Emerald, 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 Member dropped its access to the 
Exchange as a result of those fees.\39\ 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 connectivity and/
or other non-transaction fees for its relevant marketplace, market 
participants can choose to drop their access to such exchange.
---------------------------------------------------------------------------

    \39\ See supra note 28.
---------------------------------------------------------------------------

    The Exchange's high performance network solutions and supporting 
infrastructure (including employee support), provides unparalleled 
system throughput and the capacity to handle approximately 10.7 million 
order messages per second. On an average day, the Exchange handles over 
approximately 2.7 billion total messages. However, in order to achieve 
a consistent, premium network performance, the Exchange must build out 
and maintain a network that has the capacity to handle the message rate 
requirements of its most heavy network consumers. These billions of 
messages per day consume the Exchange's resources and significantly 
contribute to the overall expense for storage and network transport 
capabilities.
    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 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 Members is not fixed. The Exchange believes the Proposed 
Access Fees are reasonable in order 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,\40\ the total annual expense for providing the access 
services associated with the Proposed Access Fees for the Exchange is 
projected to be approximately $897,084. The $897,084 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.\41\ 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.\42\ The 
$897,084 in projected total annual expense is directly related to the 
access services associated with the Proposed Access Fees, and not any

[[Page 64240]]

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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    \40\ The Exchange has not yet finalized its 2021 year end 
results.
    \41\ 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.
    \42\ 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. 87876 (December 31, 2019), 85 FR 757 (January 7, 2020) 
(SR-PEARL-2019-36). 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 $40,166. 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''),\43\ which supports connectivity and feeds for the entire 
U.S. options industry; (4) various other services providers (including 
Thompson Reuters, NYSE, Nasdaq, and Internap), which provide content, 
connectivity services, and infrastructure services for critical 
components of options connectivity and network services; and (5) 
various other hardware and software providers (including Dell and 
Cisco, which support the production environment in which Members 
connect to the network to trade, receive market data, etc.).
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    \43\ In fact, on October 20, 2021, ICE Data Services announced a 
3.5% price increase effective January 1, 2022 for most services. The 
price increase by ICE Data Services includes their SFTI network, 
which is relied on by a majority of market participants, including 
the Exchange. See email from ICE Data Services to the Exchange, 
dated October 20, 2021. This fee increase by ICE data services, 
while not subject to Commission review, has material impact on cost 
to exchanges and other market participants that provide downstream 
access to other market participants. The Exchange notes that on 
October 22, 2019, the Exchange was notified by ICE Data Services 
that it was raising its fees charged to the Exchange by 
approximately 11% for the SFTI network, 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 MIAX Pearl expenses included herein, those 
expenses only cover the MIAX Pearl options market; expenses associated 
with the MIAX Pearl equities market 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 
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 1.80% 
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.\44\
---------------------------------------------------------------------------

    \44\ 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 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 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 0.90% 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.\45\
---------------------------------------------------------------------------

    \45\ 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

[[Page 64241]]

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 0.90% 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.\46\
---------------------------------------------------------------------------

    \46\ 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 0.90% 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.\47\
---------------------------------------------------------------------------

    \47\ 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 $856,918. 
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, business, as well as staff in general corporate departments 
(such as legal, regulatory, and finance) that support those employees 
and functions; (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 $783,513, which is only a 
portion of the $9,163,894 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 access services associated with the Proposed Access Fees. 
Without these employees, 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 8.55% 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.\48\
---------------------------------------------------------------------------

    \48\ Id.
---------------------------------------------------------------------------

    The Exchange's depreciation and amortization expense relating to 
providing the access services associated with the Proposed Access Fees 
is projected to be $64,456, which is only a portion of the $2,864,716 
\49\ 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 2.25% 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

[[Page 64242]]

other service, as supported by its cost review.\50\
---------------------------------------------------------------------------

    \49\ The Exchange notes that the total depreciation expense is 
different from the total for the Exchange's filing relating to 
Trading Permits because the Exchange factors in the depreciation of 
its own internally developed software when assessing costs for Full 
Service MEO Ports, resulting in a higher depreciation expense number 
in this filing.
    \50\ Id.
---------------------------------------------------------------------------

    The Exchange's occupancy expense relating to providing the access 
services associated with the Proposed Access Fees is projected to be 
$8,949, which is only a portion of the $497,180 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, 
New Jersey 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 1.80% 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.\51\
---------------------------------------------------------------------------

    \51\ 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 in to recover its costs, 
thus the Exchange believes it is reasonable to allocate a material 
portion of its 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 its annualized revenue for 
providing the access services associated with the Proposed Access Fees 
would be approximately $1,476,000 per annum, based on a recent billing 
cycle. The Exchange projects that its annualized expense for providing 
the access services associated with the Proposed Access Fees would be 
approximately $897,084 per annum. Accordingly, on a fully-annualized 
basis, the Exchange believes its total projected revenue for the 
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 only a 39% profit margin on the Proposed Access 
Fees ($1,476,000 in revenue minus $897,084 in expense = $578,916 profit 
per annum). The Exchange notes that the fees charged to each Member for 
Full Service MEO Ports can vary from month to month depending on the 
type used and the Non-Transaction Fees Volume-Based Tier that the 
Member achieves for that month. As such, the revenue projection is not 
a static number, with monthly Full Service MEO Port fees likely to 
fluctuate month to month.
    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. Stated differently, no expense amount of the Exchange is 
allocated twice. The Exchange notes that, with respect to the MIAX 
Pearl expenses included herein, those expenses only cover the MIAX 
Pearl options market; expenses associated with the MIAX Pearl equities 
market and the Exchange's affiliate exchanges, MIAX and MIAX Emerald, 
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 Equities, MIAX or MIAX Emerald.
    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 Exchange Systems. 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'' \52\ profit. Of note, the Guidance defines 
``supra-competitive profit'' as profits that exceed the profits that 
can be obtained in a competitive market.\53\ With the proposed changes, 
the Exchange anticipates that its profit margin will be

[[Page 64243]]

approximately 39%, 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 Exchange connectivity resources, but also those firms that most 
heavily consume Exchange resources, network consumers, and Members that 
use the Full Service MEO ports, which generate billions of messages per 
day across the Exchange. Such profit margin should enable the Exchange 
to continue to invest in its network and systems, maintain its current 
infrastructure, support future enhancements to network access, and 
continue to offer enhanced customer reporting and monitoring services.
---------------------------------------------------------------------------

    \52\ See supra note 30.
    \53\ See id.
---------------------------------------------------------------------------

    While the proposed fees are similar to or less than that of other 
options exchanges,\54\ as discussed above, the incremental increase in 
revenue generated from the 39% profit margin for access via Full 
Service MEO Ports will allow the Exchange to further invest in its 
system architecture and matching engine functionality to the benefit of 
all market participants. 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.
---------------------------------------------------------------------------

    \54\ See supra notes 9, 19, and 21.
---------------------------------------------------------------------------

    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'' \55\ for 2020 for MIAX Pearl was $11,422,000. MIAX 
Pearl projects that the total revenue from ``access fees'' for 2021 
will be $20,001,243, inclusive of the Proposed Access Fees described 
herein.
---------------------------------------------------------------------------

    \55\ As described in MIAX Pearl'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 Form 1 Amendment, at https://www.sec.gov/Archives/edgar/vprr/2100/21000460.pdf.
---------------------------------------------------------------------------

    The Exchange's 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'' \56\ revenue for 2020. Cboe C2 Exchange, Inc. (``C2'') reported 
$19,016,000 in ``access and capacity fee'' revenue for 2020.\57\ Cboe 
BZX Exchange, Inc. (``BZX'') reported $38,387,000 in ``access and 
capacity fee'' revenue for 2020.\58\ Cboe EDGX Exchange, Inc. 
(``EDGX'') reported $26,126,000 in ``access and capacity fee'' revenue 
for 2020.\59\ PHLX reported $20,817,000 in ``Trade Management 
Services'' revenue for 2019.\60\ The Exchange notes it is unable to 
compare ``access fee'' revenues with Nasdaq Phlx (or other affiliated 
NASDAQ exchanges) because after 2019, the ``Trade Management Services'' 
line item was bundled into a much larger line item in Nasdaq Phlx's 
Form 1, simply titled ``Market services.'' \61\
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    \56\ 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.
    \57\ See id.
    \58\ See id.
    \59\ See id.
    \60\ According to Nasdaq 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 
[Nasdaq Phlx's] published fee schedules.'' See Form 1 Amendment, at 
https://www.sec.gov/Archives/edgar/vprr/2001/20012246.pdf.
    \61\ See Form 1 Amendment, at https://www.sec.gov/Archives/edgar/vprr/2100/21000475.pdf.
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    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 Pearl was -18%. Based on competing exchanges' 
Form 1 Amendments, Nasdaq ISE, LLC's (``Nasdaq ISE'') operating profit 
margin for 2020 was approximately 85%; Nasdaq Phlx's operating profit 
margin for 2020 was approximately 49%; NASDAQ's operating profit margin 
for 2020 was approximately 62%; NYSE Arca's operating profit margin for 
2020 was approximately 55%; NYSE American's operating profit margin for 
2020 was approximately 59%; Cboe's operating profit margin for 2020 was 
approximately 74%; and BZX's operating profit margin for 2020 was 
approximately 52%. Nasdaq ISE's operating profit margin, for all of 
2019, was 83%.\62\ Nasdaq ISE's equity options market share for all of 
2019 was 8.99% \63\ while its access fees are as follows: $500 per 
month for Electronic Access Members; $5,000 per month for Primary 
Market Makers; and $2,500 per month for Competitive Market Makers.\64\ 
Nasdaq Phlx's operating profit margin, for all of 2019, was 67%.\65\ 
Nasdaq Phlx's equity options market share for all of 2019 was 15.85% 
\66\ while its permit fees are as follows: $4,000 per month for Floor 
Brokers; $6,000 per month for Floor Lead Market Makers and Floor Market 
Makers; and $4,000 per month for Remote Lead Market Makers and Remote 
Market Makers.\67\
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    \62\ See Nasdaq Phlx Form 1, Exhibit D, filed June 30, 2020 
available at https://sec.report/Document/9999999997-20-003902/.
    \63\ See https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Volume-by-Exchange.
    \64\ See Nasdaq ISE LLC Options 7 Pricing Schedule, Section 8.A. 
Access Services, at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207.
    \65\ See Nasdaq ISE Form 1, filed June 29, 2020 available at 
Form 1--ISE--Final (1).pdf (sec.gov).
    \66\ See supra note 31.
    \67\ See Nasdaq Phlx Options 7 Pricing Schedule, Section 8.A. 
Permit and Registration Fees, at https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207.
---------------------------------------------------------------------------

    In the Exchange's Initial Proposed Fee Change,\68\ the Exchange 
compared projected profit margins to the 2019 operating profit margin 
of Nasdaq ISE and Nasdaq Phlx, which were 83% and 67% respectively. The 
SIG Letter \69\ contained the opinion that using the overall operating 
profit margins of Nasdaq ISE and Nasdaq Phlx was an ``apple to 
oranges'' comparison because 2019 was a ``record setting year.'' \70\ 
The SIG letter's argument assumes that because 2019 was a record 
setting year for options volumes, that each options exchange generated 
above average profits without provided any evidence to support this 
assumption. The Exchange sought to provide additional data to support a 
39% profit margin based on the best, most recent data available. The 
Exchange did not provide this data to do an ``apple-to-apples'' 
comparison, but rather to provide

[[Page 64244]]

insight into the profit margins of other exchanges to put the projected 
profit margin, inclusive of the proposed fees, into perspective. While 
the Exchange provided a detailed analysis and disclosure of its 
projected profit margins in this proposed fee change and the Initial 
Proposed Fee Change, other exchanges are generally not required to 
disclose profit margins on a more granular, per-product/non-transaction 
fee basis within their annual Form 1 filings. The Exchange, therefore, 
used the best, most recent data available to generate percentages of 
other exchange's profit margins.
---------------------------------------------------------------------------

    \68\ See Securities Exchange Act Release No. 92365 (July 9, 
2021), 86 FR 37347 (SR-PEARL-2021-33) (``Initial Proposed Fee 
Change'').
    \69\ See letter from Richard J. McDonald, Susquehanna 
International Group, LLP (``SIG'') to Vanessa Countryman, Secretary, 
Commission, dated September 7, 2021 (``SIG Letter'').
    \70\ See id.
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    The Exchange further believes its proposed fees are reasonable, 
equitably allocated and not unfairly discriminatory because the 
Exchange, and its affiliates, are still recouping the initial 
expenditures from building out their systems while the legacy exchanges 
have already paid for and built their systems.
    The Exchange believes that the proposed fees are reasonable, 
equitably allocated and not unfairly discriminatory because, for the 
flat fee, the Exchange provides each Member two (2) Full Service MEO 
Ports for each matching engine to which that Member is connected. 
Unlike other options exchanges that provide similar port functionality 
and charge fees on a per port basis,\71\ the Exchange offers Full 
Service MEO Ports as a package and provides Members with the option to 
receive up to two Full Service MEO Ports per matching engine to which 
it connects. The Exchange currently has twelve (12) matching engines, 
which means Members may receive up to twenty-four (24) Full Service MEO 
Ports for a single monthly fee, that can vary based on certain volume 
percentages. The Exchange currently assesses Members a fee of $5,000 
per month in the highest Full Service MEO Port--Bulk Tier, regardless 
of the number of Full Service MEO Ports allocated to the Member. 
Assuming a Member connects to all twelve (12) matching engines during a 
month, with two Full Service MEO Ports per matching engine, this 
results in a cost of $208.33 per Full Service MEO Port--Bulk ($5,000 
divided by 24) for the month. This fee has been unchanged since the 
Exchange adopted Full Service MEO Port fees in 2018.\72\ The Exchange 
now proposes to increase the Full Service MEO Port fees, with the 
highest Tier fee for a Full Service MEO Port--Bulk of $10,000 per 
month. Members will continue to receive two (2) Full Service MEO Ports 
to each matching engine to which they are connected for the single flat 
monthly fee. Assuming a Member connects to all twelve (12) matching 
engines during the month, and achieves the highest Tier for that month, 
with two Full Service MEO Ports--Bulk per matching engine, this would 
result in a cost of $416.67 per Full Service MEO Port ($10,000 divided 
by 24).
---------------------------------------------------------------------------

    \71\ See supra notes 19 and 21.
    \72\ See supra note 10.
---------------------------------------------------------------------------

    Finally, 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.
    There is also no regulatory requirement that any market participant 
connect to any one options exchange, that any market participant 
connect at a particular connection speed or act in a particular 
capacity on the Exchange, or trade any particular product offered on an 
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.\73\ Indeed, the Exchange is unaware of any one 
options exchange whose membership includes every registered broker-
dealer. Based on a recent analysis conducted by the Cboe Exchange, Inc. 
(``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.\74\ 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.\75\
---------------------------------------------------------------------------

    \73\ 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.
    \74\ 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.
    \75\ Id.
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change would 
place certain market participants at the Exchange at a relative 
disadvantage compared to other market participants or affect the 
ability of such market participants to compete.
Intra-Market Competition
    The Exchange believes that the Proposed Access Fees do not place 
certain market participants at a relative disadvantage to other market 
participants because the Proposed Access Fees do not favor certain 
categories of market participants in a manner that would impose a 
burden on competition; rather, the allocation of the Proposed Access 
Fees reflects the network resources consumed by the various size of 
market participants--lowest bandwidth consuming members pay the least, 
and highest bandwidth consuming members pays the most, particularly 
since higher bandwidth consumption translates to higher costs to the 
Exchange.
Inter-Market Competition
    The Exchange believes the Proposed Access Fees do not place an 
undue burden on competition on other options exchanges that is not 
necessary or appropriate. In particular, options market participants 
are not forced to connect to (and purchase MEO Ports from) all options 
exchanges. The Exchange also notes that it has far less Members as 
compared to the much greater number of members at other options 
exchanges. Not only does MIAX Pearl have less than half the number of 
members as certain other options exchanges, but there are also a number 
of the Exchange's Members that do not connect directly to MIAX Pearl. 
There are a number of large users of the MEO Interface and broker-
dealers that are members of other options exchange but not Members of 
MIAX Pearl. The Exchange is also unaware of any assertion that its 
existing fee levels or the Proposed Access Fees would somehow unduly 
impair its competition with other options exchanges. To the contrary, 
if the fees charged are deemed too high by market participants, they 
can simply disconnect.
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 15 competing options 
venues if they deem fee levels at a particular venue to be excessive. 
Based on publicly-available information, and excluding index-based 
options, no single exchange

[[Page 64245]]

has more than approximately 16% market share. Therefore, no exchange 
possesses significant pricing power in the execution of multiply-listed 
equity and ETF options order flow. Over the course of 2021, the 
Exchange's market share has fluctuated between approximately 3-6% of 
the U.S. equity options industry.\76\ The Exchange is not aware of any 
evidence that a market share of approximately 3-6% provides the 
Exchange with anti-competitive pricing power. If the Exchange were to 
attempt to establish unreasonable pricing, then no market participant 
would join or connect, and existing market participants would 
disconnect. The Exchange believes that the ever-shifting market share 
among exchanges from month to month demonstrates that market 
participants can discontinue or reduce use of certain categories of 
products, or shift order flow, in response to fee changes. In such an 
environment, the Exchange must continually adjust its fees and fee 
waivers to remain competitive with other exchanges and to attract order 
flow to the Exchange.
---------------------------------------------------------------------------

    \76\ See supra note 31.
---------------------------------------------------------------------------

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

    The Exchange initially filed this proposed fee change on July 1, 
2021 and that proposal was published in the Federal Register on July 
15, 2021.\77\ The Commission received one comment letter on the Initial 
Proposed Fee Change.\78\ The Exchange withdrew Initial Proposed Fee 
Change on October 12, 2021.\79\ The Exchange now responds to the SIG 
Letter in this filing.
---------------------------------------------------------------------------

    \77\ See supra note 68.
    \78\ See supra note 69.
    \79\ See Securities Exchange Act Release No. 93347 (October 15, 
2021), 86 FR 58341 (October 21, 2021) (SR-PEARL-2021-33) (Notice of 
Withdrawal of a Proposed Rule Change to Amend the MIAX Pearl Options 
Fee Schedule to Increase the Monthly Fees for MIAX Express Network 
Full Service Ports).
---------------------------------------------------------------------------

    The SIG letter cites Rule 700(b)(3) of the Commission's Rules of 
Fair Practice which places ``the burden to demonstrate that a proposed 
rule change is consistent with the Act on the self-regulatory 
organization that proposed the rule change'' and states that a ``mere 
assertion that the proposed rule change is consistent with those 
requirements . . . is not sufficient.'' \80\ The SIG Letter's assertion 
that the Exchange has not met this burden is without merit, especially 
considering the overwhelming amounts of revenue and cost information 
the Exchange included in the Initial Proposed Fee Change and this 
filing.
---------------------------------------------------------------------------

    \80\ 17 CFR 201.700(b)(3).
---------------------------------------------------------------------------

    Until recently, the Exchange has operated at a net annual loss 
since it launched operations in 2017.\81\ As stated above, 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 believes it has achieved this 
standard in this filing and also in the Initial Proposed Fee Change. 
Similar justifications for the proposed fee change included in the 
Initial Proposed Fee Change, but also in this filing, were previously 
included in similar fee changes filed by the Exchange and its 
affiliates, MIAX Emerald and MIAX, and SIG did not submit a comment 
letter on those filings.\82\ Those filings were not suspended by the 
Commission and continue to remain in effect. The justification included 
in each of the prior filings was the result of numerous withdrawals and 
re-filings of the proposals to address comments received from 
Commission Staff over many months. The Exchange and its affiliates have 
worked diligently with Commission Staff on ensuring the justification 
included in past fee filings fully supported an assertion that those 
proposed fee changes were consistent with the Act.\83\ The Exchange 
leveraged its past work with Commission Staff to ensure the 
justification provided herein and in the Initial Proposed Fee Change 
included the same level of detail (or more) as the prior fee changes 
that survived Commission scrutiny. The Exchange's detailed disclosures 
in fee filings have also been applauded by one industry group which 
noted, ``[the Exchange's] filings contain significantly greater 
information about who is impacted and how than other filings that have 
been permitted to take effect without suspension.'' \84\ That same 
commenter also noted their ``worry that the Commission's process for 
reviewing and evaluating exchange filings may be inconsistently 
applied.'' \85\
---------------------------------------------------------------------------

    \81\ The Exchange has incurred a cumulative loss of $86 million 
since its inception in 2017 to 2020, the last year for which the 
Exchange's Form 1 data is available. See Exchange's Form 1/A, 
Application for Registration or Exemption from Registration as a 
National Securities Exchange, filed July 29, 2021, available at 
https://sec.report/Document/9999999997-21-004367/.
    \82\ See Securities Exchange Act Release Nos. 91858 (May 12, 
2021), 86 FR 26967 (May 18, 2021) (SR-PEARL-2021-23) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to 
Amend the MIAX Pearl Fee Schedule to Remove the Cap on the Number of 
Additional Limited Service Ports Available to Market Makers); 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); and 91857 (May 12, 2021), 86 FR 26973 
(May 18, 2021) (SR-MIAX-2021-19) (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).
    \83\ See, e.g., Securities Exchange Act Release No. 90196 
(October 15, 2020), 85 FR 67064 (October 21, 2020) (SR-EMERALD-2020-
11) (Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Amend Its Fee Schedule To Adopt One-Time Membership 
Application Fees and Monthly Trading Permit Fees). See Securities 
Exchange Act Release Nos. 90601 (December 8, 2020), 85 FR 80864 
(December 14, 2020) (SR-EMERALD-2020-18) (re-filing with more detail 
added in response to Commission Staff's feedback and after 
withdrawing SR-EMERALD-2020-11); and 91033 (February 1, 2021), 86 FR 
8455 (February 5, 2021) (SR-EMERALD-2021-03) (re-filing with more 
detail added in response to Commission Staff's feedback and after 
withdrawing SR-EMERALD-2020-18). The Exchange initially filed a 
proposal to remove the cap on the number of additional Limited 
Service MEO Ports available to Members on April 9, 2021. See SR-
PEARL-2021-17 (the ``First Proposed Rule Change''). On April 22, 
2021, the Exchange withdrew the First Proposed Rule Change and 
refiled that proposal (without increasing the actual fee amounts) to 
provide further clarification regarding the Exchange's revenues, 
costs, and profitability any time more Limited Service MEO Ports 
become available, in general, (including information regarding the 
Exchange's methodology for determining the costs and revenues for 
additional Limited Service MEO Ports). See SR-PEARL-2021-20 (the 
``Second Proposed Rule Change''). On May 3, 2021, the Exchange 
withdrew the Second Proposed Rule Change and refiled that proposal 
to further clarify its cost methodology. See SR-PEARL-2021-22 (the 
``Third Proposed Rule Change''). On May 10, 2021, the Exchange 
withdrew the Third Proposed Rule Change and refiled SR-PEARL-2021-
23. See Securities Exchange Act Release No. 91858 (May 12, 2021), 86 
FR 26967 (May 18, 2021) (SR-PEARL-2021-23).
    \84\ See letter from Tyler Gellasch, Executive Director, Healthy 
Markets Association, to Hon. Gary Gensler, Chair, Commission, dated 
October 29, 2021.
    \85\ Id. (providing examples where non-transaction fee filings 
by other exchanges have been permitted to remain effective and not 
suspended by the Commission despite less disclosure and 
justification).
---------------------------------------------------------------------------

    Therefore, a finding by the Commission that the Exchange has not 
met its burden to show that the proposed fee change is consistent with 
the Act would be different than the Commission's treatment of similar 
past filings, would create further ambiguity regarding the standards 
exchange fee changes should satisfy, and is not warranted here.

[[Page 64246]]

    In addition, the arguments in the SIG Letter do not support their 
claim that the Exchange has not met its burden to show the proposed 
rule change is consistent with the Act. Prior to, and after submitting 
the Initial Proposed Fee Change, the Exchange solicited feedback from 
its Members, including SIG. SIG relayed their concerns regarding the 
proposed change. The Exchange then sought to work with SIG to address 
their concerns and gain a better understanding of the access/
connectivity/quoting infrastructure of other exchanges. In response, 
SIG provided no substantive suggestions on how to amend the Initial 
Proposed to address their concerns and instead chose to submit a 
comment letter. One could argue that SIG is using the comment letter 
process not to raise legitimate regulatory concerns regarding the 
proposal, but to inhibit or delay proposed fee changes by the Exchange. 
The SIG Letter was submitted in response to six (6) filings submitted 
by the Exchange and its affiliates, MIAX and MIAX Emerald, and is 
primarily focused on proposed fee changes concerning 10Gb ULL 
connectivity.\86\ With regards to the Initial Proposed Fee Change, the 
SIG Letter does not directly address the proposed fees or lay out 
specific arguments as to why the proposal is not consistent with 
Section 6(b)(4) of the Act. Rather, it simply describes the proposed 
fee change and flippantly states that its claims concerning the 10Gb 
ULL fee change proposals by the Exchange, and its affiliates, apply to 
the Initial Proposed Fee Change. Nonetheless, the Exchange submits the 
below response to the SIG Letter concerning the Initial Proposed Fee 
Change.
---------------------------------------------------------------------------

    \86\ See Securities Exchange Act Release Nos. 92643 (August 11, 
2021), 86 FR 46034 (August 17, 2021) (SR-MIAX-2021-35); 92661 
(August 13, 2021), 86 FR 46737 (August 19, 2021) (SR-MIAX-2021-37); 
92644 (August 11, 2021), 86 FR 46055 (August 17, 2021) (SR-PEARL-
2021-36); 92645 (August 11, 2021), 86 FR 46048 (August 17, 2021) 
(SR-EMERALD-2021-23); and 92662 (August 13, 2021), 86 FR 46726 
(August 19, 2021) (SR-EMERALD-2021-25).
---------------------------------------------------------------------------

General
    First, the SIG Letter states that 10Gb ULL ``lines are critical to 
Exchange members to be competitive and to provide essential protection 
from adverse market events'' (emphasis added).\87\ The Exchange notes 
that this statement is generally not true for Full Service MEO Ports as 
those ports are used primarily for order entry and not risk protection 
activities like purging quotes resting on the MIAX Pearl Options Book. 
Full Service MEO Ports are essentially used for competitive reasons and 
Members may choose to utilize one or two Full Service MEO Ports \88\ 
based on their business needs and desire to attempt to access the 
market quicker by using one port that may have less latency. For 
instance, a Member may have just sent numerous messages and/or orders 
over one of their Full Service MEO Ports that are in queue to be 
processed. That same Member then seeks to enter an order to remove 
liquidity from the Exchange's Book. That Member may choose to send that 
order over another of their other Full Service MEO Ports with less 
message and/or order traffic or any of their optional additional Limit 
Service MEO Ports \89\ to ensure that their liquidity taking order 
accesses the Exchange quicker because that port's queue is shorter.
---------------------------------------------------------------------------

    \87\ See SIG Letter at page 2, supra note 69.
    \88\ The rates set forth for Full Service MEO Ports under 
Section 5(d) of the Exchange's Fee Schedule entitle a Member to two 
(2) such Ports for each Matching Engine for a single port fee.
    \89\ Members may be allocated two (2) Full-Service MEO Ports per 
Matching Engine and may request Limited Service MEO Ports for which 
the Exchange will assess no fee for the first two Limited Service 
MEO Ports requested by the Member. See Section 5(d) of the 
Exchange's Fee Schedule.
---------------------------------------------------------------------------

The Tiered Pricing Structure for Full Service MEO Ports Provides for 
the Equitable Allocation of Reasonable Dues, Fees, and Other Charges
    The SIG Letter challenges the below two bases the Exchange set 
forth in its Initial Proposed Fee Change and herein to support the 
assertion that the proposal provides for the equitable allocation of 
reasonable dues, fees, and other charges:
     ``If the Exchanges were to attempt to establish 
unreasonable pricing, then no market participant would join or connect 
to the Exchanges, and existing market participants would disconnect.
     The fees will not result in excessive pricing or supra-
competitive profit.'' \90\
---------------------------------------------------------------------------

    \90\ See SIG Letter at page 3, supra note 69.
---------------------------------------------------------------------------

    The Exchange responds to each of SIG's challenges in turn below.
If the Exchanges Were To Attempt To Establish Unreasonable Pricing, 
Then No Market Participant Would Join or Connect to the Exchange, and 
Existing Market Participants Would Disconnect
    The SIG Letter asserts that the prospect that a market participant 
may withdraw from the Exchange ``if the participant determines that any 
of their fees are too high is in no way a basis for claiming that a fee 
increase is reasonable.'' \91\ The SIG Letter further asserts that the 
Exchange's ``claim that a market participant would leave the Exchanges, 
or any of them, if a given fee was felt to be too high is an 
unsupported claim.'' \92\ The Exchange, in fact, did support its claim 
by providing two examples where members chose to depart the Exchange, 
or a competing exchange, directly due to the specific fee increases. 
SIG attempts to dismiss the examples provided by the Exchange by 
implying that the members may have chosen to depart the Exchange, or 
the competing exchange, for other reasons. In the first example, R2G 
explicitly stated in their comment letter ``[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.'' There is no other way to interpret R2G's 
statement other than that R2G terminated their access to that 
particular exchange because of that particular non-transaction fee 
increase. In the second example, MIAX Emerald, not SIG, is uniquely 
positioned to know why this Member chose to depart MIAX Emerald as it 
discussed the issues with the Member at the time of their departure and 
that Member stated it was related to the imposition of non-transaction 
fees. The SIG Letter correctly asserts that ``[t]here are many reasons 
a market participant may join, remain at, or leave an exchange. . . .'' 
\93\ However, the members discussed in the examples above terminated 
their exchange access because of fees alone.
---------------------------------------------------------------------------

    \91\ Id.
    \92\ Id.
    \93\ Id.
---------------------------------------------------------------------------

    Further, the argument that a Member's ability to terminate access 
to an exchange based on fees has been used not only in this proposal, 
but also in other fee filings submitted by the Exchange and its 
affiliates to justify certain non-transaction fees.\94\ The Exchange 
discussed this basis with Commission Staff as it shows that market 
participants may choose not to pay a fee where they view that fee as 
excessive. The ability to terminate access to an exchange shows that if 
a market participant believes, based on its business model, that an 
exchange charges too high of a fee for connectivity and/or other non-
transaction fees for its relevant marketplace, market participants can 
choose to drop their access to such exchange. A Member's ability to 
terminate access to the Exchange where it deems a fee increase too 
excessive is not the only basis, but one of many, used to support the

[[Page 64247]]

Exchange's justification that the proposal is consistent with the Act.
---------------------------------------------------------------------------

    \94\ See supra note 82.
---------------------------------------------------------------------------

The Proposed Fees Will Not Result in Excessive Pricing or Supra-
Competitive Profit
    In the Initial Proposed Fee Change, the Exchange provided data that 
the proposed fee change would not result in excessive pricing or a 
supra-competitive profit. The Exchange outlined its projected revenues 
and expense related to the proposed fee change and estimated it would 
generate a 39% profit margin. The Exchange then compared its projected 
profit margin to the 2019 operating profit margin of Nasdaq ISE and 
Nasdaq Phlx, which were 83% and 67%, respectively. SIG opined that a 
using the overall operating profit margins of Nasdaq ISE and Nasdaq 
Phlx is an ``apple-to-oranges'' comparison because 2019 was ``record 
setting year.'' \95\ SIG assumes that because 2019 was a record setting 
year for options volumes, that each options exchange generated above 
average profits without providing any evidence to support this 
assumption. Data for 2019 was the most recent data available at the 
time the Exchange filed the Initial Proposed Fee Change on July 1, 
2021. Since that time, data for 2020 became available and the Exchange 
discusses that data for numerous other options exchanges under Section 
3.b. above in this proposed fee change.\96\ The Exchange also included 
in this proposal additional data from its own 2021 Audited Financial 
Statements and projections of future revenues and costs from the 
proposed fee change.
---------------------------------------------------------------------------

    \95\ See SIG Letter at page 6, supra note 69.
    \96\ See supra notes 60, 61, 62, and 65 and accompanying text.
---------------------------------------------------------------------------

    The Exchange sought to provide additional data to support a 39% 
profit margin based on the best, most recent data available. It did not 
provide this data to do an ``apple-to-apples'' comparison, but rather 
to provide insight into the profit margins of other exchanges to put 
the projected profit margin here into perspective. While the Exchange 
provided a detailed analysis and disclosure of its projected profit 
margins in this proposed fee change and the Initial Proposed Fee 
Change, other exchanges are generally not required to disclose profit 
margins on a more granular, per-product/non-transaction fee basis 
within their annual Form 1 filings. The Exchange, therefore, used the 
best, most recent data available to generate percentages of other 
exchanges' profit margins. SIG has access to the same public data as 
the Exchange used in making the above projections regarding Nasdaq ISE 
and Nasdaq Phlx and is free to generate its own assumptions on that 
data if it believes the Exchange's calculations are wrong or misguided.
    As stated above, the Exchange and its affiliates have worked 
diligently with Commission Staff on ensuring the justification included 
in past fee filings fully supported an assertion that those proposed 
fee changes were consistent with the Act.\97\ This work with Commission 
Staff included thorough reviews of the Exchange's projected revenues 
and assignment of internal and third party expenses. The SIG Letter 
simply seeks to ignore the vast amount of disclosure the Exchange 
provided and kick up some sand in the hopes that raising questions 
about the analysis with no support on whether the answers to those 
questions would cause the proposed fee change to be excessive or result 
in supra-competitive pricing.
---------------------------------------------------------------------------

    \97\ See supra note 83.
---------------------------------------------------------------------------

    Furthermore, the Exchange is beginning to see significant 
inflationary pressure on capital items that it needs to purchase to 
maintain the Exchange's technology and systems.\98\ The Exchange has 
seen price increases upwards of 30% on network equipment due to supply 
chain shortages. This, in turn, results in higher overall costs for 
ongoing system maintenance, but also to purchase the items necessary to 
ensure ongoing system resiliency, performance, and determinism. These 
costs are expected to continue to go up as the U.S. economy continues 
to struggle with supply chain and inflation related issues.
---------------------------------------------------------------------------

    \98\ See ``Supply chain chaos is already hitting global growth. 
And it's about to get worse'', by Holly Ellyatt, CNBC, available at 
https://www.cnbc.com/2021/10/18/supply-chain-chaos-is-hitting-global-growth-and-could-get-worse.html (October 18, 2021); and 
``There will be things that people can't get, at Christmas, White 
House warns'' by Jarrett Renshaw and Trevor Hunnicutt, Reuters, 
available at https://www.reuters.com/world/us/americans-may-not-get-some-christmas-treats-white-house-officials-warn-2021-10-12/ 
(October 12, 2021).
---------------------------------------------------------------------------

The Proposed Tiered Pricing Structure Is Not Part of a Discriminatory 
Fee Structure and Tiered Fee Structures Are Commonplace Amongst 
Exchanges
    The SIG Letter challenges the below three bases the Exchange set 
forth in its Initial Proposed Fee Change and herein to support that the 
proposed tiered pricing structure provides for the equitable allocation 
of reasonable dues, fees, and other charges:
     ``The Exchanges contend that the proposed structure would 
encourage firms to be more economical and efficient in the number of 
connections they purchase. The Exchanges assert that this will enable 
them to better monitor and provide access to their networks to ensure 
sufficient capacity and headroom in the System.
     The Exchanges claim that the majority of members and non-
members that purchase 10Gb ULL connections will either save money or 
pay the same amount after the tiered-pricing structure is implemented.
     The Exchanges contend that it benefits overall competition 
in the marketplace to allow relatively new entrants like the Exchanges 
to propose fees that may help these new entrants recoup their 
infrastructure investments.'' \99\
---------------------------------------------------------------------------

    \99\ See SIG Letter at page 4, supra note 69.
---------------------------------------------------------------------------

    The SIG Letter's challenges to the first two assertions above are 
not applicable here as a tiered pricing structure for Full Service MEO 
Ports is not a new proposal, but was previously in place prior to this 
proposal and the Initial Proposed Fee Change. The Exchange is therefore 
only responding to the SIG Letter's challenge to the Exchange's third 
assertion.
SIG Incorrectly Claims That the Exchange Contends That It Benefits 
Overall Competition in the Marketplace To Allow Relatively New Entrants 
Like the Exchange To Propose Fees That May Help These New Entrants 
Recoup Their Infrastructure Investments
    Nowhere in this proposal or in the Initial Proposed Fee change did 
the Exchange assert that it benefits competition to allow a new 
exchange entrant to recoup their infrastructure costs. Rather, the 
Exchange asserts above that its ``proposed fees are reasonable, 
equitably allocated and not unfairly discriminatory because the 
Exchange, and its affiliates, are still recouping the initial 
expenditures from building out their systems while the legacy exchanges 
have already paid for and built their systems.'' As stated above, the 
Exchange and its affiliates have worked diligently with Commission 
Staff on ensuring the justification included in past fee filings fully 
supported an assertion that those proposed fee changes were consistent 
with the Act.\100\ The Exchange leveraged its past work with Commission 
Staff to ensure the justification provided herein and in the Initial 
Proposed Fee Change included the same level of detail as those past 
proposed fee changes that previously survived Commission scrutiny. 
Asserting that the proposed fees are reasonable, equitably allocated 
and not unfairly discriminatory because

[[Page 64248]]

the Exchange, and its affiliates, are still recouping the initial 
expenditures from building out their systems is one of many 
justifications for the proposed fees and not a cornerstone of the 
Exchange's proposal.
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    \100\ See supra note 83.
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    As stated above, until recently, the Exchange has operated at a net 
annual loss since it launched operations in 2017.\101\ This is a result 
of providing a low cost alternative to attract order flow and encourage 
market participants to experience the determinism and resiliency of the 
Exchange's trading systems. To do so, the Exchange chose to offer some 
non-transaction related services for little to no cost. This resulted 
in the Exchange forgoing revenue it could have generated from assessing 
higher fees and then use that revenue to more quickly recover its 
initial capital expenditures. Further, a vast majority of the 
Exchange's Members, if not all, benefited from these lower fees. The 
Exchange could have sought to charge higher fees at the outset, but 
that could have served to discourage participation on the Exchange. 
Instead, the Exchange chose to provide a low cost exchange alternative 
to the options industry which resulted in lower initial revenues and 
extending the duration during which it would recoup its initial capital 
expenditures. The SIG Letter chose to ignore this reality and instead 
criticize the Exchange for initially charging lower fees or providing a 
moratorium on certain non-transaction fees to the benefit of all market 
participants. The Exchange is now trying to amend its fee structure to 
enable it to continue to maintain and improve its overall market and 
systems while also providing a highly reliable and deterministic 
trading system to the marketplace.
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    \101\ See supra note 81.
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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,\102\ and Rule 19b-4(f)(2) \103\ 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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    \102\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \103\ 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 sec.gov">[email protected]sec.gov. Please include 
File Number SR-PEARL-2021-53 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-PEARL-2021-53. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-PEARL-2021-53 and should be submitted on 
or before December 8, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\104\
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    \104\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25020 Filed 11-16-21; 8:45 am]
BILLING CODE 8011-01-P


