[Federal Register Volume 87, Number 35 (Tuesday, February 22, 2022)]
[Notices]
[Pages 9766-9780]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03657]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94263; File No. SR-EMERALD-2022-06]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing of a Proposed Rule Change To Establish Fees for the Exchange's 
cToM Market Data Product; Suspension of and Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove the Proposed 
Rule Change

February 15, 2022.
    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 February 7, 2022, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Item II below, 
which Item has been prepared by the Exchange. The Exchange filed the 
proposed rule change pursuant to Section 19(b)(3)(A)(ii) of the Act,\3\ 
and Rule 19b-4(f)(2) thereunder.\4\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons and is, pursuant to Section 19(b)(3)(C) of the Act, hereby: (i) 
Temporarily suspending the proposed rule change; and (ii) instituting 
proceedings to determine whether to approve or disapprove the proposed 
rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the Exchange's Fee 
Schedule (``Fee Schedule'') to establish fees for the market data 
product known as MIAX Emerald Complex Top of Market (``cToM''). The 
fees became operative on February 7, 2022. The text of the proposed 
rule change is available on the Exchange's website at http://www.miaxoptions.com/rule-filings/emerald, at MIAX's principal office, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Description of 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

[[Page 9767]]

proposed rule change. The text of these statements may be examined at 
the places specified in Item IV [sic] below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant aspects of such statements.

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

1. Purpose
    The Exchange proposes to amend Section 6)a) of the Fee Schedule to 
establish fees for the cToM data product. The Exchange initially filed 
this proposal on June 30, 2021 with the proposed fees to be effective 
beginning July 1, 2021 (``First Proposed Rule Change'').\5\ The First 
Proposed Rule Change was published for comment in the Federal Register 
on July 15, 2021.\6\ Although the Commission did not receive any 
comment letters on the First Proposed Rule Change, on August 27, 2021, 
the Commission issued its Suspension of and Order Instituting 
Proceedings to Determine Whether to Approve or Disapprove Proposed Rule 
Changes to Establish Fees for the Exchanges' cToM Market Data Products 
(relating to the First Proposed Rule Change and a similar filing by the 
Exchange's affiliate, Miami International Securities Exchange, LLC 
(``MIAX''), to also adopt cToM fees).\7\ The Exchange withdrew the 
First Proposed Rule Change on September 30, 2021 \8\ and re-submitted 
the proposal, with the proposed fee changes being immediately effective 
(``Second Proposed Rule Change'').\9\ The Second Proposed Rule Change 
provided additional justification for the proposed fee changes and 
addressed comments provided by the Commission Staff. On October 14, 
2021, the Exchange withdrew the Second Proposed Rule Change and 
submitted its proposal to adopt cToM fees to again provide additional 
justification for the proposed fee changes and address comments 
provided by the Commission Staff (``Third Proposed Rule Change'').\10\ 
The Third Proposed Rule Change was published for comment in the Federal 
Register on November 1, 2021.\11\ Although the Commission did not again 
receive any comment letters on the Third Proposed Rule Change, the 
Exchange withdrew the Third Proposed Rule Change on December 10, 2021 
submitted a revised proposal for immediate effectiveness (``Fourth 
Proposed Rule Change'').\12\ The Fourth Proposed Rule Change was 
published for comment in the Federal Register on December 23, 2021.\13\ 
The Fourth Proposed Rule Change meaningfully attempted to provide 
additional justification and explanation for the proposed fee change in 
response to a telephone conversation with Commission Staff on December 
7, 2021 relating to the Third Proposed Rule Change. Although the 
Commission again did not receive any comment letters on the Fourth 
Proposed Rule Change, the Exchange withdrew the Fourth Proposed Rule 
Change on February 7, 2022 and now submits this revised proposal for 
immediate effectiveness (``Fifth Proposed Rule Change''). This Fifth 
Proposed Rule Change provides additional justification and explanation 
for the proposed fee changes.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 92358 (July 9, 
2021), 86 FR 37361 (July 15, 2021) (SR-EMERALD-2021-21).
    \6\ Id.
    \7\ See Securities Exchange Act Release No. 92789 (August 27, 
2021), 86 FR 49364 (September 2, 2021) (SR-MIAX-2021-28, SR-EMERALD-
2021-21) (the ``Suspension Order'').
    \8\ See Securities Exchange Act Release No. 93471 (October 29, 
2021), 86 FR 60947 (November 4, 2021).
    \9\ See SR-EMERALD-2021-32.
    \10\ Securities Exchange Act Release No. 93427 (October 26, 
2021), 86 FR 60310 (November 1, 2021) (SR-EMERALD-2021-34).
    \11\ Id.
    \12\ Securities Exchange Act Release No. 93811 (December 17, 
2021), 86 FR 73051 (December 23, 2021) (SR-EMERALD-2021-44).
    \13\ Id.
---------------------------------------------------------------------------

Background
    The Exchange previously adopted rules governing the trading of 
Complex Orders \14\ on the MIAX Emerald System \15\ in 2018,\16\ ahead 
of the Exchange's planned launch, which took place on March 1, 2019. 
Shortly thereafter, the Exchange adopted the market data product cToM 
and expressly waived fees for cToM to provide an incentive to 
prospective market participants to subscribe to that market data 
feed.\17\ Prior to the First Proposed Rule Change, the Exchange did not 
charge fees to cToM subscribers during the nearly three years since it 
was first available for subscription.
---------------------------------------------------------------------------

    \14\ See Exchange Rule 518(a)(5) for the definition of Complex 
Orders.
    \15\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \16\ See Securities Exchange Act Release Nos. 84891 (December 
20, 2018), 83 FR 67421 (December 28, 2018) (In the Matter of the 
Application of MIAX EMERALD, LLC for Registration as a National 
Securities Exchange; Findings, Opinion, and Order of the 
Commission); and 85345 (March 18, 2019), 84 FR 10848 (March 22, 
2019) (SR-EMERALD-2019-13) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change To Amend Exchange Rule 518, 
Complex Orders).
    \17\ See Securities Exchange Act Release No. 85207 (February 27, 
2019), 84 FR 7963 (March 5, 2019) (SR-EMERALD-2019-09) (providing a 
complete description of the cToM data feed).
---------------------------------------------------------------------------

    In summary, cToM provides subscribers with the same information as 
the MIAX Emerald Top of Market (``ToM'') data product as it relates to 
the Strategy Book,\18\ i.e., the Exchange's best bid and offer for a 
complex strategy, with aggregate size, based on displayable order and 
quoting interest in the complex strategy on the Exchange. However, cToM 
provides subscribers with the following additional information that is 
not included in ToM: (i) The identification of the complex strategies 
currently trading on the Exchange; (ii) complex strategy last sale 
information; and (iii) the status of securities underlying the complex 
strategy (e.g., halted, open, or resumed). cToM is therefore a distinct 
market data product from ToM in that it includes additional information 
that is not available to subscribers that receive only the ToM data 
feed. ToM subscribers are not required to subscribe to cToM, and cToM 
subscribers are not required to subscribe to ToM.\19\
---------------------------------------------------------------------------

    \18\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \19\ See supra note 15.
---------------------------------------------------------------------------

Proposal
    The Exchange now proposes to amend Section 6)a) of the Fee Schedule 
to charge monthly fees to Distributors \20\ of cToM. Specifically, the 
Exchange proposes to assess Internal Distributors $1,250 per month and 
External Distributors $1,750 per month for the cToM data feed.\21\ The 
Exchange notes that the proposed monthly cToM fees for Internal and 
External Distributors are the same prices that the Exchange charges for 
its ToM data product and are identical to the prices the Exchange's 
affiliate, MIAX, proposes to charge for its cToM product.
---------------------------------------------------------------------------

    \20\ A ``Distributor'' of MIAX Emerald data is any entity that 
receives a feed or file of data either directly from MIAX Emerald or 
indirectly through another entity and then distributes it either 
internally (within that entity) or externally (outside that entity). 
All Distributors are required to execute a MIAX Emerald Distributor 
Agreement. See Section 6)a) of the Fee Schedule.
    \21\ The Exchange also proposes to make a minor related change 
to remove ``(as applicable)'' from the explanatory paragraph in 
Section 6)a) as it will not change fees for both the ToM and cToM 
data feeds.
---------------------------------------------------------------------------

    As it does today for ToM, the Exchange proposes to assess cToM fees 
on Internal and External Distributors in each month the Distributor is 
credentialed to use cToM in the production environment. Also, as the 
Exchange does today for ToM, market data fees for cToM will be reduced 
for new Distributors for the first month during which they subscribe to 
cToM,

[[Page 9768]]

based on the number of trading days that have been held during the 
month prior to the date on which that subscriber has been credentialed 
to use cToM in the production environment. Such new Distributors will 
be assessed a pro-rata percentage of the fees in the table in Section 
6)a) of the Fee Schedule, which is the percentage of the number of 
trading days remaining in the affected calendar month as of the date on 
which they have been credentialed to use cToM in the production 
environment, divided by the total number of trading days in the 
affected calendar month.
    The Exchange believes that other exchanges' fees for complex market 
data are useful examples and provides the below table for comparison 
purposes only to show how the Exchange's proposed fees compare to fees 
currently charged by other options exchanges for similar complex market 
data. As shown by the below table, the Exchange's proposed fees for 
cToM are similar to or less than fees charged for similar data products 
provided by other options exchanges.
---------------------------------------------------------------------------

    \22\ See NYSE American Options Proprietary Market Data Fees, 
American Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Market_Data_Fee_Schedule.pdf.
    \23\ See NYSE Arca Options Proprietary Market Data Fees, Arca 
Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf.
    \24\ See PHLX Price List--U.S. Derivatives Data, PHLX Orders 
Fees, at http://www.nasdaqtrader.com/Trader.aspx?id=DPPriceListOptions#PHLX.

------------------------------------------------------------------------
                Exchange                           Monthly fee
------------------------------------------------------------------------
MIAX Emerald (as proposed).............  $1,250--Internal Distributor.
                                          $1,750--External Distributor
NYSE American, LLC (``Amex'') \22\.....  $1,500 Access Fee. $1,000
                                          Redistribution Fee.
NYSE Arca, Inc. (``Arca'') \23\........  $1,500 Access Fee. $1,000
                                          Redistribution Fee.
NASDAQ PHLX LLC (``PHLX'') \24\........  $3,000--Internal Distributor.
                                          $3,500--External Distributor.
------------------------------------------------------------------------

    The Exchange also proposes to amend the paragraph below the table 
of fees for ToM and cToM in Section 6)a) of the Fee Schedule to make a 
minor, non-substantive corrective edit. In particular, the Exchange 
proposes to delete the phrase ``(as applicable)'' in the first sentence 
following the table of fees for ToM and cToM. The purpose of this 
proposed change is to remove unnecessary text from the Fee Schedule.
cToM Content Is Available From Alternative Sources
    cToM is also not the exclusive source for Complex Order information 
from the Exchange and market participants may choose to subscribe to 
the Exchange's other data products to receive such information. It is a 
business decision of market participants whether to subscribe to the 
cToM data product or not. Market participants that choose not to 
subscribe to cToM can derive much, if not all, of the same information 
provided in the cToM feed from other Exchange sources, including, for 
example, the MIAX Emerald Order Feed (``MOR'').\25\ The following cToM 
information is provided to subscribers of MOR: The Exchange's best bid 
and offer for a complex strategy, with aggregate size, based on 
displayable order and quoting interest in the complex strategy on the 
Exchange; the identification of the complex strategies currently 
trading on the Exchange; and the status of securities underlying the 
complex strategy (e.g., halted, open, or resumed). In addition to the 
cToM information contained in MOR, complex strategy last sale 
information can be derived from the Exchange's ToM data feed. 
Specifically, market participants may deduce that last sale information 
for multiple trades in related options series that are disseminated via 
the ToM data feed with the same timestamp are likely part of a Complex 
Order transaction and last sale.
---------------------------------------------------------------------------

    \25\ See MIAX website, Market Data & Offerings, at https://www.miaxoptions.com/market-data-offerings (last visited December 10, 
2021). In general, MOR provides real-time ulta-low latency updates 
on the following information: New Simple Orders added to the MIAX 
Emerald Order Book; updates to Simple Orders resting on the MIAX 
Emerald Order Book; new Complex Orders added to the Strategy Book 
(i.e., the book of Complex Orders); updates to Complex Orders 
resting on the Strategy Book; MIAX Emerald listed series updates; 
MIAX Emerald Complex Strategy definitions; the state of the MIAX 
Emerald System; and MIAX Emerald's underlying trading state.
---------------------------------------------------------------------------

Implementation
    The proposed rule change is immediately effective.
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, remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general protect investors and the public 
interest and is not designed to permit unfair discrimination between 
customers, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    On March 29, 2019, the Commission issued an Order disapproving a 
proposed fee change by the BOX Market LLC Options Facility to establish 
connectivity fees for its BOX Network (the ``BOX Order'').\28\ On May 
21, 2019, the Commission Staff issued guidance ``to assist the national 
securities exchanges and FINRA . . . in preparing Fee Filings that meet 
their burden to demonstrate that proposed fees are consistent with the 
requirements of the Securities Exchange Act.'' \29\ Based on both the 
BOX Order and the Guidance, the Exchange believes that it has clearly 
met its burden to demonstrate that the proposed 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 PEARL,

[[Page 9769]]

LLC (``MIAX Pearl''), to adopt or amend market data and non-transaction 
fees.\30\
---------------------------------------------------------------------------

    \28\ 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) (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).
    \29\ 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'').
    \30\ See Securities Exchange Act Release Nos. 91145 (February 
17, 2021), 86 FR 11033 (February 23, 2021) (SR-EMERALD-2021-05) 
(proposal to establish market data fees for MIAX Emerald ToM, 
Administrative Information Subscriber feed, and MIAX Emerald Order 
Feed); 90981 (January 25, 2021), 86 FR 7582 (January 29, 2021) (SR-
PEARL-2021-01) (proposal to increase connectivity fees); 91460 
(April 2, 2021), 86 FR 18349 (SR-EMERALD-2021-11) (proposal to adopt 
port fees, increase connectivity fees, and increase additional 
limited service ports); 91033 (February 1, 2021), 86 FR 8455 
(February 5, 2021) (SR-EMERALD-2021-03) (proposal to adopt trading 
permit fees).
---------------------------------------------------------------------------

The Proposed Fees Will Not Result in a Supra-Competitive Profit
    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 amendment 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 sets certain non-transaction fees, including market data fees. 
The Exchange believes that it is important to demonstrate that these 
fees are based on its costs to provide these products and reasonable 
business needs.
    In the Guidance, the Commission Staff stated that, ``[a]s an 
initial step in assessing the reasonableness of a fee, staff considers 
whether the fee is constrained by significant competitive forces.'' 
\31\ The Guidance further states that, ``. . . even where an SRO cannot 
demonstrate, or does not assert, that significant competitive forces 
constrain the fee at issue, a cost-based discussion may be an 
alternative basis upon which to show consistency with the Exchange 
Act.'' \32\ In the Guidance, the Commission Staff further states that, 
``[i]f an SRO seeks to support its claims that a proposed fee is fair 
and reasonable because it will permit recovery of the SRO's costs, or 
will not result in excessive pricing or supra-competitive profit, 
specific information, including quantitative information, should be 
provided to support that argument.'' \33\ The Exchange does not assert 
that the proposed fees are constrained by competitive forces. Rather, 
the Exchange asserts that the proposed fees are reasonable because they 
will permit recovery of the Exchange's costs in providing services to 
supply cToM data and will not result in the Exchange generating a 
supra-competitive profit.
---------------------------------------------------------------------------

    \31\ See Guidance, supra note 27.
    \32\ Id.
    \33\ Id.
---------------------------------------------------------------------------

    The Guidance defines ``supra-competitive profit'' as ``profits that 
exceed the profits that can be obtained in a competitive market.'' \34\ 
The Commission Staff further states in the Guidance that ``the SRO 
should provide an analysis of the SRO's baseline revenues, costs, and 
profitability (before the proposed fee change) and the SRO's expected 
revenues, costs, and profitability (following the proposed fee change) 
for the product or service in question.'' \35\ The Exchange provides 
this analysis below.
---------------------------------------------------------------------------

    \34\ Id.
    \35\ Id.
---------------------------------------------------------------------------

    Based on this analysis, the Exchange believes the proposed fees are 
reasonable and do not result in a ``supra-competitive'' \36\ profit. 
The Exchange believes that it is important to demonstrate that the 
proposed fees are based on its costs and reasonable business needs. The 
Exchange believes the proposed fees will allow the Exchange to offset 
expenses the Exchange has and will incur, and that the Exchange 
provides sufficient transparency (described below) into the costs and 
revenue underlying the proposed fees. Accordingly, the Exchange 
provides an analysis of its revenues, costs, and profitability 
associated with the proposed fees. This analysis includes information 
regarding its methodology for determining the costs and revenues 
associated with the proposed fees. As a result of this analysis, the 
Exchange believes the proposed fees are fair and reasonable as a form 
of cost recovery plus present the possibility of a reasonable return 
for the Exchange's aggregate costs of offering cToM data, which has 
been offered for free for nearly three years.
---------------------------------------------------------------------------

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

    The proposed fees are based on a cost-plus model. In determining 
the appropriate fees to charge, the Exchange considered its costs to 
provide cToM data, using what it believes to be a conservative 
methodology (i.e., that strictly considers only those costs that are 
most clearly directly related to the provision and maintenance of cToM 
data) to estimate such costs,\37\ as well as the relative costs of 
providing and maintaining cToM data feeds, and set fees that are 
designed to cover its costs with a limited return in excess of such 
costs. However, as discussed more fully below, such fees may also 
result in the Exchange recouping less than all of its costs of 
providing and maintaining cToM data feeds because of the uncertainty of 
forecasting subscriber decision making with respect to firms' needs for 
cToM data and the likely potential for increased costs to procure the 
third-party services described below.
---------------------------------------------------------------------------

    \37\ For example, the Exchange only included the costs 
associated with providing and supporting cToM data feeds and 
excluded from its cost calculations any cost not directly associated 
with providing and maintaining such cToM data feeds. Thus, the 
Exchange notes that this methodology underestimates the total costs 
of providing and maintaining cToM data feeds.
---------------------------------------------------------------------------

    To determine the Exchange's costs to provide cToM data associated 
with the proposed 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 fees, and, if such expense did so 
relate, what portion (or percentage) of such expense actually supports 
the cToM data product associated with the proposed fees.
    The Exchange also provides 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 services associated 
with the proposed fees. The Exchange conducted a thorough internal 
analysis to determine the portion (or percentage) of each expense to 
allocate to the support of services associated with the proposed fees. 
This analysis included discussions with each Exchange department head 
to determine the expenses that support services associated with the 
proposed fees. This included numerous meetings between the Exchange's 
Chief Information Officer, Chief Financial Officer, Head of Strategic 
Planning and Operations, Chief Technology Officer, various members of 
the Legal Department, and other group leaders. The Exchange reviewed 
each individual expense to determine if such expense was related to the 
proposed fees. Once the expenses were identified, the Exchange 
department heads, with the assistance of the Exchange's internal 
finance department, reviewed such expenses holistically on an Exchange-
wide level to determine what portion of that expense supports providing 
services for the proposed fees. The sum of all such portions of 
expenses represents the total cost to the Exchange to provide services 
associated with the proposed fees. For the avoidance of doubt, no 
expense amount was allocated twice.
    The internal cost analysis conducted by the Exchange is a 
proprietary process

[[Page 9770]]

that is designed to make a fair and reasonable assessment of costs and 
resources allocated to support the provision of services associated 
with the proposed fees. The Exchange acknowledges that this assessment 
can only capture a moment in time and that costs and resource 
allocations may change. That is why the Exchange has historically, and 
on an ongoing basis, periodically revisits its costs and resource 
allocations to ensure it is appropriately allocating resources to 
properly provide services to the Exchange's constituents. Any 
requirement that an exchange should conduct a periodic re-evaluation on 
a set timeline of its cost justification and amend its fees accordingly 
should be established by the Commission holistically, applied to all 
exchanges and not just pending fee proposals such as this filing. In 
order to be fairly applied, such a mandate should be applied to 
existing market data fees as well.
    In accordance with the Guidance, the Exchange has provided 
sufficient detail to support a finding that the proposed fees are 
consistent with the Exchange Act. The proposal includes a detailed 
description of the Exchange's costs and how the Exchange determined to 
allocate those costs related to the proposed fees. In fact, the detail 
and analysis provided in this proposed rule change far exceed the level 
of disclosure provided in other exchange fee filings that have not been 
suspended by the Commission during its 60-day suspension period. A 
Commission determination that it is unable to make a finding that this 
proposed rule change is consistent with the Exchange Act would run 
contrary to the Commission Staff's treatment of other recent exchange 
fee proposals that have not been suspended and remain in effect 
today.\38\ For example, a proposed fee filing that closely resembles 
the Exchange's current filing was submitted in 2021 by Nasdaq PHLX LLC 
(``PHLX''), which increased fees for PHLX's end of day, intra-day and 
historical market data, and adopted fees for external distribution of 
PHLX's derived data.\39\ This filing was submitted on September 30, 
2021, over two years after the Staff's Guidance was issued. In that 
filing, PHLX argued that the proposed fees were subject to competing 
products' fees at other exchanges and that there were available 
substitutes. This filing provided no cost based data or revenue 
analysis to support the amount of the proposed fees. Among other 
things, PHLX did not provide a description of the costs underlying its 
market data feeds to show that these particular fees did not generate 
supra-competitive profits or describe how any potential profit may be 
offset by increased costs associated with another fee included in its 
proposal. This filing, nonetheless, was not suspended by the Commission 
and remains in effect today.
---------------------------------------------------------------------------

    \38\ See, e.g., Securities Exchange Act Release Nos. 93293 
(October 12, 2021), 86 FR 57716 (October 18, 2021) (SR-PHLX-2021-58) 
(increasing several market data fees and adopting new market data 
fee without providing a cost based justification); 91339 (March 17, 
2021), 86 FR 15524 (March 23, 2021) (SR-CboeBZX-2021-020) 
(increasing fees for a market data product while not providing a 
cost based justification for the increase); 93293 (October 21, 
2021), 86 FR 57716 (October 18, 2021) (SR-PHLX-2021-058) (increasing 
fees for historical market data while not providing a cost based 
justification for the increase); 92970 (September 14, 2021), 86 FR 
52261 (September 20, 2021) (SR- CboeBZX-2021-047) (adopting fees for 
a market data related product while not providing a cost based 
justification for the fees); and 89826 (September 10, 2021), 85 FR 
57900 (September 16, 2021) (SR-CBOE-2020-086) (increasing 
connectivity fees without including a cost based justification).
    \39\ See Securities Exchange Act Release No. 93293 (October 12, 
2021), 86 FR 57716 (October 18, 2021) (SR-PHLX-2021-58) (increasing 
several market data fees and adopting new market data fee without 
providing a cost based justification).
---------------------------------------------------------------------------

    The Exchange notes that the Investors Exchange, Inc. (``IEX'') 
recently submitted a proposed rule change to adopt fees for two real-
time proprietary market data feeds, TOPS and DEEP (``IEX Fee 
Proposal''). Like the Exchange proposes herein, IEX previously provided 
its TOP and DEEP market data feeds for free and proposed to adopt 
modest, below market fees. Also like in this proposal, the IEX Fee 
Proposal included a detailed subscriber data and cost-based analysis in 
compliance with the Guidance. Nonetheless, on December 30, 2021, the 
Commission suspended the IEX Fee Proposal and instituted proceedings to 
determine whether to approve or disapprove the IEX Fee Proposal.\40\
---------------------------------------------------------------------------

    \40\ See Securities Exchange Act Release No. 93883 (December 30, 
2021), 87 FR 523 (January 5, 2021) (SR-IEX-2021-14) (the ``IEX 
Order'').
---------------------------------------------------------------------------

    The Commission received three comment letters on the IEX Order.\41\ 
The Virtu Letter and HMA Letter 2 specifically applaud the amount of 
detail included in the IEX Fee Proposal. Specifically, the Virtu Letter 
states that ``[i]n significant detail, IEX provides data about three 
cost components: (1) Direct costs, such as servers, infrastructure, and 
monitoring; (2) enhancement initiative costs (e.g., new functionality 
for IEX Data and increased capacity for the proprietary market data 
feeds . . .); and (3) personnel costs.' '' \42\ HMA Letter 2 similarly 
commends the level of detail included in the IEX Fee Proposal and also 
highlights the disparate treatment by Commission Staff of exchange fee 
filings.\43\ HMA Letter 2 provides three examples to support this 
assertion.\44\ The Nasdaq Letter urges the Commission to approve the 
IEX Fee Proposal promptly and raises concern the questions asked by the 
Commission in the IEX Order imply that they are exercising rate making 
authority that they clearly do not possess. The Nasdaq Letter states 
that ``[i]f the Commission believes it has authority to conduct cost-
plus ratemaking, the Administrative Procedure Act dictates that it must 
propose a rule for notice and comment and that its final rule must be 
prepared to withstand judicial scrutiny.'' \45\ The Exchange agrees.
---------------------------------------------------------------------------

    \41\ See letters to Ms. Venessa A. Countryman, Secretary, 
Commission, from Douglas A. Cifu, Chief Executive Officer, Virtu 
Financial, Inc., dated January 26, 2022 (the ``Virtu Letter''), 
Tyler Gellasch, Executive Director, Healthy Markets Association 
(``HMA''), dated January 26, 2022 (the ``HMA Letter 2''), and Erika 
Moore, Vice President and Corporate Secretary, The Nasdaq Stock 
Market LLC, dated January 27, 2022 (the ``Nasdaq Letter'').
    \42\ See Virtu Letter at page 3, id.
    \43\ HMA previously expressed their ``worry that the 
Commission's process for reviewing and evaluating exchange filings 
may be inconsistently applied.'' See letter from Tyler Gellasch, 
Executive Director, HMA, to Hon. Gary Gensler, Chair, Commission, 
dated October 29, 2021 (commenting on SR-CboeEDGA-2021-017, SR-
CboeBYX-2021-020, SR-Cboe-BZX-2021-047, SR-CboeEDGX-2021-030, SR-
MIAX-2021-41, SR-PEARL-2021-45, and SR-EMERALD-2021-29 and stating 
that ``MIAX has repeatedly filed to change its connectivity fees in 
a way that will materially lower costs for many users, while 
increasing the costs for some of its heaviest of users. These 
filings have been withdrawn and repeatedly refiled. Each time, 
however, the filings contain significantly greater information about 
who is impacted and how than other filings that have been permitted 
to take effect without suspension'') (emphasis added) (``HMA Letter 
1'').
    \44\ See HMA Letter 2 at 2-3. The Exchange has provided further 
examples to support HMA's assertion above. See supra note 39 and 
accompanying text.
    \45\ See Nasdaq Letter at page 13, id.
---------------------------------------------------------------------------

    The Exchange believes exchanges, like all businesses, should be 
provided flexibility when allocating costs and resources they deem 
necessary to operate their business, including providing market data 
and access services. The Exchange notes that costs and resource 
allocations may vary from business to business and, likewise, costs and 
resource allocations may differ from exchange to exchange when it comes 
to providing market data and access services. It is a business decision 
that must be evaluated by each exchange as to how to allocate internal 
resources and what costs to incur internally or via third parties that 
it may deem necessary to support its business and its provision of 
market data and access services to market participants. An exchange's

[[Page 9771]]

costs may also vary based on fees charged by third parties and periodic 
increases to those fees that may be outside of the control of an 
exchange.
    To determine the Exchange's projected revenue associated with the 
proposed fees in the instant filing, the Exchange analyzed the number 
of Members and non-Members currently subscribing to the cToM data feeds 
and used a recent monthly billing cycle representative of 2021 monthly 
revenue. The Exchange also provided its baseline by analyzing June 
2021, the monthly billing cycle prior to the proposed fees going into 
effect, and compared it to its expenses for that month. As discussed 
below, the Exchange does not believe it is appropriate to factor into 
its analysis projected or estimated future revenue growth or decline 
for purposes of these calculations, given the uncertainty of such 
projections due to the continually changing market data needs of market 
participants and potential increase in internal and third party 
expenses. The Exchange is presenting its revenue and expense associated 
with the proposed 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 fees were not in place 
in 2020 or for the first six months of 2021, the Exchange believes its 
2020 Audited Unconsolidated Financial Statement is not representative 
of its current total annualized revenue and costs associated with the 
proposed fees. Accordingly, the Exchange believes it is more 
appropriate to analyze the proposed 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 fees are reasonable because they 
will allow the Exchange to recover its costs associated with providing 
services related to the proposed fees and not result in excessive 
pricing or supra-competitive profit. Since 2019, when the Exchange 
launched operations with Complex Order functionality, the Exchange has 
spent time and resources building out various Complex Order 
functionality in its System to provide better trading strategies and 
risk functionality for market participants in order to better compete 
with other exchanges' complex functionality and similar data products 
focused on complex orders.\46\ The cToM data product allows market 
participants to better utilize the Exchange's Complex Order 
functionality by providing insights into the Exchange's Complex Order 
flow. The Exchange notes that no market participant ceased subscribing 
to the cToM feed since July 1, 2021, the date on which the fees became 
effective pursuant to the First Proposed Rule Change.
---------------------------------------------------------------------------

    \46\ See Securities Exchange Act Release Nos. 79405 (November 
28, 2016), 81 FR 87086 (December 2, 2016) (SR-MIAX-2016-44) 
(amendment to clarify the manner in which the System allocates 
contracts at the end of a Complex Auction); 80089 (February 22, 
2017), 82 FR 12153 (February 28, 2017) (SR-MIAX-2017-06) (adopting 
the Complex MIAX Options Price Collar, an additional price 
protection feature); 81229 (July 27, 2017), 82 FR 36023 (August 2, 
2017) (SR-MIAX-2017-34) (amendment to ensure price and trade 
protections apply to Complex Orders); 89085 (June 17, 2020), 85 FR 
37719 (June 23, 2020) (SR-MIAX-2020-16) (adopting new order type, 
Complex Attributable Order).
---------------------------------------------------------------------------

    As outlined in more detail below, the Exchange projects that the 
final annualized expense for 2021 to provide cToM data to be $202,657 
per annum or an average of $16,888 per month. The Exchange implemented 
the proposed fees on July 1, 2021 in the First Proposed Rule Change. 
For June 2021, prior to the proposed fees, Exchange Members and non-
Members subscribed to a total of 14 cToM data feeds for which the 
Exchange charged $0, as it has for the past three years. This resulted 
in a loss of approximately $16,888 for that month. For the month of 
November 2021, which includes the proposed fees, Exchange Members and 
non-Members purchased 14 cToM data feeds, for which the Exchange 
charged approximately $17,500 for that month. This resulted in a profit 
of $612 for that month (a margin of approximately 3.5%). The Exchange 
cautions that this margin is likely to fluctuate from month to month 
based on the uncertainty of predicting how many cToM data feeds may be 
purchased from month to month as Members and non-Members are able to 
add and drop subscriptions at any time based on their own business 
decisions. This margin may also decrease due to the significant 
inflationary pressure on capital items that the Exchange needs to 
purchase to maintain the Exchange's technology and systems.\47\ The 
Exchange has been subject to price increases upwards of 30% during the 
past year 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.
---------------------------------------------------------------------------

    \47\ 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).
---------------------------------------------------------------------------

    Further, the Exchange chose to provide cToM data for free for the 
past three years to attract order flow and encourage market 
participants to experience the determinism and resiliency of the 
Exchange's trading systems and market data products. This resulted in 
the Exchange forgoing revenue it could have generated from assessing 
any fees. The Exchange could have sought to charge fees at the outset 
for the cToM data feed, but that could have served to discourage 
participation on the Exchange. Instead, the Exchange chose to provide a 
free exchange data product to the options industry, which resulted in 
no revenues for providing this service for three years. The Exchange 
now proposes 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, complete with robust market data products, including cToM.
    As mentioned above, the Exchange projects that the final annualized 
expense for 2021 to provide cToM data to be approximately $202,657 per 
annum or an average of $16,888 per month and that these costs are 
expected to increase not only due to anticipated significant 
inflationary pressure, but also periodic fee increases by third 
parties.\48\ The Exchange notes that there are material costs 
associated with providing the infrastructure and headcount to fully-
support access to the Exchange and various Exchange products. The 
Exchange incurs technology expense related to

[[Page 9772]]

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 the cost to the Exchange to provide services associated with 
the proposed fees. 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 
services and products to its Members is not fixed and indeed is likely 
to increase rather than decrease over time. The Exchange believes the 
proposed fees are a reasonable attempt to offset a portion of the costs 
to the Exchange associated with providing certain Exchange products.
---------------------------------------------------------------------------

    \48\ For example, 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 
Secure Financial Transaction Infrastructure (``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. The Exchange further 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.
---------------------------------------------------------------------------

    The Exchange only has four primary sources of revenue and cost 
recovery mechanisms to fund all of its operations: Transaction fees, 
access fees, regulatory fees, and market data fees. Accordingly, the 
Exchange must cover all of its expenses from these four primary sources 
of revenue and cost recovery mechanisms. Until recently, the Exchange 
has operated at a cumulative net annual loss since it launched 
operations in 2019.\49\ This is a result of providing a low cost 
alternative to attract order flow and encourage market participants to 
experience the high determinism and resiliency of the Exchange's 
trading Systems. To do so, the Exchange chose to waive the fees for 
some non-transaction related services and market data products or 
provide them at a very marginal cost, which has not been profitable to 
the Exchange, but beneficial to the overall options industry. This 
resulted in the Exchange forgoing revenue it could have generated from 
assessing any amount of fees.
---------------------------------------------------------------------------

    \49\ The Exchange has incurred a cumulative loss of $22 million 
since its inception in 2019 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 28, 2021, available at 
https://sec.report/Document/9999999997-21-004557/.
---------------------------------------------------------------------------

    The Exchange believes that the proposed fees are fair and 
reasonable because they will not result in excessive pricing or supra-
competitive profit, when comparing the total annual expense that the 
Exchange projects to incur in connection with providing these services 
versus the total annual revenue that the Exchange projects to collect 
in connection with services associated with the proposed fees. As 
mentioned above, for 2021,\50\ the total annual expense for providing 
the services associated with the proposed fees is projected to be 
approximately $202,657, or approximately $16,888 per month. This 
projected total annual expense is comprised of the following, all of 
which are directly related to the services associated with the proposed 
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 fees.\51\ As noted above, the 
Exchange believes it is more appropriate to analyze the proposed 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.\52\ The $202,657 
projected total annual expense is directly related to the services 
associated with the proposed fees, and not any other product or service 
offered by the Exchange. It does not include general costs of operating 
matching engines and other trading technology. No expense amount was 
allocated twice.
---------------------------------------------------------------------------

    \50\ The Exchange has not yet finalized its 2021 year end 
results.
    \51\ 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.
    \52\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the 
information technology and communication costs line item under the 
section titled ``Operating Expenses Incurred Directly or Allocated 
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing 
its financial statements for 2018. See Securities Exchange Act 
Release No. 87877 (December 31, 2019), 85 FR 738 (January 7, 2020) 
(SR-EMERALD-2019-39). Accordingly, the third-party expense described 
in this filing is attributed to the same line item for the 
Exchange's 2021 Form 1 Amendment, which will be filed in 2022.
---------------------------------------------------------------------------

    As discussed above, 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 services associated with the proposed 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. In 
performing this calculation, the Exchange considered other services and 
to which the expense may be applied and how much of the expense is 
directly or indirectly utilized in providing those other services. The 
sum of all such portions of expenses represents the total cost of the 
Exchange to provide services associated with the proposed fees.
External Expense Allocations
    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 services associated with the 
proposed fees, is projected to be $4,160. 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; 
and (3) various other hardware and software providers (including Dell 
and Cisco, which support the production environment in which Members 
connect to the network to trade, receive market data, etc.).
    For clarity, the Exchange took a conservative approach in 
determining the expense and the percentage of that expense to be 
allocated to providing the services associated with the proposed fees. 
Only a portion of all fees paid to such third-parties is included in 
the third-party expense described herein, and no expense amount is 
allocated twice. Accordingly, the Exchange does not allocate its entire 
information technology and communication costs to the services 
associated with the proposed fees. Further, the Exchange notes that, 
with respect to the expenses included herein, those expenses only cover 
the MIAX market; expenses associated with MIAX Pearl for its options 
and equities markets and MIAX, are accounted for separately and are not 
included within the scope of this filing. As noted above, the 
percentage allocations used in this proposed rule change may differ 
from past filings from the Exchange or its affiliates due to, among 
other things, changes in expenses charged by third-parties,

[[Page 9773]]

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 services associated with the proposed 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 cToM product 
associated with the proposed fees to its Members, non-Members and their 
customers. The Exchange did not allocate all of the Equinix expense 
toward the cost of providing the cToM product associated with the 
proposed fees, only that portion which the Exchange identified as being 
specifically mapped to providing the cToM product associated with the 
proposed fees. According to the Exchange's calculations, it allocated 
approximately 0.20% of the total applicable Equinix expense to 
providing the services associated with the proposed fees. The Exchange 
believes this allocation is reasonable because it represents the 
Exchange's actual cost to provide the cToM product associated with the 
proposed fees, and not any other service, as supported by its cost 
review.\53\
---------------------------------------------------------------------------

    \53\ As noted above, the percentage allocations used in this 
proposed rule change may differ from past filings from the Exchange 
or its affiliates due to, among other things, changes in expenses 
charged by third-parties, adjustments to internal resource 
allocations, and different system architecture of the Exchange as 
compared to its affiliates. Again, as part its ongoing assessment of 
costs and expenses, the Exchange recently conducted a periodic 
thorough review of its expenses and resource allocations which, in 
turn, resulted in a revised percentage allocations in this filing.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified 
portion of the Zayo expense because Zayo provides the internet, fiber 
and bandwidth connections with respect to the network, linking the 
Exchange with its affiliates, MIAX Pearl and MIAX, as well as the data 
center and disaster recovery locations. As such, all of the trade data, 
including the billions of messages each day per exchange, flow through 
Zayo's infrastructure over the Exchange's network. Without these 
services from Zayo, the Exchange would not be able to operate and 
support the network and provide the cToM data associated with the 
proposed fees. The Exchange did not allocate all of the Zayo expense 
toward the cost of providing the cToM data associated with the proposed 
fees, only the portion which the Exchange identified as being 
specifically mapped to providing the cToM data associated with the 
proposed fees. According to the Exchange's calculations, it allocated 
approximately 0.20% of the total applicable Zayo expense to providing 
the services associated with the proposed fees. The Exchange believes 
this allocation is reasonable because it represents the Exchange's 
actual cost to provide the cToM data associated with the proposed fees, 
and not any other service, as supported by its cost review.\54\
---------------------------------------------------------------------------

    \54\ Id.
---------------------------------------------------------------------------

    The Exchange did not allocate any expense associated with the 
proposed fees towards SFTI and various other service providers' 
(including Thompson Reuters, NYSE, Nasdaq, and Internap) because the 
MIAX Emerald architecture takes advantage of an advance in design to 
eliminate the need for a market data distribution gateway layer. The 
computation and dissemination via an API is done solely within the 
match engine environment and is then delivered via the Member and non-
Member connectivity infrastructure. This architecture delivers a market 
data system that is more efficient both in cost and performance. 
Accordingly, the Exchange determined not to allocate any expense 
associated with SFTI and various other service providers.
    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 cToM data to its Members, non-Members and their customers. The 
Exchange did not allocate all of the hardware and software provider 
expense toward the cost of providing the cToM data associated with the 
proposed fees, only the portions which the Exchange identified as being 
specifically mapped to providing the cToM data associated with the 
proposed fees. According to the Exchange's calculations, it allocated 
approximately 0.20% of the total applicable hardware and software 
provider expense to providing the services associated with the proposed 
fees. The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the cToM data 
associated with the proposed fees.\55\
---------------------------------------------------------------------------

    \55\ Id.
---------------------------------------------------------------------------

Internal Expense Allocations
    For 2021, total projected internal expenses relating to the 
Exchange providing the cToM data associated with the proposed fees, is 
projected to be $198,497. This includes, but is not limited to, costs 
associated with: (1) Employee compensation and benefits for full-time 
employees that support the cToM data product associated with the 
proposed fees, including staff in network operations, trading 
operations, development, system operations, and business that support 
those employees and functions; (2) depreciation and amortization of 
hardware and software used to provide the cToM data product associated 
with the proposed 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 cToM 
data associated with the proposed fees. The breakdown of these costs is 
more fully-described below.
    For clarity, and as stated above, the Exchange took a conservative 
approach in determining the expense and the percentage of that expense 
to be allocated to providing services in connection with the proposed 
fees. 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 cToM data associated with the proposed fees. This 
may result in the Exchange under allocating an expense to the provision 
of access services in connection with the proposed fees and such 
expenses may actually be higher or increase above what the Exchange 
utilizes within this proposal. Further, as part its ongoing assessment 
of costs and expenses (described above), the Exchange recently 
conducted a periodic

[[Page 9774]]

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 internal 
expense described above towards the total cost to the Exchange to 
provide the cToM data associated with the proposed fees. In particular, 
the Exchange's employee compensation and benefits expense relating to 
providing the cToM data associated with the proposed fees is projected 
to be approximately $185,002, which is only a portion of the $9.74 
million total projected expense for employee compensation and benefits. 
The Exchange believes it is reasonable to allocate the identified 
portion of such expense because this includes the time spent by 
employees of several departments, including Technology, Back Office, 
Systems Operations, Networking, Business Strategy Development (who 
create the business requirement documents that the Technology staff use 
to develop network features, products and enhancements), and Trade 
Operations. As part of the extensive cost review conducted by the 
Exchange, the Exchange reviewed the amount of time spent by nearly 
every employee on matters relating to cToM. Without these employees, 
the Exchange would not be able to provide the cToM product to its 
Members, non-Members and their customers. The Exchange did not allocate 
all of the employee compensation and benefits expense toward the cost 
of the cToM product, only the portion which the Exchange identified as 
being specifically mapped to providing the cToM product associated with 
the proposed fees. According to the Exchange's calculations, it 
allocated approximately 2.0% of the total applicable employee 
compensation and benefits expense to providing the services associated 
with the proposed fees. The Exchange believes this allocation is 
reasonable because it represents the Exchange's actual cost to provide 
the cToM data associated with the proposed fees, and not any other 
service, as supported by its cost review.\56\
---------------------------------------------------------------------------

    \56\ Id.
---------------------------------------------------------------------------

    The Exchange's depreciation and amortization expense relating to 
providing the cToM data associated with the proposed fees is projected 
to be $3,635, which is only a portion of the $1.9 million total 
projected expense for depreciation and amortization. The Exchange 
believes it is reasonable to allocate the identified portion of such 
expense because such expense includes the actual cost of the computer 
equipment, such as dedicated servers, computers, laptops, monitors, 
information security appliances and storage, and network switching 
infrastructure equipment, including switches and taps that were 
purchased to operate and support the network and provide the cToM 
product. Without this equipment, the Exchange would not be able to 
operate the network and provide the cToM product to its Members, non-
Members and their customers. The Exchange did not allocate all of the 
depreciation and amortization expense toward the cost of providing the 
cToM product, only the portion which the Exchange identified as being 
specifically mapped to providing the cToM product. According to the 
Exchange's calculations, it allocated approximately 0.20% of the total 
applicable depreciation and amortization expense to providing the 
services associated with the proposed fees, as this product 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 cToM product associated with the proposed fees, and 
not any other service, as supported by its cost review.\57\
---------------------------------------------------------------------------

    \57\ Id.
---------------------------------------------------------------------------

    The Exchange's occupancy expense relating to providing the cToM 
product associated with the proposed fees is projected to be $9,860, 
which is only a portion of the $0.60 million total projected expense 
for occupancy. The Exchange believes it is reasonable to allocate the 
identified portion of such expense because such expense represents the 
portion of the Exchange's cost to rent and maintain a physical location 
for the Exchange's staff who operate and support the network, including 
providing the cToM product. 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 and 
Exchange products. The Exchange currently has approximately 200 
employees. Approximately two-thirds of the Exchange's staff are in the 
Technology department, and the majority of those staff have some role 
in the operation and performance of the services associated with the 
proposed fees. 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 market data services associated with the proposed fees. The 
Exchange did not allocate all of the occupancy expense toward the cost 
of providing the market data services associated with the proposed 
fees, only the portion which the Exchange identified as being 
specifically mapped to operating and supporting the network. According 
to the Exchange's calculations, it allocated approximately 2.0% of the 
total applicable occupancy expense to providing the services associated 
with the proposed fees. The Exchange believes this allocation is 
reasonable because it represents the Exchange's cost to provide the 
market data services associated with the proposed fees, and not any 
other service, as supported by its cost review.\58\
---------------------------------------------------------------------------

    \58\ Id.
---------------------------------------------------------------------------

    Based on the above, the Exchange believes that its provision of 
market data services associated with the proposed fees will not result 
in excessive pricing or supra-competitive profit. As discussed above, 
the Exchange projects that its annualized expense for 2021 to provide 
the cToM data associated with the proposed fees is projected to be 
approximately $202,657, or approximately $16,888 per month on average. 
The Exchange implemented the proposed fees on July 1, 2021 in the First 
Proposed Rule Change. For June 2021, prior to the proposed fees, 
Members and non-Members subscribed to a total of 14 cToM data feeds, 
for which the Exchange charged $0, for the past three years. This 
resulted in a month over month loss of $16,888. For the month of 
November 2021, which includes the proposed fees, Members and non-
Members subscribed to 14 cToM data feeds, for which the Exchange 
charged approximately $17,500 for that month. This resulted in a profit 
of $612 for that month (a margin of approximately 3.5%). The Exchange 
believes this margin will allow it to begin to recoup its expenses and 
continue to invest in its technology infrastructure. Therefore, the 
Exchange also believes that this proposed margin is reasonable because 
it represents a reasonable rate of return.
    Again, the Exchange cautions that this margin is likely to 
fluctuate from month to month based in the uncertainty of predicting 
how many market data feeds

[[Page 9775]]

may be purchased from month to month as Members and non-Members are 
free to add and drop subscriptions at any time based on their own 
business decisions. Notwithstanding that the revenue (and profit 
margin) may vary from month to month due to changes in subscriptions 
and to changes to the Exchange's expenses, the number of subscriptions 
has not materially changed over previous months. Consequently, the 
Exchange believes that the months it has used as a baseline to perform 
its assessment are representative of reasonably anticipated costs and 
expenses. This margin may also decrease due to the significant 
inflationary pressure on capital items that it needs to purchase to 
maintain the Exchange's technology and systems. Accordingly, the 
Exchange believes its total projected revenue for the providing the 
market data services associated with the proposed fees will not result 
in excessive pricing or supra-competitive profit.
    The Exchange believes that conducting the above analysis on a per 
month basis is reasonable as the revenue generated from access services 
subject to the proposed fee generally remains static from month to 
month. The Exchange also conducted the above analysis on a per month 
basis to comply with the Guidance which requires a baseline analysis to 
assist in determining whether the proposal generates a supra-
competitive profit. This monthly analysis was also provided in response 
to comment received on prior submissions of this proposed rule change.
    The Exchange reiterates that it only has four primary sources of 
revenue and cost recovery mechanisms: Transaction fees, access fees, 
regulatory fees, and market data fees. Accordingly, the Exchange must 
cover all of its expenses from these four primary sources of revenue 
and cost recovery mechanisms. As a result, each of these fees cannot be 
``flat'' and cover only the expenses directly related to the fee that 
is charged. The above revenue and associated profit margin therefore 
are not solely intended to cover the costs associated with providing 
services subject to the proposed fees. Moreover, as noted above, 
because the Exchange was previously offering the cToM data feed at no 
cost, the provision of the feed during the time in which it generated 
no revenue was being subsidized by other fees charged by the Exchange. 
The Exchange believes establishing a separate fee for the cToM feed is 
therefore reasonable and equitable so that the provision of the cToM 
data feed is no longer subsidized by other fees less directly related 
to providing cToM. Instead, the cToM feed will be supported primarily 
through fees charged only to users who choose to subscribe to cToM.
    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 market 
data services associated with the proposed 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 market data services to the Exchange. Further, the Exchange 
notes that, without the specific third-party and internal expense items 
listed above, the Exchange would not be able to provide the market data 
services associated with the proposed fees to its Members, non-Members 
and their customers. Each of these expense items, including physical 
hardware, software, employee compensation and benefits, occupancy 
costs, and the depreciation and amortization of equipment, have been 
identified through a line-by-line item analysis to be integral to 
providing market data services. The proposed fees are intended to 
recover the costs of providing cToM data. Accordingly, the Exchange 
believes that the proposed 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 fees.
    No market participant is required by any rule or regulation to 
utilize the Exchange's Complex Order functionality or subscribe to the 
cToM data feed. Further, unlike orders on the Exchange's Simple Order 
Book, Complex Orders are not protected and will never trade through 
Priority Customer \59\ orders, thus protecting the priority that is 
established in the Simple Order Book.\60\ Additionally, unlike the 
continuous quoting requirements of Market Makers in the simple order 
market, there are no continuous quoting requirements respecting Complex 
Orders. It is a business decision whether market participants utilize 
Complex Order strategies on the Exchange and whether to purchase cToM 
data to help effect those strategies.
---------------------------------------------------------------------------

    \59\ The term ``Priority Customer'' means a person or entity 
that (i) is not a broker or dealer in securities and (ii) does not 
place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial accounts(s). The term 
``Priority Customer Order'' means an order for the account of a 
Priority Customer. See Exchange Rule 100.
    \60\ The ``Simple Order Book'' is the Exchange's regular 
electronic book of orders and quotes. See Exchange Rule 518(a)(5).
---------------------------------------------------------------------------

The Proposed Fees Are Reasonable When Compared to the Fees of Other 
Options Exchanges With Similar Market Share
    The Exchange does not have visibility into other options exchanges' 
costs to provide market data or their fee markup over those costs, and 
therefore cannot use other exchange's market data fees as a benchmark 
to determine a reasonable markup over the costs of providing market 
data. Nevertheless, the Exchange believes the other exchanges' market 
data fees are useful examples of alternative approaches to providing 
and charging for market data. To that end, the Exchange believes the 
proposed pricing is reasonable because the proposed rates are similar 
to or less than the fees charged by other options exchanges for similar 
data products.\61\
---------------------------------------------------------------------------

    \61\ See supra notes 20, 21 and 22.
---------------------------------------------------------------------------

    Until recently, the Exchange has operated at a cumulative net 
annual loss since it launched operations in 2019.\62\ This is a result 
of providing a low cost alternative to attract order flow and encourage 
market participants to experience the high determinism and resiliency 
of the Exchange's trading Systems. To do so, the Exchange chose to 
waive the fees for some non-transaction related services and Exchange 
products (including the cToM data feed) or provide them at a very 
marginal cost, which was not profitable to the Exchange. This resulted 
in the Exchange forgoing revenue it could have generated from assessing 
any fees or higher 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. An example of this is cToM, for which the 
Exchange only now seeks to adopt fees at a level similar to or lower 
than those of other options exchanges.
---------------------------------------------------------------------------

    \62\ See supra note 47.
---------------------------------------------------------------------------

    Since the Exchange initially established the cToM data product when 
it launched trading operations on March 1, 2019, all Exchange Members 
and non-Members have had the ability to receive the Exchange's cToM 
data free of charge for the past three years.\63\ Since 2019, when the 
Exchange launched operations with Complex

[[Page 9776]]

Order functionality, the Exchange has spent time and resources building 
out various Complex Order functionality in its System to provide better 
trading strategies and risk functionality for market participants in 
order to better compete with other exchanges' complex functionality and 
similar data products focused on complex orders.\64\ The cToM data 
product allows market participants to better utilize the Exchange's 
Complex Order functionality by providing insights into the Exchange's 
Complex Order flow. The Exchange currently has 14 subscribers (12 
Members and 2 non-Members) for its cToM data product. None of these 
subscribers has paid a specific fee to receive cToM data (other than 
the five months in which the First, Second and Third Proposed Rule 
Changes were in effect) but has received the benefit of the Exchange 
building out its Complex Order functionality to better compete with 
other exchanges complex functionality. The Exchange notes that no 
market participant ceased subscribing to the cToM feed since July 1, 
2021, the date on which the fees became effective when established in 
the First Proposed Rule Change.
---------------------------------------------------------------------------

    \63\ See supra note 15.
    \64\ See Securities Exchange Act Release Nos. 85345 (March 18, 
2019), 84 FR 10848 (March 22, 2019) (SR-EMERALD-2019-13) (adopting 
complex stock-option order functionality); 85346 (March 18, 2019), 
84 FR 10854 (March 22, 2019) (SR-EMERALD-2019-14) (adopting 
additional price protection during a Complex Auction and the Complex 
Liquidity Exposure Process to provide additional price discovery).
---------------------------------------------------------------------------

The Proposed Pricing Is Not Unfairly Discriminatory and Provides for 
the Equitable Allocation of Fees, Dues, and Other Charges
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to assess Internal Distributors fees that are 
less than the fees assessed for External Distributors for subscriptions 
to the cToM data feed because Internal Distributors have limited, 
restricted usage rights to the market data, as compared to External 
Distributors, which have more expansive usage rights. All Members and 
non-Members that determine to receive any market data feed of the 
Exchange (or its affiliates, MIAX Pearl and MIAX), must first execute, 
among other things, the MIAX Exchange Group Exchange Data Agreement 
(the ``Exchange Data Agreement'').\65\ Pursuant to the Exchange Data 
Agreement, Internal Distributors are restricted to the ``internal use'' 
of any market data they receive. This means that Internal Distributors 
may only distribute the Exchange's market data to the recipient's 
officers and employees and its affiliates.\66\ External Distributors 
may distribute the Exchange's market data to persons who are not 
officers, employees or affiliates of the External Distributor,\67\ and 
may charge their own fees for the redistribution of such market data. 
Accordingly, the Exchange believes it is fair, reasonable and not 
unfairly discriminatory to assess External Distributors a higher fee 
for the Exchange's market data products as External Distributors have 
greater usage rights to commercialize such market data and can adjust 
their own fee structures if necessary. The Exchange also utilizes more 
resources to support External Distributors versus Internal 
Distributors, as External Distributors have reporting and monitoring 
obligations that Internal Distributors do not have, thus requiring 
additional time and effort of Exchange staff. The Exchange believes the 
proposed cToM fees are equitable and not unfairly discriminatory 
because the fee level results in a reasonable and equitable allocation 
of fees amongst subscribers for similar services, depending on whether 
the subscriber is an Internal or External Distributor. Moreover, the 
decision as to whether or not to purchase market data is entirely 
optional to all market participants. Potential purchasers are not 
required to purchase the market data, and the Exchange is not required 
to make the market data available. Purchasers may request the data at 
any time or may decline to purchase such data. The allocation of fees 
among users is fair and reasonable because, if market participants 
determine not to subscribe to the data feed, firms can discontinue 
their use of the cToM data.
---------------------------------------------------------------------------

    \65\ See Exchange Data Agreement, available at https://miaxweb2.pairsite.com/sites/default/files/page-files/MIAX_Exchange_Group_Data_Agreement_09032020.pdf.
    \66\ See id.
    \67\ See id.
---------------------------------------------------------------------------

    Further, the Exchange believes that the proposal is equitable and 
not unfairly discriminatory because the proposed cToM fees will apply 
to all market participants of the Exchange on a uniform basis. The 
Exchange also notes that the proposed monthly cToM fees for Internal 
and External Distributors are the same prices that the Exchange charges 
for its ToM data product.
    The Exchange believes the proposed change to delete certain text 
from Section (6)(a) of the Fee Schedule promotes just and equitable 
principles of trade and removes impediments to and perfects the 
mechanism of a free and open market and a national market system 
because the proposed change is a non-substantive edit to the Fee 
Schedule to remove unnecessary text. The Exchange believes that this 
proposed change will provide greater clarity to Members and the public 
regarding the Exchange's Fee Schedule and that it is in the public 
interest for the Fee Schedule to be accurate and concise so as to 
eliminate the potential for confusion.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes the proposed fees will not result in any 
burden on intra-market competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because the proposed fees 
will allow the Exchange to recoup some of its costs in providing cToM 
to market participants. As described above, the Exchange has operated 
at a cumulative net annual loss since it launched operations in 2019 
\68\ due to providing a low cost alternative to attract order flow and 
encourage market participants to experience the high determinism and 
resiliency of the Exchange's trading Systems. To do so, the Exchange 
chose to waive the fees for some non-transaction related services and 
Exchange products or provide them at a very marginal cost, which was 
not profitable to the Exchange. This resulted in the Exchange forgoing 
revenue it could have generated from assessing any fees or higher 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. An 
example of this is cToM, for which the Exchange only now seeks to adopt 
fees at a level similar to or lower than those of other options 
exchanges.
---------------------------------------------------------------------------

    \68\ See supra note 47.
---------------------------------------------------------------------------

    Since the Exchange initially launched operations with the cToM data 
product in 2019, all Exchange Members and non-Members have had the 
ability to receive the Exchange's cToM data free of charge for the past 
three years.\69\ Since 2019, when the Exchange adopted Complex Order 
functionality, the Exchange has spent time and resources building out 
various Complex Order

[[Page 9777]]

functionality in its System to provide better trading strategies and 
risk functionality for market participants in order to better compete 
with other exchanges' complex functionality and similar data products 
focused on complex orders.\70\ The Exchange now seeks to recoup its 
costs for providing cToM to market participants and believes the 
proposed fees will not result in excessive pricing or supra-competitive 
profit.
---------------------------------------------------------------------------

    \69\ See supra note 15.
    \70\ See supra note 62.
---------------------------------------------------------------------------

Inter-Market Competition
    The Exchange also does not believe the proposed fees would cause 
any unnecessary or in appropriate burden on intermarket competition as 
other exchanges are free to introduce their own comparable data product 
and lower their prices to better compete with the Exchange's offering. 
The Exchange does not believe the proposed rule change would cause any 
unnecessary or inappropriate burden on inter-market competition. 
Particularly, the proposed product and fees apply uniformly to any 
purchaser, in that it does not differentiate between subscribers that 
purchase cToM. The proposed fees are set at a modest level that would 
allow any interested Member or non-Member to purchase such data based 
on their business needs.
    The Exchange does not believe that the proposed rule change to make 
a minor, non-substantive edit to Section (6)(a) of the Fee Schedule by 
deleting unnecessary text will result in any burden on competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act. This proposed rule change is not being made for competitive 
reasons, but rather is designed to remedy a minor non-substantive issue 
and will provide added clarity to the Fee Schedule. The Exchange 
believes that it is in the public interest for the Fee Schedule to be 
accurate and concise so as to eliminate the potential for confusion on 
the part of market participants. In addition, the Exchange does not 
believe the proposal will impose any burden on inter-market competition 
as the proposal does not address any competitive issues and is intended 
to protect investors by providing further transparency regarding the 
Exchange's Fee Schedule.
    Regrettably, the Exchange believes that the application of the 
Guidance to date has adversely affected inter-market competition by 
impeding the ability of smaller, low cost exchanges to adopt or 
increase fees for their market data and access services (including 
connectivity and port products and services). Since the adoption of the 
Guidance, and even more so recently, it has become harder, particularly 
for smaller, low cost exchanges, to adopt or increase fees to generate 
revenue necessary to invest in systems, provide innovative trading 
products and solutions, and improve competitive standing to the benefit 
of the affected exchanges' market participants. Although the Guidance 
has served an important policy goal of improving disclosures in 
proposed rule changes and requiring exchanges to more clearly justify 
that their market data and access fee proposals are fair and 
reasonable, it has also been inconsistently applied and therefore 
negatively impacted exchanges, and particularly many smaller, low cost 
exchanges, that seek to adopt or increase fees despite providing 
enhanced disclosures and rationale to support their proposed fee 
changes.

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

    Written comments were neither solicited nor received.

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\71\ at any time within 
60 days of the date of filing of a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\72\ the Commission summarily may 
temporarily suspend the change in the rules of a self-regulatory 
organization (``SRO'') 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. 
As discussed below, the Commission believes a temporary suspension of 
the proposed rule change is necessary and appropriate to allow for 
additional analysis of the proposed rule change's consistency with the 
Act and the rules thereunder.
---------------------------------------------------------------------------

    \71\ 15 U.S.C. 78s(b)(3)(C).
    \72\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    As the Exchange further details above, the Exchange first filed a 
proposed rule change proposing fee changes as proposed herein on June 
30, 2021, with the proposed fee changes effective beginning July 1, 
2021. That proposal, EMERALD-2021-21, was published for comment in the 
Federal Register on July 15, 2021.\73\ On August 27, 2021, pursuant to 
Section 19(b)(3)(C) of the Act, the Commission: (1) Temporarily 
suspended the proposed rule change; and (2) instituted proceedings to 
determine whether to approve or disapprove the proposal.\74\ On 
September 30, 2021, the Exchange withdrew the proposed rule change,\75\ 
and filed two other proposed rule changes proposing fee changes as 
proposed herein,\76\ which were each also subsequently withdrawn. The 
instant filing is substantially similar.\77\
---------------------------------------------------------------------------

    \73\ See supra note 5, and accompanying text.
    \74\ See Securities Exchange Act Release No. 92789, 86 FR 49364 
(September 2, 2021) (``OIP'').
    \75\ See Securities Exchange Act Release No. 93471 (October 29, 
2021), 86 FR 60947 (November 4, 2021).
    \76\ See Securities Exchange Act Release Nos. 93427 (October 26, 
2021), 86 FR 60310 (November 1, 2021); 93811 (December 17, 2021), 86 
FR 73051 (December 23, 2021).
    \77\ See OIP, supra note 74.
---------------------------------------------------------------------------

    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\78\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements.'' \79\
---------------------------------------------------------------------------

    \78\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \79\ Id.
---------------------------------------------------------------------------

    Among other things, exchange proposed rule changes are subject to 
Section 6 of the Act, including Sections 6(b)(4), (5), and (8), which 
requires the rules of an exchange to (1) provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \80\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \81\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\82\
---------------------------------------------------------------------------

    \80\ 15 U.S.C. 78f(b)(4).
    \81\ 15 U.S.C. 78f(b)(5).
    \82\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In temporarily suspending the Exchange's fee change, the Commission 
intends to further consider whether the proposed fees for the cToM 
market data feed are consistent with the statutory requirements 
applicable to a national securities exchange under the Act. In 
particular, the Commission will consider whether the proposed rule 
change satisfies the standards under the

[[Page 9778]]

Act and the rules thereunder requiring, among other things, that an 
exchange's rules provide for the equitable allocation of reasonable 
fees among members, issuers, and other persons using its facilities; 
not permit unfair discrimination between customers, issuers, brokers or 
dealers; and do not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\83\
---------------------------------------------------------------------------

    \83\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------

    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.\84\
---------------------------------------------------------------------------

    \84\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    In addition to temporarily suspending the proposal, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\85\ and 19(b)(2)(B) of the Act \86\ to determine whether the proposed 
rule change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change to inform the Commission's analysis of whether to 
disapprove the proposed rule change.
---------------------------------------------------------------------------

    \85\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \86\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\87\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis of whether the Exchange has sufficiently 
demonstrated how the proposed rule change is consistent with Sections 
6(b)(4),\88\ 6(b)(5),\89\ and 6(b)(8) \90\ of the Act. Section 6(b)(4) 
of the Act requires that the rules of a national securities exchange 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its members and issuers and other persons using its 
facilities. Section 6(b)(5) of the Act requires that the rules of a 
national securities exchange be designed, among other things, 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 not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. Section 6(b)(8) of the Act 
requires that the rules of a national securities exchange not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \87\ Id.
    \88\ 15 U.S.C. 78f(b)(4).
    \89\ 15 U.S.C. 78f(b)(5).
    \90\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
above, in addition to any other comments they may wish to submit about 
the proposed rule change. In particular, the Commission seeks comment 
on the following aspects of the proposal and asks commenters to submit 
data where appropriate to support their views:
    1. Cost Estimates and Allocation. The Exchange states that it is 
not asserting that the proposed fees are constrained by competitive 
forces, but rather sets forth a ``cost-plus model,'' employing a 
``conservative methodology'' that ``strictly considers only those costs 
that are most clearly directly related to the provision and maintenance 
of cToM data . . . .'' \91\ Setting forth its costs in providing the 
cToM data product, and as summarized in greater detail above, MIAX 
Emerald projects $202,657 in aggregate annual estimated costs for 2021 
as the sum of: (1) $4,160 in third-party expenses paid in total to 
Equinix (0.20% of the total applicable expense) for data center 
services; Zayo Group Holdings for network services (0.20% of the total 
applicable expense); and various other hardware and software providers 
(0.20% of the total applicable expense) supporting the production 
environment, and (2) $198,497 in internal expenses, allocated to (a) 
employee compensation and benefit costs ($185,002, approximately 2.0% 
of the Exchange's total applicable employee compensation and benefits 
expense); (b) depreciation and amortization ($3,635, approximately 
0.20% of the Exchange's and total applicable depreciation and 
amortization expense); and (c) occupancy costs ($9,860, approximately 
2.0% of the Exchange's total applicable occupancy expense). Do 
commenters believe that the Exchange has provided sufficient detail 
about how it determined which costs are most clearly directly 
associated with providing and maintaining the cToM data product? The 
Exchange describes a ``proprietary'' process involving all Exchange 
department heads, including the finance department and numerous 
meetings between the Exchange's Chief Information Officer, Chief 
Financial Officer, Head of Strategic Planning and Operations, Chief 
Technology Officer, various members of the Legal Department, and other 
group leaders, but does not specify further what principles were 
applied in making these determinations or arriving at particular 
allocations. Do commenters believe further explanation is necessary? 
For employee compensation and benefit costs, for example, the Exchange 
calculated an allocation of employee time in several departments, 
including Technology, Back Office, Systems Operations, Networking, 
Business Strategy Development, and Trade Operations, but does not 
provide the job titles and salaries of persons whose time was accounted 
for, nor explain the methodology used to determine how much of an 
employee's time is devoted to that specific activity. What are 
commenters' views on whether the Exchange has provided sufficient 
detail on the identity and nature of services provided by third 
parties? Across all of the Exchange's projected costs, what are 
commenters' views on whether the Exchange has provided sufficient 
detail on the elements that go into market data costs, including how 
shared costs are allocated and attributed to market data expenses, to 
permit an independent review and assessment of the reasonableness of 
purported cost-based fees and the corresponding profit margin thereon? 
Should the Exchange be required to identify what Exchange products or 
services the remaining percentage of un-allocated expenses are 
attributable to (e.g., what products or services are associated with 
the approximately 99.80% of applicable depreciation and amortization 
expenses that MIAX Emerald does not allocate to the proposed fees)? Do 
commenters believe that the costs projected for 2021 are generally 
representative of expected costs going forward (to the extent 
commenters consider 2021 to be a typical or atypical year), or should 
an exchange present an estimated range of costs with an explanation of 
how profit margins could vary along the range of

[[Page 9779]]

estimated costs? Should the Exchange use cost projections or actual 
costs estimated for 2021 in a filing made in 2022, or make cost 
projections for 2022?
---------------------------------------------------------------------------

    \91\ See supra note 37 and accompanying text.
---------------------------------------------------------------------------

    2. Revenue Estimates and Profit Margin Range. The Exchange provides 
a single monthly revenue figure as the basis for calculating the profit 
margin of 3.5%. Do commenters believe this is reasonable? If not, why 
not? The Exchange states that the proposed fees are ``designed to cover 
its costs with a limited return in excess of such costs,'' and that 
``revenue and associated profit margin . . . are not solely intended to 
cover the costs associated with providing services subject to the 
proposed fees.'' \92\ The profit margin is also dependent on the 
accuracy of the cost projections which, if inflated (intentionally or 
unintentionally), may render the projected profit margin meaningless. 
The Exchange acknowledges that this margin may fluctuate from month to 
month as Members and non-Members add and drop subscriptions,\93\ and 
that costs may increase. The Exchange also states that the number of 
subscriptions has not materially changed over previous months and so 
the months that the Exchange has used as a baseline to perform its 
assessment are representative of reasonably anticipated costs and 
expenses.\94\ The Exchange does not account for the possibility of cost 
decreases, however. What are commenters' views on the extent to which 
actual costs (or revenues) deviate from projected costs (or revenues)? 
Do commenters believe that the Exchange's methodology for estimating 
the profit margin is reasonable? Should the Exchange provide a range of 
profit margins that it believes are reasonably possible, and the 
reasons therefor?
---------------------------------------------------------------------------

    \92\ See supra Section II.A.2.
    \93\ See text accompanying supra note 47.
    \94\ See supra Section II.A.2.
---------------------------------------------------------------------------

    3. Reasonable Rate of Return. Do commenters agree with the Exchange 
that its expected 3.5% profit margin would constitute a reasonable rate 
of return over costs for providing the cToM data product? If not, what 
would commenters consider to be a reasonable rate of return and/or what 
methodology would they consider to be appropriate for determining a 
reasonable rate of return? Further, the Exchange states that it chose 
to initially provide the cToM data product for free and to forego 
revenue that they otherwise could have generated from assessing any 
fees.\95\ What are commenters' views regarding what factors should be 
considered in determining what constitutes a reasonable rate of return 
for the cToM market data product? Do commenters believe it relevant to 
an assessment of reasonableness that, according to the Exchange, the 
Exchange's proposed fees are similar to or lower than fees charged by 
competing options exchanges with similar market share? Should an 
assessment of reasonable rate of return include consideration of 
factors other than costs; and if so, what factors should be considered, 
and why?
---------------------------------------------------------------------------

    \95\ See text accompanying supra notes 69-70.
---------------------------------------------------------------------------

    4. Periodic Reevaluation. The Exchange addresses whether it 
believes a material deviation from the anticipated profit margin would 
warrant the need to make a rule filing pursuant to Section 19(b) of the 
Act to increase or decrease the fees accordingly, stating that ``[a]ny 
requirement that an exchange should conduct a periodic re-evaluation on 
a set timeline of its cost justification and amend its fees accordingly 
should be established by the Commission holistically, applied to all 
exchanges and not just through pending fee proposals, such as this 
filing,'' and that ``[i]n order to be fairly applied, such a mandate 
should be applied to existing access fees as well.'' \96\ In light of 
the impact that the number of subscriptions has on profit margins, and 
the potential for costs to decrease (or increase) over time, what are 
commenters' views on the need for exchanges to commit to reevaluate, on 
an ongoing and periodic basis, their cost-based data fees to ensure 
that the fees stay in line with their stated profitability projections 
and do not become unreasonable over time, for example, by failing to 
adjust for efficiency gains, cost increases or decreases, and changes 
in subscribers? How formal should that process be, how often should 
that reevaluation occur, and what metrics and thresholds should be 
considered? How soon after a new data fee change is implemented should 
an exchange assess whether its revenue and/or cost estimates were 
accurate and at what threshold should an exchange commit to file a fee 
change if its estimates were inaccurate? Should an initial review take 
place within the first 30 days after a data fee is implemented? 60 
days? 90 days? Some other period?
---------------------------------------------------------------------------

    \96\ See supra Section II.A.2.
---------------------------------------------------------------------------

    5. Fees for Internal Distributors versus External Distributors. The 
Exchange argues that it is reasonable, equitable, and not unfairly 
discriminatory to assess Internal Distributors fees that are lower than 
the fees assessed for External Distributors for subscriptions to the 
cToM data feed ($1,250 per month for Internal Distributors versus 
$1,750 per month for External Distributors), since Internal 
Distributors have limited, restricted usage rights to the market data, 
as compared to External Distributors, which have more expansive usage 
rights, including rights to commercialize such market data.\97\ In 
addition, the Exchange states that it ``utilizes more resources'' to 
support External Distributors as compared to Internal Distributors, as 
External Distributors have reporting and monitoring obligations that 
Internal Distributors do not have, thus requiring ``additional time and 
effort'' of the Exchange's staff.\98\ What are commenters' views on the 
adequacy of the information the Exchange provides regarding the 
differential between the Internal Distributor and External Distributor 
fees? Do commenters believe that the fees for Internal Distributors and 
External Distributors, as well as the fee differences between 
Distributors, are supported by the Exchange's assertions that it sets 
the differentiated pricing structure in a manner that is equitable and 
not unfairly discriminatory? Do commenters believe that the Exchange 
should demonstrate how the proposed Distributor fee levels correlate 
with different costs to better substantiate how the Exchange ``utilizes 
more resources'' to support External Distributors versus Internal 
Distributors and permit an assessment of the Exchange's statement that 
``External Distributors have reporting and monitoring obligations that 
Internal Distributors do not have, thus requiring additional time and 
effort of Exchange staff''? \99\
---------------------------------------------------------------------------

    \97\ See text accompanying supra notes 65-67.
    \98\ See id.
    \99\ See id.
---------------------------------------------------------------------------

    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule change.'' \100\ The description of a proposed 
rule change, its purpose and operation, its effect, and a legal 
analysis of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative Commission 
finding,\101\ and any failure of an SRO to provide this information may 
result in the Commission not having a sufficient basis to make an 
affirmative finding that a proposed rule change is consistent with the 
Act and the applicable rules and regulations.\102\ Moreover, 
``unquestioning reliance'' on an SRO's

[[Page 9780]]

representations in a proposed rule change would not be sufficient to 
justify Commission approval of a proposed rule change.\103\
---------------------------------------------------------------------------

    \100\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \101\ See id.
    \102\ See id.
    \103\ See Susquehanna Int'l Group, LLP v. Securities and 
Exchange Commission, 866 F.3d 442, 446-47 (D.C. Cir. 2017) 
(rejecting the Commission's reliance on an SRO's own determinations 
without sufficient evidence of the basis for such determinations).
---------------------------------------------------------------------------

    The Commission believes it is appropriate to institute proceedings 
to allow for additional consideration and comment on the issues raised 
herein, including as to whether the proposal is consistent with the 
Act, any potential comments or supplemental information provided by the 
Exchange, and any additional independent analysis by the Commission.

V. Request for Written Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above, as well as any other relevant 
concerns. In particular, the Commission invites the written views of 
interested persons concerning whether the proposal is consistent with 
Sections 6(b)(4), 6(b)(5), and 6(b)(8), or any other provision of the 
Act, or the rules and regulations thereunder. The Commission asks that 
commenters address the sufficiency and merit of the Exchange's 
statements in support of the proposal, in addition to any other 
comments they may wish to submit about the proposed rule change. 
Although there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of views, 
data, and arguments, the Commission will consider, pursuant to Rule 
19b-4, any request for an opportunity to make an oral 
presentation.\104\
---------------------------------------------------------------------------

    \104\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposal by an SRO. 
See Securities Acts Amendments of 1975, Report of the Senate 
Committee on Banking, Housing and Urban Affairs to Accompany S. 249, 
S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rule change, 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 [email protected]. Please include 
File Number SR-EMERALD-2022-06 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-EMERALD-2022-06. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-EMERALD-2022-06 and should be submitted 
on or before March 15, 2022. Rebuttal comments should be submitted by 
March 29, 2022.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\105\ that File Number SR-EMERALD-2022-06 be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
---------------------------------------------------------------------------

    \105\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\106\
---------------------------------------------------------------------------

    \106\ 17 CFR 200.30-3(a)(12), (57), and (58).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03657 Filed 2-18-22; 8:45 am]
BILLING CODE 8011-01-P


