[Federal Register Volume 87, Number 111 (Thursday, June 9, 2022)]
[Notices]
[Pages 35252-35269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-12401]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95036; File No. SR-MEMX-2022-14]


Self-Regulatory Organizations; MEMX LLC; Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Amend the 
Exchange's Fee Schedule To Adopt Market Data Fees

June 3, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 24, 2022, MEMX LLC (``MEMX'' or the ``Exchange'') filed 
with the Securities and Exchange Commission (the ``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to

[[Page 35253]]

solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

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

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

    The Exchange is filing with the Commission a proposed rule change 
to amend the Exchange's fee schedule applicable to Members \3\ and non-
Members (the ``Fee Schedule'') pursuant to Exchange Rules 15.1(a) and 
(c). The Exchange proposes to implement the changes to the Fee Schedule 
pursuant to this proposal immediately. The text of the proposed rule 
change is provided in Exhibit 5.
---------------------------------------------------------------------------

    \3\ See Exchange Rule 1.5(p).
---------------------------------------------------------------------------

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

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

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

1. Purpose
Background
    The purpose of the proposed rule change is to amend the Fee 
Schedule to adopt fees the Exchange will charge to Members and non-
Members for each of its three proprietary market data feeds, namely 
MEMOIR Depth, MEMOIR Top, and MEMOIR Last Sale (collectively, the 
``Exchange Data Feeds''). As set forth below, the Exchange believes 
that the proposed fees are fair and reasonable and has based its 
proposal on the fact that competitive forces exist with respect to the 
Exchange Data Feeds, a comparison to competitor pricing, as well as a 
cost analysis intended to provide transparency to the Commission and to 
the industry at large. The Exchange is proposing to implement the 
proposed fees immediately.
    Before setting forth the additional details regarding the existence 
of competitive forces, the comparison to competitor pricing and the 
Exchange's cost analysis for transparency purposes, immediately below 
is a description of the proposed fees.
Proposed Market Data Pricing
    The Exchange offers three separate data feeds to subscribers--
MEMOIR Depth, MEMOIR Top and MEMOIR Last Sale. The Exchange notes that 
there is no requirement that any Firm subscribe to a particular 
Exchange Data Feed or any Exchange Data Feed whatsoever, but instead, a 
Firm may choose to maintain subscriptions to those Exchange Data Feeds 
they deem appropriate based on their business model. The proposed fee 
will not apply differently based upon the size or type of Firm, but 
rather based upon the subscriptions a Firm has to Exchange Data Feeds 
and their use thereof, which are in turn based upon factors deemed 
relevant by each Firm. The proposed pricing for each of the Exchange 
Data Feeds is set forth below.
MEMOIR Depth
    The MEMOIR Depth feed is a MEMX-only market data feed that contains 
all displayed orders for securities trading on the Exchange (i.e., top 
and depth-of-book order data), order executions (i.e., last sale data), 
order cancellations, order modifications, order identification numbers, 
and administrative messages.\4\ The Exchange proposes to charge each of 
the fees set forth below for MEMOIR Depth.
---------------------------------------------------------------------------

    \4\ See MEMX Rule 13.8(a).
---------------------------------------------------------------------------

    1. Internal Distribution Fee. For the receipt of access to the 
MEMOIR Depth feed, the Exchange proposes to charge $1,500 per month. 
This proposed access fee would be charged to any data recipient that 
receives a data feed of the MEMOIR Depth feed for purposes of internal 
distribution (i.e., an ``Internal Distributor''). The Exchange proposes 
to define an Internal Distributor as ``a Distributor that receives an 
Exchange Data product and then distributes that data to one or more 
data recipients within the Distributor's own organization.'' \5\ The 
proposed access fee for internal distribution will be charged only once 
per month per subscribing entity (``Firm''). The Exchange notes that it 
has proposed to use the phrase ``own organization'' in the definition 
of Internal Distributor and External Distributor because a Firm will be 
permitted to share data received from an Exchange Data product to other 
legal entities affiliated with the Firm that have been disclosed to the 
Exchange without such distribution being considered external to a third 
party. For instance, if a company has multiple affiliated broker-
dealers under the same holding company, that company could have one of 
the broker-dealers or a non-broker-dealer affiliate subscribe to an 
Exchange Data product and then share the data with other affiliates 
that have a need for the data. This sharing with affiliates would not 
be considered external distribution to a third party but instead would 
be considered internal distribution to data recipients within the 
Distributor's own organization.
---------------------------------------------------------------------------

    \5\ See Market Data Definitions under the proposed MEMX Fee 
Schedule. The Exchange also proposes to adopt a definition for 
``Distributor'', which would mean any entity that receives an 
Exchange Data product directly from the Exchange or indirectly 
through another entity and then distributes internally or externally 
to a third party.
---------------------------------------------------------------------------

    2. External Distribution Fee. For redistribution of the MEMOIR 
Depth feed, the Exchange proposes to establish an access fee of $2,500 
per month. The proposed redistribution fee would be charged to any 
External Distributor of the MEMOIR Depth feed, which would be defined 
to mean ``a Distributor that receives an Exchange Data product and then 
distributes that data to a third party or one or more data recipients 
outside the Distributor's own organization.'' \6\ The proposed access 
fee for external distribution will be charged only once per month per 
Firm. As noted above, while a Firm will be permitted to share data 
received from an Exchange Data product to other legal entities 
affiliated with the Firm that have been disclosed to the Exchange 
without such distribution being considered external to a third party, 
if a Firm distributes data received from an Exchange Data product to an 
unaffiliated third party that would be considered distribution to data 
recipients outside the Distributor's own organization and the access 
fee for external distribution would apply.
---------------------------------------------------------------------------

    \6\ See Market Data Definitions under the proposed MEMX Fee 
Schedule.
---------------------------------------------------------------------------

    3. Non-Display Use Fees. The Exchange proposes to establish 
separate non-display fees for usage by Trading Platforms and other 
Users (i.e., not by Trading Platforms).\7\ Non-Display Usage would be 
defined to mean ``any method of accessing an Exchange Data product that 
involves access or use by a machine or automated device without access 
or use of a display by a natural person or

[[Page 35254]]

persons.'' \8\ For Non-Display Usage of the MEMOIR Depth feed not by 
Trading Platforms, the Exchange proposes to establish a fee of $1,500 
per month.\9\ For Non-Display Usage of the MEMOIR Depth feed by Trading 
Platforms, the Exchange proposes to establish a fee of $4,000 per 
month. The proposed fees for Non-Display Usage will be charged only 
once per category per Firm.\10\ In other words, with respect to Non-
Display Usage Fees, a Firm that uses MEMOIR Depth for non-display 
purposes but does not operate a Trading Platform would pay $1,500 per 
month, a Firm that uses MEMOIR Depth in connection with the operation 
of one or more Trading Platforms (but not for other purposes) would pay 
$4,000 per month, and a Firm that uses MEMOIR Depth for non-display 
purposes other than operating a Trading Platform and for the operation 
of one or more Trading Platforms would pay $5,500 per month.
---------------------------------------------------------------------------

    \7\ The Exchange proposes to define a Trading Platform as ``any 
execution platform operated as or by a registered National 
Securities Exchange (as defined in Section 3(a)(1) of the Exchange 
Act), an Alternative Trading System (as defined in Rule 300(a) of 
Regulation ATS), or an Electronic Communications Network (as defined 
in Rule 600(b)(23) of Regulation NMS).'' See Market Data Definitions 
under the proposed MEMX Fee Schedule.
    \8\ See Market Data Definitions under the proposed MEMX Fee 
Schedule.
    \9\ Non-Display Usage not by Trading Platforms would include 
trading uses such as high frequency or algorithmic trading as well 
as any trading in any asset class, automated order or quote 
generation and/or order pegging, price referencing for smart order 
routing, operations control programs, investment analysis, order 
verification, surveillance programs, risk management, compliance, 
and portfolio management.
    \10\ The Exchange proposes to adopt note 1 to the proposed 
Market Data fees table, which would make clear to subscribers that 
use of the data for multiple non-display purposes or operate more 
than one Trading Platform would only be charged once per category 
per month. Thus, the footnote makes clear that each fee applicable 
to Non-Display Usage is charged per subscriber (e.g., a Firm) and 
that each of the fees represents the maximum charge per month per 
subscriber regardless of the number of non-display uses and/or 
Trading Platforms operated by the subscriber, as applicable.
---------------------------------------------------------------------------

    4. User Fees. The Exchange proposes to charge a Professional User 
Fee (per User) of $30 per month and a Non-Professional User Fee (per 
User) of $3 per month. The proposed User fees would apply to each 
person that has access to the MEMOIR Depth feed for displayed usage. 
Thus, each Distributor's count will include every individual that 
accesses the data regardless of the purpose for which the individual 
uses the data. Internal Distributors and External Distributors of the 
MEMX Depth feed must report all Professional and Non-Professional Users 
in accordance with the following:
     In connection with a Distributor's distribution of the 
MEMOIR Depth feed, the Distributor must count as one User each unique 
User that the Distributor has entitled to have access to the MEMOIR 
Depth feed.
     Distributors must report each unique individual person who 
receives access through multiple devices or multiple methods (e.g., a 
single User has multiple passwords and user identifications) as one 
User.
     If a Distributor entitles one or more individuals to use 
the same device, the Distributor must include only the individuals, and 
not the device, in the count. Thus, Distributors would not be required 
to report User device counts associated with a User's display use of 
the data feed.
    5. Enterprise Fee. Other than the Digital Media Enterprise Fee 
described below, the Exchange is not proposing to adopt an Enterprise 
Fee for the MEMOIR Depth feed at this time.
    6. Digital Media Enterprise Fee. As an alternative to User fees, a 
recipient Firm may purchase a monthly Digital Media Enterprise license 
to receive MEMOIR Depth for distribution to an unlimited number of 
Users for viewing via television, websites, and mobile devices for 
informational and non-trading purposes only. The Exchange proposes to 
establish a fee of $5,000 per month for a Digital Media Enterprise 
license to the MEMOIR Depth feed.
MEMOIR Top
    The MEMOIR Top feed is a MEMX-only market data feed that contains 
top of book quotations based on equity orders entered into the System 
as well as administrative messages.\11\ The Exchange proposes to charge 
each of the fees set forth below for MEMOIR Top.
---------------------------------------------------------------------------

    \11\ See MEMX Rule 13.8(b).
---------------------------------------------------------------------------

    1. Internal Distribution Fee. For the receipt of access to the 
MEMOIR Top feed, the Exchange proposes to charge $750 per month. This 
proposed access fee would be charged to any data recipient that 
receives a data feed of the MEMOIR Top feed for purposes of internal 
distribution (i.e., an Internal Distributor). The proposed access fee 
for internal distribution will be charged only once per month per Firm.
    2. External Distribution Fee. For redistribution of the MEMOIR Top 
feed, the Exchange proposes to establish an access fee of $2,000 per 
month. The proposed redistribution fee would be charged to any External 
Distributor of the MEMOIR Top feed. The proposed access fee for 
external distribution will be charged only once per month per Firm.
    3. Non-Display Use Fees. The Exchange does not propose to establish 
non-display fees for usage by Trading Platforms or other Users with 
respect to MEMOIR Top.
    4. User Fees. The Exchange proposes to charge a Professional User 
Fee (per User) of $0.01 per month and a Non-Professional User Fee (per 
User) of $0.01 per month. The proposed User fees would apply to each 
person that has access to the MEMOIR Top feed that is provided by an 
External Distributor for displayed usage. The Exchange does not propose 
any per User fees for internal distribution of the MEMOIR Top feed. 
Each External Distributor's count will include every individual that 
accesses the data regardless of the purpose for which the individual 
uses the data. External Distributors of the MEMOIR Top feed must report 
all Professional and Non-Professional Users \12\ in accordance with the 
following:
---------------------------------------------------------------------------

    \12\ The Exchange notes that while it is not differentiating 
Professional and Non-Professional Users based on fees (in that it is 
proposing the same fee for such Users) for this data feed, and thus 
will not audit Firms based on this distinction, it will request 
reporting of each distinct category for informational purposes.
---------------------------------------------------------------------------

     In connection with an External Distributor's distribution 
of the MEMOIR Top feed, the Distributor must count as one User each 
unique User that the Distributor has entitled to have access to the 
MEMOIR Top feed.
     External Distributors must report each unique individual 
person who receives access through multiple devices or multiple methods 
(e.g., a single User has multiple passwords and user identifications) 
as one User.
     If an External Distributor entitles one or more 
individuals to use the same device, the Distributor must include only 
the individuals, and not the device, in the count. Thus, Distributors 
would not be required to report User device counts associated with a 
User's display use of the data feed.
    5. Enterprise Fee. As an alternative to User fees, a recipient Firm 
may purchase a monthly Enterprise license to receive MEMOIR Top for 
distribution to an unlimited number of Professional and Non-
Professional Users. The Exchange proposes to establish a fee of $10,000 
per month for an Enterprise license to the MEMOIR Top feed.
    6. Digital Media Enterprise Fee. As an alternative to User fees, a 
recipient Firm may purchase a monthly Digital Media Enterprise license 
to receive MEMOIR Top for distribution to an unlimited number of Users 
for viewing via television, websites, and mobile devices for 
informational and non-trading purposes only. The Exchange proposes to 
establish a fee of $2,000 per month for a Digital Media Enterprise 
license to the MEMOIR Top feed.
MEMOIR Last Sale
    The MEMOIR Last Sale feed is a MEMX-only market data feed that 
contains only execution information based on equity orders entered into 
the

[[Page 35255]]

System as well as administrative messages.\13\ The Exchange proposes to 
charge each of the fees set forth below for MEMOIR Last Sale.
---------------------------------------------------------------------------

    \13\ See MEMX Rule 13.8(c).
---------------------------------------------------------------------------

    1. Internal Distribution Fee. For the receipt of access to the 
MEMOIR Last Sale feed, the Exchange proposes to charge $500 per month. 
This proposed access fee would be charged to any data recipient that 
receives a data feed of the MEMOIR Last Sale feed for purposes of 
internal distribution (i.e., an Internal Distributor). The proposed 
access fee for internal distribution will be charged only once per 
month per Firm.
    2. External Distribution Fee. For redistribution of the MEMOIR Last 
Sale feed, the Exchange proposes to establish an access fee of $2,000 
per month. The proposed redistribution fee would be charged to any 
External Distributor of the MEMOIR Last Sale feed. The proposed access 
fee for external distribution will be charged only once per month per 
Firm.
    3. Non-Display Use Fees. The Exchange does not propose to establish 
separate non-display fees for usage by Trading Platforms or other Users 
with respect to MEMOIR Last Sale.
    4. User Fees. The Exchange proposes to charge a Professional User 
Fee (per User) of $0.01 per month and a Non-Professional User Fee (per 
User) of $0.01 per month. The proposed User fees would apply to each 
person that has access to the MEMOIR Last Sale feed that is provided by 
an External Distributor for displayed usage. The Exchange does not 
propose any per User fees for internal distribution of the MEMOIR Last 
Sale feed. Each External Distributor's count will include every 
individual that accesses the data regardless of the purpose for which 
the individual uses the data. External Distributors of the MEMOIR Last 
Sale feed must report all Professional and Non-Professional Users \14\ 
in accordance with the following:
---------------------------------------------------------------------------

    \14\ See supra note 12.
---------------------------------------------------------------------------

     In connection with an External Distributor's distribution 
of the MEMOIR Last Sale feed, the Distributor must count as one User 
each unique User that the Distributor has entitled to have access to 
the MEMOIR Last Sale feed.
     External Distributors must report each unique individual 
person who receives access through multiple devices or multiple methods 
(e.g., a single User has multiple passwords and user identifications) 
as one User.
     If an External Distributor entitles one or more 
individuals to use the same device, the Distributor must include only 
the individuals, and not the device, in the count. Thus, Distributors 
would not be required to report User device counts associated with a 
User's display use of the data feed.
    5. Enterprise Fee. As an alternative to User fees, a recipient Firm 
may purchase a monthly Enterprise license to receive MEMOIR Last Sale 
for distribution to an unlimited number of Professional and Non-
Professional Users. The Exchange proposes to establish a fee of $10,000 
per month per Firm for an Enterprise license to the MEMOIR Last Sale 
feed.
    6. Digital Media Enterprise Fee. As an alternative to User fees, a 
recipient Firm may purchase a monthly Digital Media Enterprise license 
to receive MEMOIR Last Sale for distribution to an unlimited number of 
Users for viewing via television, websites, and mobile devices for 
informational and non-trading purposes only. The Exchange proposes to 
establish a fee of $2,000 per month per Firm for a Digital Media 
Enterprise license to the MEMOIR Last Sale feed.
Additional Discussion--Competitive Forces
    The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. In Regulation NMS, 
the Commission highlighted the importance of market forces in 
determining prices and SRO revenues, and also recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \15\ As the Commission 
itself recognized, the market for trading services in NMS stocks has 
become ``more fragmented and competitive.'' \16\ Indeed, equity trading 
is currently dispersed across 16 exchanges,\17\ 31 alternative trading 
systems,\18\ and numerous broker-dealer internalizers and wholesalers, 
all competing for order flow. While the competitive environment 
described above and the Commission's statements related thereto are 
primarily regarding market share and trading volumes, and not market 
data specifically, the Exchange believes that competition does 
constrain the Exchange's ability to set market data prices, as 
described below.
---------------------------------------------------------------------------

    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule) 
(``Regulation NMS Adopting Release'').
    \16\ See Securities Exchange Act Release No. 51808, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot 
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
    \17\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, available at: http://markets.cboe.com/us/equities/market_share/. See generally https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
    \18\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsData. A list of 
alternative trading systems registered with the Commission is 
available at: https://www.sec.gov/foia/docs/atslist.htm.
---------------------------------------------------------------------------

    The recent growth of MEMX's market share demonstrates the 
competitive marketplace in which the Exchange operates. The Exchange 
launched in September 2020 and slowly grew over the next several months 
as it completed its staged rollout intended to ensure market stability. 
In January 2021, the Exchange averaged approximately 0.6% of 
consolidated trading volume.\19\ The Exchange experienced significant 
growth every month from February 2021 to December 2021 and ended 2021 
with market share of approximately 4.2% of consolidated volume; MEMX 
has maintained a similar market share percentage in 2022, with 
approximately 4.05% market share to date.\20\
---------------------------------------------------------------------------

    \19\ Market share percentage calculated as of February 1, 2022. 
The Exchange receives and processes data made available through 
consolidated data feeds (i.e., CTS and UTDF).
    \20\ See id.
---------------------------------------------------------------------------

    As the Exchange's transaction market share has increased, so has 
the value of its market data. In addition to achieving over 4% of 
consolidated volume, the Exchange's NBBO Quote Market Share (i.e., the 
notional value displayed at the inside national best bid or offer, or 
``NBBO'', as a percentage of overall notional value at the NBBO) is 
comparable to that of Cboe BZX Exchange, Inc. (``BZX'') and the New 
York Stock Exchange (``NYSE''), and higher than that of Cboe EDGX 
Exchange. Inc.\21\ The Exchange determined the level of the fees to 
charge for the Exchange Data Feeds based on the value of the Exchange's 
market data as well as the cost analysis described later in this 
filing. In particular, as noted elsewhere in this proposal, the 
proposed fee structure is comparable to that of BZX and the proposed 
fees themselves are equal to or in many cases lower than BZX. Thus, as 
the Exchange has similar market quality to BZX and other larger maker/
taker exchanges and has priced its data at a significant discount to 
those markets,

[[Page 35256]]

the Exchange believes it is starting from a place of general 
acceptability to industry participants. Indeed, while silence cannot 
necessarily be interpreted as support, the Exchange notes that no 
comment letters on the Initial Proposal have been filed.
---------------------------------------------------------------------------

    \21\ See Cboe Global Markets NBBO Quote Market Share Statistics, 
available at: https://www.cboe.com/us/equities/market_statistics/. 
In April 2022, NBBO Quote Market Share of the largest six equities 
exchanges was as follows: NYSE Arca 18.88%, Nasdaq 17.67%, BZX 
11.66%, NYSE 10.43%, MEMX 9.85%, EDGX 8.91%. The remaining ten 
equities exchanges have NBBO Quote Market Share below 5%.
---------------------------------------------------------------------------

    As noted above, over a 16-month period, MEMX has grown from 0% to 
over 4% market share of consolidated trading volume. During that same 
period, the Exchange has had a steady increase in the number of 
subscribers to Exchange Data Feeds. As a new entrant into the exchange 
industry, the Exchange is particularly subject to competitive forces as 
it works to attract new Members and trading volume and maintain 
participation from existing participants. While the Exchange has been 
able to rapidly grow its market share since its launch in September 
2020, MEMX operates only a single U.S. equities exchange with market 
share that remains significantly lower than the market share of the 
largest exchange groups. As noted above, until April of this year, MEMX 
did not charge fees for market data provided by the Exchange. The 
objective of this approach was to eliminate any fee-based barriers for 
Members when MEMX launched as a national securities exchange in 2020, 
which the Exchange believes has been helpful in its ability to attract 
order flow as a new exchange. The Exchange also did not initially 
charge for market data because MEMX believes that any exchange should 
first deliver meaningful value to Members and other market participants 
before charging fees for its products and services. The Exchange 
believes that its proposed approach to market data fees is reasonable 
based on the existence of competition, a comparison to competitors and 
the cost analysis presented below.
    The Exchange is not required to make the Exchange Data Feeds 
available or to offer any specific pricing alternatives to any 
customers, nor is any firm required to purchase the Exchange Data 
Feeds. Firms that choose to subscribe to the Exchange Data Feeds do so 
for the primary goals of using it to increase their revenues, reduce 
their expenses, and in some instances to compete directly with the 
Exchange (including for order flow). Those firms are able to determine 
for themselves whether or not the Exchange Data Feeds or any other 
similar products are attractively priced.
    Because the Exchange Data Feeds have not been previously subject to 
fees, the Exchange did not know the impact of the proposed fees on data 
recipients at the time of the Initial Proposal but expected that 
subscribers may choose to reduce or eliminate their use of MEMX data. 
The Exchange now has additional data regarding the impact of fees for 
Exchange Data Feeds. Specifically, current subscribers to the Exchange 
Data Feeds have indeed changed their behavior in response to the 
imposition of fees as predicted in the Initial Proposal. Following the 
date that fees for the Exchange Data Feeds were officially announced, 
fifteen (15) out of seventy-nine (79) subscribers, representing 19% of 
the subscribers to such data feeds, modified or canceled their 
subscriptions before the fees went into effect. In each instance, the 
subscriber told the Exchange that the reason for modifying or 
cancelling its subscription was the imminent imposition of fees. These 
modifications and cancellations are evidence that subscribing to the 
Exchange Data Feeds is discretionary, that each customer makes the 
decision whether to subscribe based on its own analysis of the benefits 
and costs to itself, and that customers can and do make those decisions 
quickly based on reactions to fee changes. Prior to the imposition of 
fees, four (4) customers (or 5% of market data subscribers) informed 
the Exchange that if the Exchange imposes the fees as proposed, such 
customers will limit their subscription the MEMOIR Top feed and/or the 
MEMOIR Last Sale feed, rather than the MEMOIR Depth feed, which is more 
expensive under the proposed fees. Notably, three (3) of these 
customers are active trading participants on the Exchange and have 
continued to participate on the Exchange without use of the Exchange's 
MEMOIR Depth feed. In addition, eleven (11) customers of the Exchange 
that were subscribed to receive Exchange Data Feeds have cancelled 
their subscriptions to such data feeds entirely (representing 
approximately 14% of market data subscribers). Five (5) of the eleven 
(11) customers that have cancelled all subscriptions to Exchange Data 
Feeds actively trade on the Exchange and have informed the Exchange 
that they will rely instead on consolidated data distributed pursuant 
to NMS Plans (i.e., ``SIP data'') to participate on the Exchange. This 
is clear evidence that the availability of these substitute products 
constrains the Exchange's ability to charge supra-competitive prices 
for the Exchange Data Feeds.\22\
---------------------------------------------------------------------------

    \22\ The Exchange notes that the remaining customers that 
modified or cancelled their subscriptions to the Exchange Data Feeds 
(seven customers total) are not trading participants on the Exchange 
and likely subscribed to the Exchange Data Feeds initially because 
they were free but determined to cancel such subscriptions now that 
the Exchange is charging market data fees.
---------------------------------------------------------------------------

    The Exchange intentionally adopted fees that it believed were 
reasonable and would not result in the Exchange losing market share. In 
fact, despite the modifications and cancellations described above, the 
Exchange has not lost market share from such market participants. 
Rather, their participation has remained similar to that on the 
Exchange prior to the imposition of fees and resulting changes to their 
market data subscriptions. However, the Exchange continues to believe 
that a data recipient that chose to discontinue subscribing to the 
Exchange's Data Feeds could also choose to shift order flow away from 
the Exchange and, given the current competitive environment, if data 
recipients had both discontinued the product and shifted order flow 
away from the Exchange, the Exchange would have had to reevaluate the 
fees and file a separate proposed rule change to amend its fees. The 
Exchange believes that the majority of data subscribers have maintained 
both their subscriptions to Exchange Data Feeds and their market share 
on the Exchange due to the overall reasonability of the proposed fees.
    Had the proposed fees for the Exchange Data Feeds instead been 
unreasonable, the Exchange believes it would have seen additional 
modifications or cancellations to subscriptions to the Exchange Data 
Feeds and this may have further resulted in a loss of market share. As 
the Exchange has intentionally avoided imposing unreasonable fees, 
consistent with its obligations as a registered national securities 
exchange, the Exchange cannot present statistical evidence to support 
its understanding of how market participants would have reacted to the 
imposition of such fees. Indeed, adopting fees that are unreasonable in 
order to prove that the Exchange's market data is subject to 
competitive forces, would contradict the Exchange's responsibilities 
under Section 6(b)(4) of the Exchange Act, and would have the 
paradoxical effect of weakening competition in the market by harming 
the competitive standing of a new exchange entrant that has actively 
sought to increase competition among U.S. equities exchanges.
Additional Discussion--Comparison With Other Exchanges
    The proposed fee structure is not novel but is instead comparable 
to the fee structure currently in place for the equities exchanges 
operated by Cboe Global Markets, Inc., in particular

[[Page 35257]]

BZX.\23\ As noted above, in January 2022, MEMX had 4.2% market share; 
for that same month, BZX had 5.5% market share.\24\ The Exchange is 
proposing fees for its Exchange Data Feeds that are similar in 
structure to BZX and rates that are equal to, or in most cases lower, 
than the rates data recipients pay for comparable data feeds from 
BZX.\25\ The Exchange notes that other competitors maintain fees 
applicable to market data that are considerably higher than those 
proposed by the Exchange, including NYSE Arca \26\ and Nasdaq.\27\ 
However, the Exchange has focused its comparison on BZX because it is 
the closest market in terms of market share and offers market data at 
prices lower than several other incumbent exchanges.\28\
---------------------------------------------------------------------------

    \23\ See BZX Fee Schedule, available at: https://www.cboe.com/us/equities/membership/fee_schedule/bzx/.
    \24\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, available at http://markets.cboe.com/us/equities/market_share/.
    \25\ The Exchange notes that although no fee proposed by the 
Exchange is higher than the fee charged for BZX for a comparable 
data product, under certain fact patterns a BZX data recipient could 
pay a lower rate than that charged by the Exchange. For instance, 
while the Exchange has proposed to adopt identical fees to those 
charged for internal distribution of MEMOIR Top as compared to BZX 
Top ($750 per month) and for internal distribution of MEMOIR Last 
Sale as compared to BZX Last Sale ($500 per month), BZX permits a 
data recipient who takes both feeds to pay only one fee and, upon 
request, to receive the other data feed free of charge. See BZX Fee 
Schedule, Market Data Fees, BZX Depth, available at: https://www.cboe.com/us/equities/membership/fee_schedule/bzx/. Because the 
Exchange has not proposed such a discount, a data recipient taking 
both MEMOIR TOP and MEMOIR Last Sale would pay more ($1,250 per 
month) than they would to take comparable data feeds from BZX ($750 
per month).
    \26\ Fees for the NYSE Arca Integrated Feed, which is the 
comparable product to MEMOIR Depth, are $3,000 for access (internal 
use) and $3,750 for redistribution (external distribution), compared 
to the Exchange's proposed fees of $1,500 and $2,500, respectively. 
In addition, for its Integrated Feed, NYSE Arca charges for three 
different categories of non-display usage, each of which is $10,500 
and each of which can be charged to the same firm more than one time 
(e.g., a customer operating a Trading Platform would pay $10,500 
compared to the Exchange's proposed fee of $4,000 but would also pay 
for each Trading Platform, up to three, if they operate more than 
one, instead of the single fee proposed by the Exchange; if that 
customer also uses the data for the other categories of non-display 
usage they would also pay $10,500 for each other category of usage, 
whereas the Exchange would only charge $1,500 for any non-display 
usage other than operating a Trading Platform). Finally, the NYSE 
Arca Integrated Feed user fee for pro devices is $60 compared to the 
proposed Professional User fee of $30 for MEMOIR Depth and the NYSE 
Arca Integrated user fee for non-pro devices is $20 compared to the 
proposed Non-Professional User fee of $3 for MEMOIR Depth. See NYSE 
Proprietary Market Data Pricing list, available at: https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf.
    \27\ Fees for the Nasdaq TotalView data feed, which is the 
comparable product to MEMOIR Depth, are $1,500 for access (internal 
use) and $3,750 for redistribution (external distribution), compared 
to the Exchange's proposed fees of $1,500 and $2,500, respectively. 
In addition, for TotalView, Nasdaq charges Trading Platforms $5,000 
compared to the Exchange's proposal of $4,000, and, like NYSE Arca, 
charges customers per Trading Platform, up to three, if they operate 
more than one, instead of the single fee proposed by the Exchange. 
Nasdaq also requires users to report and pay usage fees for non-
display access at levels of from $375 per subscriber for smaller 
firms with 39 or fewer subscribers to $75,000 per firm for a larger 
firm with over 250 subscribers. The Exchange does not require 
counting of devices or users for non-display purposes and instead 
has proposed flat fee of $1,500 for non-display usage not by Trading 
Platforms. Finally, the Nasdaq TotalView user fee for professional 
subscribers is $76 compared to the proposed Professional User fee of 
$30 for MEMOIR Depth and the Nasdaq TotalView user fee for non-
professional subscribers is $15 compared to the proposed Non-
Professional User fee of $3 for MEMOIR Depth. See Nasdaq Global Data 
Products pricing list, available at: http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN.
    \28\ See supra notes 26 and 27.
---------------------------------------------------------------------------

    The fees for the BZX Depth feed--which like the MEMOIR Depth feed, 
includes top of book, depth of book, trades, and security status 
messages--consist of an internal distributor access fee of $1,500 per 
month (the same as the Exchange's proposed rate), an external 
distributor access fee of $5,000 per month (two times the Exchange's 
proposed rate), a non-display usage fee for non-Trading Platforms of 
$2,000 per month ($500 more than the Exchange's proposed rate), a non-
display usage fee for Trading Platforms of $5,000 per month ($1,000 
more than the Exchange's proposed rate), a Professional User fee (per 
User) of $40 per month ($10 more than the Exchange's proposed rate), 
and a Non-Professional User fee (per User) of $5 per month ($2 more 
than the Exchange's proposed rate).\29\
---------------------------------------------------------------------------

    \29\ See BZX Fee Schedule, Market Data Fees, BZX Depth, 
available at: https://www.cboe.com/us/equities/membership/fee_schedule/bzx/. The Exchange notes that there are differences 
between the structure of BZX Depth fees and the proposed fees for 
MEMOIR Depth, including that the Exchange has proposed a Digital 
Media Enterprise License for MEMOIR Depth but a comparable license 
is not available from BZX. Additionally, BZX maintains a general 
enterprise license for User fees, similar to that proposed by the 
Exchange for MEMOIR Top and MEMOIR Last Sale, but the Exchange has 
not proposed adding a general Enterprise license at this time.
---------------------------------------------------------------------------

    The comparisons of the MEMOIR Last Sale feed and MEMOIR Top feed to 
the BZX Last Sale feed and BZX Top feed, respectively, are similar in 
that BZX generally maintains the same fee structure proposed by the 
Exchange and BZX charges fees that are comparable to, but in most cases 
higher than, the Exchange's proposed fees. Notably, the User fees 
proposed by the Exchange for External Distributors of MEMOIR Last Sale 
and MEMOIR Top ($0.01 for both Professional Users and Non-Professional 
Users) are considerably lower than those charged by BZX for BZX Top and 
BZX Last Sale ($4 for Professional Users and $0.10 for Non-Professional 
Users).
    By charging the same low rate for all Users of MEMOIR Top and 
MEMOIR Last Sale the Exchange believes it is proposing a structure that 
is not only lower cost but that will also simplify reporting for 
subscribers who externally distribute these data feeds to Users, as the 
Exchange believes that categorization of Users as Professional and Non-
Professional is not meaningful for these products and requiring such 
categorization would expose Firms to unnecessary audit risk of paying 
more for mis-categorization. However, the Exchange does not believe 
this is equally true for MEMOIR Depth, as most individual Users of 
MEMOIR Depth are likely to be Professional Users and the Exchange has 
proposed pricing for such Users that the Exchange believes is 
reasonable given the value to Professional Users (i.e., since 
Professional Users use data to participate in the markets as part of 
their full-time profession and earn compensation based on their 
employment). While the Exchange would prefer the simplicity of a single 
fee, similar to that imposed for Professional Users and Non-
Professional Users, as that would reduce audit risk and simplify 
reporting, the proposed fee for Professional Users if also applied to 
Non-Professional Users would be significantly higher than other 
exchanges charge. The Exchange reiterates that it does not anticipate 
many Non-Professional Users to subscribe to MEMOIR Depth. In fact, 
though data recipient reporting is still being completed and validated 
for the first billing cycle, the Exchange is only aware of a single 
Non-Professional User (i.e., one User) that is reported to receive 
MEMOIR Depth.
Additional Discussion--Cost Analysis
    In general, the Exchange believes that exchanges, in setting fees 
of all types, should meet very high standards of transparency to 
demonstrate why each new fee or fee increase meets the Exchange Act 
requirements that fees be reasonable, equitably allocated, not unfairly 
discriminatory, and not create an undue burden on competition among 
members and markets. In particular, the Exchange believes that each 
exchange should take extra care to be able to demonstrate that these 
fees are based on its costs and reasonable business needs. Accordingly, 
in proposing to charge fees for market data, the Exchange has

[[Page 35258]]

sought to be especially diligent in assessing those fees in a 
transparent way against its own aggregate costs of providing the 
related service, and also carefully and transparently assessing the 
impact on Members--both generally and in relation to other Members, 
i.e., to assure the fee will not create a financial burden on any 
participant and will not have an undue impact in particular on smaller 
Members and competition among Members in general. The Exchange believes 
that this level of diligence and transparency is called for by the 
requirements of Section 19(b)(1) under the Act,\30\ and Rule 19b-4 
thereunder,\31\ with respect to the types of information self-
regulatory organizations (``SROs'') should provide when filing fee 
changes, and Section 6(b) of the Act,\32\ which requires, among other 
things, that exchange fees be reasonable and equitably allocated,\33\ 
not designed to permit unfair discrimination,\34\ and that they not 
impose a burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.\35\ This rule change proposal 
addresses those requirements, and the analysis and data in this section 
are designed to clearly and comprehensively show how they are met.\36\
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78s(b)(1).
    \31\ 17 CFR 240.19b-4.
    \32\ 15 U.S.C. 78f(b).
    \33\ 15 U.S.C. 78f(b)(4).
    \34\ 15 U.S.C. 78f(b)(5).
    \35\ 15 U.S.C. 78f(b)(8).
    \36\ In 2019, Commission staff published guidance suggesting the 
types of information that SROs may use to demonstrate that their fee 
filings comply with the standards of the Exchange Act (``Fee 
Guidance''). While MEMX understands that the Fee Guidance does not 
create new legal obligations on SROs, the Fee Guidance is consistent 
with MEMX's view about the type and level of transparency that 
exchanges should meet to demonstrate compliance with their existing 
obligations when they seek to charge new fees. See Staff Guidance on 
SRO Rule Filings Relating to Fees (May 21, 2019) available at 
https://www.sec.gov/tm/staff-guidancesro-rule-filings-fees.
---------------------------------------------------------------------------

    In October 2021, MEMX completed a study of its aggregate costs to 
produce market data and connectivity (the ``Cost Analysis''). The Cost 
Analysis required a detailed analysis of MEMX's aggregate baseline 
costs, including a determination and allocation of costs for core 
services provided by the Exchange--transactions, market data, 
membership services, physical connectivity, and application sessions 
(which provide order entry, cancellation and modification 
functionality, risk functionality, ability to receive drop copies, and 
other functionality). MEMX separately divided its costs between those 
costs necessary to deliver each of these core services, including 
infrastructure, software, human resources (i.e., personnel), and 
certain general and administrative expenses (``cost drivers''). Next, 
MEMX adopted an allocation methodology with various principles to guide 
how much of a particular cost should be allocated to each core service. 
For instance, fixed costs that are not driven by client activity (e.g., 
message rates), such as data center costs, were allocated more heavily 
to the provision of physical connectivity (75%), with smaller 
allocations to logical ports (2.6%), and the remainder to the provision 
of transaction execution and market data services (22.4%). In contrast, 
costs that are driven largely by client activity (e.g., message rates), 
were not allocated to physical connectivity at all but were allocated 
primarily to the provision of transaction execution and market data 
services (90%) with a smaller allocation to application sessions (10%). 
The allocation methodology was decided through conversations with 
senior management familiar with each area of the Exchange's operations. 
After adopting this allocation methodology, the Exchange then applied 
an estimated allocation of each cost driver to each core service, 
resulting in the cost allocations described below.
    By allocating segmented costs to each core service, MEMX was able 
to estimate by core service the potential margin it might earn based on 
different fee models. The Exchange notes that as a non-listing venue it 
has four primary sources of revenue that it can potentially use to fund 
its operations: transaction fees, fees for connectivity services, 
membership and regulatory fees, and market data fees. Accordingly, the 
Exchange must cover its expenses from these four primary sources of 
revenue.
    The Exchange recently filed to adopt fees for connectivity 
services, to which the Exchange allocated a monthly aggregate monthly 
cost of $1,143,715.\37\ Based on the pricing adopted by the Exchange, 
the Exchange estimated it would generate monthly revenue of $1,233,750 
from connectivity services (i.e., physical connections and application 
sessions), providing cost recovery to the Exchange for the aggregate 
costs of offering connectivity services plus approximately 8% margin. 
Thus far, fees for connectivity services have generated revenues 
consistent with the Exchange's estimates.
---------------------------------------------------------------------------

    \37\ See Securities Exchange Act Release Nos. 93937 (January 10, 
2022), 87 FR 2466 (January 14, 2022) (SR-MEMX-2021-22); 94419 (March 
15, 2022), 87 FR 16046 (March 21, 2022) (SR-MEMX-2022-02); 94924 
(May 16, 2022) (SR-MEMX-2022-13) (as the fees adopted have remained 
the same and the Exchange has filed since January of 2022, these 
filings are referred to generally hereafter as the ``Connectivity 
Filing'').
---------------------------------------------------------------------------

    The Exchange notes that it is difficult, if not impossible, to 
purely split the costs of generating and producing market data and the 
costs associated with operation of the system that processes (and 
displays through market data) orders, cancellations, and transactions 
and performs related functions (collectively, together with market 
data, ``Transaction Services''). Instead, as described below, the 
Exchange believes its costs for providing Transaction Services, 
including market data, are inextricably linked, and thus the cost 
analysis below and corollary margin discussion includes all Transaction 
Services.
    Through the Exchange's extensive Cost Analysis, the Exchange 
analyzed every expense item in the Exchange's general expense ledger to 
determine whether each such expense relates to the provision of 
Transaction Services, and, if such expense did so relate, what portion 
(or percentage) of such expense actually supports the provision of 
Transaction Services, and thus bears a relationship that is, ``in 
nature and closeness,'' directly related to Transaction Services. In 
turn, the Exchange allocated certain costs more to Transaction Services 
than other services, while certain costs were only allocated to such 
services at a very low percentage, using consistent allocation 
methodologies as described above. Based on its analysis, MEMX 
calculated its aggregate monthly costs for providing Transaction 
Services, at $2,797,265. The Exchange expects to recoup the majority of 
this cost from transaction fees and revenues from the public data feeds 
in which the Exchange participates and receives revenues (i.e., the 
SIPs). As such, the Exchange has not determined it necessary to charge 
higher fees for the Exchange Data Feeds than proposed, but instead has 
proposed what it believes are relatively low-cost options to receive 
and use Exchange Data Feeds. However, in order to cover operating costs 
and earn a reasonable profit on its market data the Exchange has 
determined it necessary to charge some fees for proprietary data, and, 
as such, the Exchange is proposing to modify its Fee Schedule, pursuant 
to MEMX Rules 15.1(a) and (c), as set forth above.
Costs Related To Offering Transaction Services
    The following chart details the individual line-item (monthly) 
costs considered by MEMX to be related to offering Transaction Services 
(transactions and market data) to its

[[Page 35259]]

Members and other customers as well as the percentage of the Exchange's 
overall costs such costs represent for such area (e.g., as set forth 
below, the Exchange allocated approximately 77.8% of its overall Human 
Resources cost to offering Transaction Services).

 
------------------------------------------------------------------------
           Costs drivers \38\                  Costs         % of all
------------------------------------------------------------------------
Human Resources.........................      $1,480,822            77.8
Connectivity (external fees, cabling,             48,480            22.4
 switches, etc.)........................
Data Center.............................          65,538            22.4
External Market Data....................         133,266            92.5
Hardware and Software Licenses and               331,722            88.7
 Consulting.............................
Monthly Depreciation....................         393,830            73.2
Allocated Shared Expenses...............         343,607            70.6
                                         -------------------------------
    Total...............................       2,797,265            70.7
------------------------------------------------------------------------

Human Resources
---------------------------------------------------------------------------

    \38\ The Exchange notes that the total monthly cost set forth 
for Transaction Services ($2,797,265) is the same as that used for 
the Initial Proposal; however, the Exchange has modified the 
categorization of such fees in the table above as such 
categorization was inconsistent when compared to the categorization 
used in the Connectivity Filing. In order to ensure a consistent 
presentation and description of the Cost Analysis and allocation 
methodology, the revised chart above corrects these inconsistencies 
to align with the categorization used in the Connectivity Filing.
---------------------------------------------------------------------------

    For personnel costs (Human Resources), MEMX calculated an 
allocation of employee time for employees whose functions include 
directly providing services necessary to offer Transaction Services, 
including performance thereof, as well as personnel with ancillary 
functions related to establishing and providing such services (such as 
information security and finance personnel). The Exchange notes that it 
has fewer than seventy (70) employees and each department leader has 
direct knowledge of the time spent by those spent by each employee with 
respect to the various tasks necessary to operate the Exchange. The 
estimates of Human Resources cost were therefore determined by 
consulting with such department leaders, determining which employees 
are involved in tasks related to providing Transaction Services, and 
confirming that the proposed allocations were reasonable based on an 
understanding of the percentage of their time such employees devote to 
tasks related to providing Transaction Services. The Exchange notes 
that senior level executives were allocated Human Resources costs to 
the extent the Exchange believed they are involved in overseeing tasks 
related to providing Transaction Services. The Human Resources cost was 
calculated using a blended rate of compensation reflecting salary, 
equity and bonus compensation, benefits, payroll taxes, and 401(k) 
matching contributions.
Connectivity
    The Connectivity cost includes external fees paid to connect to 
other exchanges, cabling and switches required to operate the Exchange. 
The Exchange notes that it previously labeled this line item as 
``Infrastructure and Connectivity'' but has eliminated the reference to 
Infrastructure because several other line-item costs could be 
considered infrastructure given the generality of that term. The 
Connectivity line-item is more narrowly focused on technology used to 
complete connections to the Exchange and to connect to external 
markets. The majority of the Exchange's Connectivity cost was allocated 
to physical connectivity (75%), as set forth in the Connectivity 
Filing. The remainder of the Exchange's Connectivity cost was allocated 
between Transaction Services (22.4%) and application sessions (2.6%).
Data Center
    Data Center costs includes an allocation of the costs the Exchange 
incurs to provide Transaction Services in the third-party data centers 
where the Exchange maintains its equipment as well as related costs 
(the Exchange does not own the Primary Data Center or the Secondary 
Data Center, but instead, leases space in data centers operated by 
third parties). Similar to the Connectivity cost described above, the 
majority of the Exchange's Data Center cost was allocated to physical 
connectivity (75%), as set forth in the Connectivity Filing. The 
remainder of the Exchange's Data Center cost was allocated between 
Transaction Services (22.4%) and application sessions (2.6%).
External Market Data
    External Market Data Costs includes fees paid to third parties, 
including other exchanges and the SIPs under the consolidated plans, to 
receive and consume market data necessary to provide Transaction 
Services.
Hardware and Software Licenses and Consulting
    Hardware and Software Licenses and Consulting includes hardware and 
software licenses used to operate and monitor physical assets necessary 
to offer Transaction Services. This line-item also includes the cost of 
certain third-party consultants used by the Exchange to help test and 
review systems necessary to offering Transaction Services.\39\
---------------------------------------------------------------------------

    \39\ The Exchange notes that in the Initial Proposal it included 
technology Consulting costs as a separate line-item but has included 
such costs along with Hardware and Software Licenses in this 
proposal for consistency with the Connectivity Filing.
---------------------------------------------------------------------------

Monthly Depreciation
    All physical assets and software, which also includes assets used 
for testing and monitoring of Exchange infrastructure, were valued at 
cost, depreciated or leased over periods ranging from three to five 
years. Thus, the depreciation cost primarily relates to servers 
necessary to operate the Exchange, some of which are owned by the 
Exchange and some of which are leased by the Exchange in order to allow 
efficient periodic technology refreshes. The depreciation cost also 
includes depreciated software that is necessary to run the Exchange. As 
noted above, the Exchange allocated 73.2% of all depreciation costs, 
including both hardware and software depreciation, to providing 
Transaction Services.
Allocated Shared Expenses
    Finally, a limited portion of general shared expenses was allocated 
to overall

[[Page 35260]]

Transaction Services costs as without these general shared costs the 
Exchange would not be able to operate in the manner that it does and 
provide Transaction Services. The costs included in general shared 
expenses include general expenses of the Exchange, including office 
space and office expenses (e.g., occupancy and overhead expenses), 
utilities, recruiting and training, marketing and advertising costs, 
regulatory costs,\40\ professional fees for legal, tax and accounting 
services (including external and internal audit expenses), and 
telecommunications costs. The Exchange notes that the cost of paying 
directors to serve on its Board of Directors is included in the 
calculation of Allocated Shared Expenses, and thus a portion of such 
overall cost was allocated to providing Transaction Services.
---------------------------------------------------------------------------

    \40\ The Exchange notes that in the Initial Proposal it included 
Regulatory Costs as a separate line-item but has included such costs 
in Allocated Shared Expenses in this proposal for consistency with 
the Connectivity Filing.
---------------------------------------------------------------------------

Cost Analysis--Additional Discussion
    In conducting its Cost Analysis, the Exchange did not allocate any 
of its expenses in full to any core service and did not double-count 
any expenses. Instead, as described above, the Exchange identified and 
allocated applicable cost drivers across its core services and used the 
same Cost Analysis to form the basis of the Connectivity Filing and 
this filing proposing fees for Exchange Data Feeds. For instance, as 
described in the Connectivity Filing, in calculating the Human 
Resources expenses to be allocated to physical connections, the 
Exchange has a team of employees dedicated to network infrastructure 
and with respect to such employees the Exchange allocated network 
infrastructure personnel with a high percentage of the cost of such 
personnel (75%) given their focus on functions necessary to provide 
physical connections. The salaries of those same personnel were 
allocated only 2.5% to application sessions and the remaining 22.5% was 
allocated to transactions and market data.
    In total, again as explained in the Connectivity Filing, the 
Exchange allocated 13.8% of its personnel costs to providing physical 
connections and 7.7% of its personnel costs to providing application 
sessions, for a total allocation of 21.5% Human Resources expense to 
provide connectivity services. In turn, the Exchange allocated the 
remaining 78.5% of its Human Resources expense to Membership (less than 
1%) and the majority to Transaction Services (77.8%). Thus, again, the 
Exchange's allocations of cost across core services were based on real 
costs of operating the Exchange and were not double-counted across the 
core services or their associated revenue streams.
    As another example, the Exchange allocated depreciation expense to 
all core services, including Transaction Services, but in different 
amounts. 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 
Exchange. Without this equipment, the Exchange would not be able to 
operate the Exchange and provide Transaction Services to its Members 
and non-Members and their customers. The Exchange did not allocate all 
of the depreciation and amortization expense toward the cost of 
providing Transaction Services, but instead allocated approximately 73% 
of the Exchange's overall depreciation and amortization expense to 
Transaction Services.
    The Exchange anticipates that the proposed fees for Exchange Data 
Feeds will generate approximately $280,000 based on initial reporting 
that has taken place since the Exchange commenced billing for such data 
feeds. The proposed fees for Exchange Data Feeds are designed to permit 
the Exchange to cover the costs allocated to providing Transaction 
Services with a markup that the Exchange believes is modest 
(approximately 10.1%), which the Exchange believes is fair and 
reasonable after taking into account the costs related to Transaction 
Services that the Exchange has previously borne completely on its own 
and help fund future expenditures (increased costs, improvements, 
etc.). The Exchange also reiterates that prior to April of this year 
the Exchange has not previously charged any fees for Exchange Data 
Feeds and its allocation of costs to Exchange Data Feeds was part of a 
holistic allocation that also allocated costs to other core services 
without double-counting any expenses.
    Looking at the Exchange's operations holistically, the total 
monthly costs to the Exchange for offering core services is $3,954,537. 
The Exchange again notes that it anticipates that the proposed fees for 
Exchange Data Feeds will generate approximately $280,000 based on 
initial reporting that has taken place since the Exchange commenced 
billing for such data feeds. Incorporating this amount into the 
Exchange's overall projected revenue, the Exchange anticipates monthly 
revenue of $4,326,950 from all sources (i.e., connectivity fees and 
membership fees that were introduced in January 2022, transaction fees, 
and revenue from market data, both through the fees proposed herein and 
through the revenue received from the SIPs). As such, applying the 
Exchange's holistic Cost Analysis to a holistic view of anticipated 
revenues, the Exchange would earn approximately 9.4% margin on its 
operations as a whole. As noted above, the Exchange believes its profit 
margin for Transaction Services will be approximately 10.1%. The 
Exchange believes that both of these amounts are reasonable.
    The Exchange notes that its revenue estimates are based on 
projections across all potential revenue streams and will only be 
realized to the extent such revenue streams actually produce the 
revenue estimated. As a new entrant to the hyper-competitive exchange 
environment, and an exchange focused on driving competition, the 
Exchange does not yet know whether such expectations will be realized. 
For instance, in order to generate the revenue expected from the 
Exchange Data Feeds, the Exchange will have to be successful in 
retaining existing subscribers and obtaining new subscribers to the 
Exchange Data Feeds. Similarly, the Exchange will have to be successful 
in retaining a positive net capture on transaction fees in order to 
realize the anticipated revenue from transaction pricing.
    To the extent the Exchange is successful in gaining market share, 
improving its net capture on transaction fees, encouraging new 
subscribers to subscribe to the Exchange Data Feeds, and other 
developments that would help to increase Exchange revenues, the 
Exchange does not believe it should be penalized for such success. The 
Exchange like other exchanges is, after all, a for-profit business. 
Accordingly, while the Exchange believes in transparency around costs 
and potential margins, as well as periodic review of revenues and 
applicable costs (as discussed below), the Exchange does not believe 
that these estimates should form the sole basis of whether or not a 
proposed fee is reasonable or can be adopted. Instead, the Exchange 
believes that the information should be used solely to confirm that an 
Exchange is not earning supra-competitive profits, and the Exchange 
believes its Cost

[[Page 35261]]

Analysis and related projections demonstrate this fact.
    The Exchange notes that the Cost Analysis was based on the 
Exchange's first year of operations and projections for the current 
year. As a general matter, the Exchange believes that its costs will 
remain relatively similar in future years. It is possible however that 
such costs will either decrease or increase. To the extent the Exchange 
sees growth in use of Exchange Data Feeds it will receive additional 
revenue to offset future cost increases. However, if use of Exchange 
Data Feeds is static or decreases, the Exchange might not realize the 
revenue that it anticipates or needs in order to cover applicable 
costs. Accordingly, the Exchange is committing to conduct a one-year 
review after implementation of these fees. The Exchange expects that it 
may propose to adjust fees at that time, to increase fees in the event 
that revenues fail to cover costs and a reasonable mark-up of such 
costs. Similarly, the Exchange would propose to decrease fees in the 
event that revenue materially exceeds current projections. In addition, 
the Exchange will periodically conduct a review to inform its decision 
making on whether a fee change is appropriate (e.g., to monitor for 
costs increasing/decreasing or subscribers increasing/decreasing, etc. 
in ways that suggest the then-current fees are becoming dislocated from 
the prior cost-based analysis) and would propose to increase fees in 
the event that revenues fail to cover its costs and a reasonable mark-
up, or decrease fees in the event that revenue or the mark-up 
materially exceeds current projections. In the event that the Exchange 
determines to propose a fee change, the results of a timely review, 
including an updated cost estimate, will be included in the rule filing 
proposing the fee change. More generally, the Exchange believes that it 
is appropriate for an exchange to refresh and update information about 
its relevant costs and revenues in seeking any future changes to fees, 
and the Exchange commits to do so.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) \41\ of the Act in general, and 
furthers the objectives of Section 6(b)(4) \42\ of the Act, in 
particular, in that it is designed to provide for the equitable 
allocation of reasonable dues, fees and other charges among its Members 
and other persons using its facilities. Additionally, the Exchange 
believes that the proposed fees are consistent with the objectives of 
Section 6(b)(5) \43\ of the Act in that they are designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to a free and open market and 
national market system, and, in general, to protect investors and the 
public interest, and, particularly, are not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f.
    \42\ 15 U.S.C. 78f(b)(4).
    \43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Proposed Rule Change Is Reasonable
    In adopting Regulation NMS, the Commission granted SROs and broker-
dealers increased authority and flexibility to offer new and unique 
market data to the public. The Commission has repeatedly expressed its 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. Specifically, 
in Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues, and also recognized that 
current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \44\
---------------------------------------------------------------------------

    \44\ See Regulation NMS Adopting Release, 70 FR 37495, at 37499.
---------------------------------------------------------------------------

    With respect to market data, the decision of the United States 
Court of Appeals for the District of Columbia Circuit in NetCoalition 
v. SEC upheld the Commission's reliance on the existence of competitive 
market mechanisms to evaluate the reasonableness and fairness of fees 
for proprietary market data:
    In fact, the legislative history indicates that the Congress 
intended that the market system ``evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are removed'' 
and that the SEC wield its regulatory power ``in those situations where 
competition may not be sufficient,'' such as in the creation of a 
``consolidated transactional reporting system.'' \45\
---------------------------------------------------------------------------

    \45\ NetCoalition v. SEC, 615 F.3d 525, 535 (D.C. Cir. 2010) 
(``NetCoalition I'') (quoting H.R. Rep. No. 94-229 at 92 (1975), as 
reprinted in 1975 U.S.C.C.A.N. 323).
---------------------------------------------------------------------------

    The court agreed with the Commission's conclusion that ``Congress 
intended that `competitive forces should dictate the services and 
practices that constitute the U.S. national market system for trading 
equity securities.' '' \46\
---------------------------------------------------------------------------

    \46\ Id. at 535.
---------------------------------------------------------------------------

    In this competitive marketplace, the Exchange's executed trading 
volume has grown from 0% market share to over 4% market share in less 
than one and a half years and the Exchange believes that it is 
reasonable to begin charging fees for the Exchange Data Feeds. One of 
the primary objectives of MEMX is to provide competition and to reduce 
fixed costs imposed upon the industry. Consistent with this objective, 
the Exchange believes that this proposal reflects a simple, 
competitive, reasonable, and equitable pricing structure designed to 
permit the Exchange to cover certain fixed costs that it incurs for 
providing market data, with fees that are discounted when compared to 
products and services offered by competitors.\47\
---------------------------------------------------------------------------

    \47\ See supra notes 26-27; see supra note 29 and accompanying 
text.
---------------------------------------------------------------------------

    The Exchange is not aware of any evidence that a market share of 
approximately 4% provides the Exchange with supra-competitive pricing 
power because, as shown elsewhere, market participants (even those that 
trade on the Exchange) are not required to subscribe to the Exchange 
Data Feeds, and if they do so, have a choice with respect to the 
Exchange Data Feed(s) to which they will subscribe. As noted above, 
when the Exchange announced that it would charge for the Exchange Data 
Feeds, 19% of its subscribers either modified or cancelled their 
subscriptions to Exchange Data Feeds. While some of these subscribers 
do not actively participate by trading on the Exchange and likely 
subscribed to the Exchange Data Feeds because they were offered free of 
charge, several of the subscribers that modified or cancelled their 
subscriptions are in fact Members that trade on the Exchange. 
Specifically, five (5) subscribers that actively participate on the 
Exchange have cancelled all subscriptions to the Exchange Data Feeds 
and have informed the Exchange that they will instead utilize SIP data 
to trade on the Exchange. In addition, three (3) subscribers that 
actively participate on the Exchange have discontinued their 
subscription to receive the MEMOIR Depth feed and have informed the 
Exchange that they will instead use the less expensive MEMOIR Top feed 
to trade on the Exchange (the Exchange notes that two of these 
subscribers have also maintained their subscriptions to the MEMOIR Last 
Sale feed).

[[Page 35262]]

    With regard to reasonableness, the Exchange understands that the 
Commission has traditionally taken a market-based approach to examine 
whether the SRO making the proposal was subject to significant 
competitive forces in setting the terms of the proposal. In looking at 
this question, consistent with the decisions in Susquehanna Int'l Grp., 
LLC v. SEC \48\ and In the Matter of the Application of Securities 
Industry and Financial Markets Ass'n for Review of Action taken by NYSE 
Arca, Inc. and Nasdaq Stock Market, LLC,\49\ the Commission considers 
whether the SRO has provided evidence in its filing that: (i) there are 
reasonable substitutes for the product or service; (ii) ``platform'' 
competition constrains the ability to set the fee; and/or (iii) revenue 
and cost analysis shows the fee would not result in the SRO taking 
supra-competitive profits. If the SRO demonstrates that the fee is 
subject to significant competitive forces, the Commission will next 
consider whether there is any substantial countervailing basis to 
suggest the fee's terms fail to meet one or more standards under the 
Exchange Act. If the filing fails to demonstrate that the fee is 
constrained by competitive forces, the SRO must provide a substantial 
basis, other than competition, to show that it is consistent with the 
Exchange Act, which may include production of relevant revenue and cost 
data pertaining to the product or service.
---------------------------------------------------------------------------

    \48\ 866 F.3d 442 (D.C. Cir. 2017).
    \49\ Securities Exchange Act Release No. 84432 (October 16, 
2018).
---------------------------------------------------------------------------

    The Exchange has not previously charged fees for market data but 
commenced charging in April of this year. As discussed in the purpose 
section of this proposed rule change, while the Exchange intentionally 
adopted fees that it believes are reasonable and would not result in a 
loss of market share, consistent with its obligations as a national 
securities exchange under Section 6(b)(4) of the Act, the Exchange 
continues to believe that competitive forces are in effect and that if 
the proposed fees for the Exchange Data Feeds were unreasonable that 
the Exchange would lose current or prospective Members and market 
share. Further, the Exchange has conducted a comprehensive Cost 
Analysis to determine the reasonability of its proposed fees, including 
that the Exchange will not take supra-competitive profits.
1. The Proposed Fees Are Constrained by Significant Competitive Forces
a. Exchange Market Data Fees Are Constrained by Competition
    The Commission itself has recognized that the market for trading 
services in NMS stocks has become ``more fragmented and competitive.'' 
\50\ The Commission's Division of Trading and Markets has also 
recognized that with so many ``operating equities exchanges and dozens 
of ATSs, there is vigorous price competition among the U.S. equity 
markets and, as a result, [transaction] fees are tailored and 
frequently modified to attract particular types of order flow, some of 
which is highly fluid and price sensitive.'' \51\ Indeed, as noted 
above, equity trading is currently dispersed across 16 exchanges, 31 
alternative trading systems, and numerous broker-dealer internalizers 
and wholesalers, all competing for order flow. While the competitive 
environment described above and the Commission's statements related 
thereto are primarily regarding market share and trading volumes, and 
not market data specifically, the Exchange believes that competition 
does constrain the Exchange's ability to set market data prices, as 
described in this proposal.
---------------------------------------------------------------------------

    \50\ See Securities Exchange Act Release No. 51808, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18).
    \51\ Commission Division of Trading and Markets, Memorandum to 
EMSAC, dated October 20, 2015, available here: https://www.sec.gov/spotlight/emsac/memo-maker-taker-feeson-equities-exchanges.pdf.
---------------------------------------------------------------------------

    Further, low barriers to entry mean that new exchanges like the 
Exchange may rapidly enter the market and offer competition with the 
Exchange. Due to the ready availability of substitutes and the low cost 
to move order flow to those substitute trading venues, an exchange 
setting market data fees that are not at competitive levels would 
expect to quickly lose business to competitors with more attractive 
pricing. Indeed, as described above, at least eight Members trade on 
the Exchange either by using the lower cost MEMOIR Top feed (some in 
combination with MEMOIR Last Sale) or without use of any Exchange Data 
Feed (i.e., using SIP data). Although the various exchanges may differ 
in their strategies for pricing their market data products and their 
transaction fees for trades--with some offering low-cost market data 
with higher trading costs, and others charging more for market data and 
comparatively less for trading--all exchanges compete for the same pool 
of customers and must work to demonstrate to such customers that 
pricing is reasonable. The Exchange believes that the best way to do 
this is to provide transparency into the costs of producing and 
maintaining its services.
    Commission staff noted in its Fee Guidance that, as an initial step 
in assessing the reasonableness of a fee, staff considers whether the 
fee is constrained by significant competitive forces. To determine 
whether a proposed fee is constrained by significant competitive 
forces, staff has said that it considers whether the evidence 
demonstrates that there are reasonable substitutes for the product or 
service that is the subject of a proposed fee. As noted elsewhere in 
this proposal, there is no regulatory requirement that any market 
participant subscribe to any Exchange Data Feeds or a particular 
Exchange Data Feed. To demonstrate substitutability with tangible 
evidence, as noted above, five (5) Members that actively trade on the 
Exchange have determined to the SIPs as a substitute for the Exchange's 
Data Feeds but have continued trading on the Exchange while three (3) 
Members that actively trade on the Exchange have determined to use 
lower cost Exchange Data Feeds (i.e., MEMOIR Top or MEMOIR Top in 
conjunction with MEMOIR Last Sale) instead of the MEMOIR Depth feed.
    The Exchange believes the proposed fees are reasonable because in 
setting them, the Exchange is constrained by the availability of 
numerous competitors offering market data products and trading 
services. Such substitutes need not be identical, but only 
substantially similar to the product at hand. More specifically, in 
setting fees for the Exchange Data Feeds, the Exchange is constrained 
by the fact that, if its pricing is unattractive to customers, 
customers have their pick of a large number of alternative execution 
venues to use instead of the Exchange. The Exchange believes that it 
has considered all relevant factors and has not considered irrelevant 
factors in order to establish reasonable fees. The existence of 
competition ensures that the Exchange cannot set unreasonable market 
data fees without suffering the negative effects of that decision in 
the fiercely competitive market in which it operates.
b. Exchange Data Feeds Are Optional Market Data Products
    Subscribing to the Exchange Data Feeds is entirely optional. The 
Exchange is not required to make the Exchange Data Feeds available to 
any customers, nor is any customer required to purchase any Exchange 
Data Feed. Unlike some other data products (e.g., the consolidated 
quotation and last-sale information feeds) that firms are required to 
purchase in order to fulfill

[[Page 35263]]

regulatory obligations,\52\ a customer's decision whether to purchase 
any Exchange Data Feed is entirely discretionary. Most Firms that 
choose to subscribe to an Exchange Data Feed do so for the primary 
goals of using it to increase their revenues, reduce their expenses, 
and in some instances to compete directly with the Exchange for order 
flow. Such firms are able to determine for themselves whether a 
particular Exchange Data Feed is necessary for their business needs, 
and if so, whether or not it is attractively priced. If an Exchange 
Data Feed does not provide sufficient value to a Firm based on the uses 
such Firm may have for it, such Firm may simply choose to conduct their 
business operations in ways that do not use the applicable Exchange 
Data Feed. Again, the Exchange has demonstrated above that several 
Members have in fact made this determination and trade on the Exchange 
without use of Exchange Data Feeds or with use of one or more of the 
lower cost Exchange Data Feeds and not MEMOIR Depth.
---------------------------------------------------------------------------

    \52\ The Exchange notes that broker-dealers are not required to 
purchase proprietary market data to comply with their best execution 
obligations. See In the Matter of the Application of Securities 
Industry and Financial Markets Association for Review of Actions 
Taken by Self-Regulatory Organizations, Release Nos. 34-72182; AP-3-
15350; AP-3-15351 (May 16, 2014). Similarly, there is no requirement 
in Regulation NMS or any other rule that proprietary data be 
utilized for order routing decisions, and some competing exchanges, 
broker-dealers and ATSs have chosen not to do so.
---------------------------------------------------------------------------

    Specifically related to the Exchange Data Feed with the highest 
rates, the MEMOIR Depth Feed, even if a Firm determines that the fees 
for such feed are too high, customers can access much of the same data 
at lower rates by subscribing to the MEMOIR Top feed (which includes 
best-bid-and-offer information for the Exchange on a real-time basis) 
and MEMOIR Last Sale (which includes last-sale information for the 
Exchange on a real-time basis). MEMX top-of-book quotation information 
and last-sale information is also available on the consolidated SIP 
feeds.\53\ In this way, MEMOIR Top, MEMOIR Last Sale, and SIP data 
products are all substitutes for a significant portion of the data 
available on the MEMOIR Depth Feed, and SIP data products are also a 
substitute for a significant portion of data available on the MEMOIR 
Top and MEMOIR Last Sale feeds. As shown above, several Members that 
trade on the Exchange discontinued subscriptions to MEMOIR Depth and 
instead use MEMOIR Top (or MEMOIR Top combined with MEMOIR Last Sale) 
as a substitute while others discontinued their subscription to 
Exchange Data Feeds altogether, using SIP data as a substitute. 
Furthermore, several exchange competitors of the Exchange have not 
subscribed to any Exchange Data Feeds for purposes of executing orders 
on their exchanges, order routing, and regulatory purposes,\54\ even 
though the Exchange subscribes to and pays for their comparable market 
data products.\55\ As such competitors are required by Regulation NMS 
to honor (i.e., not trade through, lock or cross) protected quotations 
\56\ displayed by the Exchange and by rule they offer routing services 
including routing to the Exchange,\57\ these competitors must have 
determined it possible to meet these obligations through use of SIP 
data in lieu of subscribing to any Exchange Data Feed.
---------------------------------------------------------------------------

    \53\ Broadly speaking, the self-regulatory organizations 
(``SROs'') administer the SIPs and set pricing. Each SIP charges its 
own fees, which are determined by the operating committees of each 
SIP subject to the SEC rule filing process. While MEMX is a member 
of the operating committee of each SIP, it has only one vote and 
does not exercise control over SIP pricing. MEMX also notes that the 
SIPs charge pursuant to a different pricing structure than the 
pricing structure proposed by the Exchange in this filing.
    \54\ See, e.g., NYSE Arca Rule 7.37-E.(d), Order Execution and 
Routing, and BZX Rule 11.21, each of which discloses the data feeds 
used by each respective exchange and state that SIP products are 
used with respect to MEMX.
    \55\ See MEMX Rule 13.4, Usage of Data Feeds, which discloses 
that the Exchange uses proprietary data feeds for all exchanges that 
offer them.
    \56\ See Rule 600(b)(71) of Regulation NMS, 17 CFR 
242.600(b)(17).
    \57\ See NYSE Arca Rule 7.37-E.(b), describing routing services 
offered by NYSE Arca; BZX Rule 11.13(b), describing routing services 
offered by BZX.
---------------------------------------------------------------------------

    The only content available on the MEMOIR Depth Feed that is not 
available on these other products is the order-by-order look at the 
MEMX order book, which provides information about depth-of-book on the 
Exchange. The Exchange has been a vocal advocate in support of the 
Commission's Market Data Infrastructure Rule, which mandates the 
creation of a ``SIP Premium'' product that would include depth-of-book 
information on the consolidated market data feeds.\58\ The Exchange has 
also been a vocal advocate in support of pricing new content for the 
consolidated market data feeds in a reasonable and competitive manner 
that would encourage the use of a SIP Premium product and other content 
to be provided via the SIPs.\59\ Future products such as SIP Premium 
would include not only integrated depth-of-book information from MEMX, 
but all other exchanges as well, and would further constrain the 
Exchange's ability to price any Exchange Data Feed, including MEMOIR 
Depth, at a supra-competitive price. However, even in the absence of 
such products, the Exchange believes that use of the Exchange Data 
Feeds is entirely optional, as described above.
---------------------------------------------------------------------------

    \58\ See, e.g., Letter from Anders Franzon, General Counsel, 
MEMX LLC, dated May 26, 2020, regarding proposed Market Data 
Infrastructure rule, available at: https://www.sec.gov/comments/s7-03-20/s70320-7235183-217090.pdf.
    \59\ See, e.g., Letter from Adrian Griffiths, Head of Market 
Structure, MEMX LLC, dated November 8, 2021, regarding proposed fees 
for consolidated data provided pursuant to CTA/CQ/UTP Plans, 
available at: https://www.sec.gov/comments/sr-ctacq-2021-03/srctacq202103-9403088-262830.pdf.
---------------------------------------------------------------------------

    Further, in the case of products that are also redistributed 
through market data vendors such as Bloomberg and Refinitiv, the 
vendors themselves provide additional price discipline for proprietary 
data products because they control the primary means of access to 
certain end users. These vendors impose price discipline based upon 
their business models. For example, vendors that assess a surcharge on 
data they sell are able to refuse to offer proprietary products that 
their end users do not or will not purchase in sufficient numbers. Even 
in the absence of fees for the Exchange Data Feeds, many major market 
data vendors have not elected to make available the Exchange Data Feeds 
and likely will not unless their customers request it, and customers 
will not elect to pay the proposed fees unless the applicable Exchange 
Data Feed can provide value by sufficiently increasing revenues or 
reducing costs to the customer's business in a manner that will offset 
the fees. All of these factors operate as constraints on pricing 
proprietary data products.
    In setting the proposed fees for the Exchange Data Feeds, the 
Exchange considered the competitiveness of the market for proprietary 
data and all of the implications of that competition. As described 
elsewhere in this proposal, the Exchange also considered the Cost 
Analysis conducted by the Exchange and believes it has demonstrated 
that the fees will not result in any supra-competitive profit. The 
Exchange believes that it has considered all relevant factors and has 
not considered irrelevant factors in order to establish reasonable 
fees. The existence of alternatives to the Exchange and the continued 
availability of choice between different Exchange Data Feeds, other 
exchanges' proprietary data products, and the SIPs ensure that the 
Exchange cannot set unreasonable fees when vendors and subscribers can 
elect these alternatives or choose not to purchase a specific 
proprietary data product if the attendant fees are not justified by the

[[Page 35264]]

returns that any particular vendor or data recipient would achieve 
through the purchase.
c. The Proposed Fees for Exchange Data Feeds Will Not Result in Supra-
Competitive Profits
    Commission staff previously noted that the generation of supra-
competitive profits is one of several potential factors in considering 
whether an exchange's proposed fees are consistent with the Act.\60\ As 
described in the Fee Guidance, the term ``supra-competitive profits'' 
refers to profits that exceed the profits that can be obtained in a 
competitive market. The proposed fee structure would not result in 
excessive pricing or supra-competitive profits for the Exchange. The 
proposed fee structure is merely designed to permit the Exchange to 
cover the costs allocated to providing Transaction Services with a 
modest markup (approximately 10.1%), which the Exchange believes is 
fair and reasonable after taking into account the costs related to 
Transaction Services that the Exchange has previously borne completely 
on its own and to help fund future expenditures (increased costs, 
improvements, etc.). The Exchange believes that this is fair, 
reasonable, and equitable. Accordingly, the Exchange believes that its 
proposal is consistent with Section 6(b)(4) \61\ of the Act because the 
proposed fees will permit recovery of the Exchange's costs and will not 
result in excessive pricing or supra-competitive profit.
---------------------------------------------------------------------------

    \60\ See Fee Guidance, supra note 36.
    \61\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The proposed fees for Exchange Data Feeds will allow the Exchange 
to cover certain costs incurred by the Exchange associated with 
providing and maintaining necessary hardware and other network 
infrastructure as well as network monitoring and support services; 
without such hardware, infrastructure, monitoring and support the 
Exchange would be unable to provide Transaction Services, including 
market data. The Exchange routinely works to improve the performance of 
the network's hardware and software. The costs associated with 
maintaining and enhancing a state-of-the-art exchange network is a 
significant expense for the Exchange, and thus the Exchange believes 
that it is reasonable and appropriate to help offset those costs by 
adopting fees for the Exchange Data Feeds. As detailed above, the 
Exchange has four primary sources of revenue that it can potentially 
use to fund its operations: transaction fees, fees for connectivity 
services, membership and regulatory fees, and market data fees. 
Accordingly, the Exchange must cover its expenses from these four 
primary sources of revenue.
    The Exchange expects to recoup the majority of its estimated 
aggregate monthly costs for providing Transaction Services from 
transaction fees and revenues from the public data feeds in which the 
Exchange participates and receives revenues (i.e., the SIPs). As such, 
the Exchange has not determined it necessary to charge higher fees for 
the Exchange Data Feeds than proposed, but instead has proposed what it 
believes are relatively low-cost options to receive and use Exchange 
Data Feeds. However, in order to cover operating costs and earn a 
reasonable profit on its market data the Exchange has determined it 
necessary to charge some fees for proprietary data, and, as such, the 
Exchange is proposing to charge the fees described herein for the 
Exchange Data Feeds. In addition, this revenue will allow the Exchange 
to continue to offer, to enhance, and to continually refresh its 
infrastructure as necessary to offer a state-of-the-art trading 
platform. The Exchange believes that, consistent with the Act, it is 
appropriate to charge fees that represent a reasonable markup over cost 
given the other factors discussed above, including the relatively low 
cost to participate on the Exchange \62\ and the need for the Exchange 
to maintain a highly performant and stable platform to allow Members to 
transact with determinism.
---------------------------------------------------------------------------

    \62\ The Exchange notes that while it does impose a $200 per 
month Membership Fee, the Exchange does not charge several other 
types of fees charged by competitors to the Exchange, including fees 
for market participant identifiers (``MPIDs''), fees for risk 
management tools, application fees, or fees to access the Exchange 
User portal.
---------------------------------------------------------------------------

    The Exchange's Cost Analysis estimates the costs to provide 
Transaction Services at $2,797,265. Based on current subscriptions to 
Exchange Data Feeds (but without definitive data regarding User counts) 
and projections related to transaction activity and volumes, the 
Exchange estimates it will generate monthly revenues of approximately 
$280,000 from the Exchange Data Feeds and $3,080,000 from providing 
Transaction Services overall (on a monthly basis). This represents a 
modest profit when compared to the cost of providing Transaction 
Services (approximately 10.1%). Further, as noted above, applying the 
Exchange's holistic Cost Analysis to a holistic view of anticipated 
revenues from all sources, the Exchange would earn approximately 9.4% 
margin on its operations as a whole. The Exchange believes that this 
amount is reasonable and cannot be considered to be supra-competitive 
profit.
2. The Proposed Fees Are Reasonable
    The specific fees that the Exchange proposes for the Exchange Data 
Feeds are reasonable for the following additional reasons.
    Overall. The Exchange believes the proposed fees for the Exchange 
Data Feeds are reasonable when compared to fees for comparable 
products, such as the BZX Depth feed, BZX Top feed, and BZX Last Sale 
feed, compared to which the Exchange's proposed fees are generally 
lower, as well as other comparable data feeds priced significantly 
higher than the Exchange's proposed fees for the Exchange Data 
Feeds.\63\ Specifically with respect to the MEMOIR Depth feed, the 
Exchange believes that the proposed fees for such feed are reasonable 
because they represent not only the value of the data available from 
the MEMOIR Top and MEMOIR Last Sale data feeds, which have lower 
proposed fees, but also the value of receiving the depth-of-book data 
on an order-by-order basis. The Exchange believes it is reasonable to 
have pricing based, in part, upon the amount of information contained 
in each data feed and the value of that information to market 
participants. The MEMOIR Top and Last Sale data feeds, as described 
above, can be utilized to trade on the Exchange but contain less 
information than that is available on the MEMOIR Depth feed (i.e., even 
for a subscriber who takes both feeds, such feeds do not contain depth-
of-book information). Thus, the Exchange believes it reasonable for the 
products to be priced as proposed, with MEMOIR Last Sale having the 
lowest price, MEMOIR Top the next lowest price, and MEMOIR Depth the 
highest price (and more than MEMOIR Last Sale and MEMOIR Top combined). 
Finally, the Exchange believes that its Cost Analysis and holistic 
approach thereto demonstrates that the proposed fees for the Exchange 
Data Feeds would not result in supra-competitive profits.
---------------------------------------------------------------------------

    \63\ See supra notes 26-27; see supra note 29 and accompanying 
text.
---------------------------------------------------------------------------

    Internal Distribution Fees. The Exchange believes that it is 
reasonable to charge fees to access the Exchange Data Feeds for 
Internal Distribution because of the value of such data to subscribers 
in their profit-generating activities. The Exchange also believes that 
the proposed monthly Internal Distribution fees for MEMOIR Depth, 
MEMOIR Top, and MEMOIR Last Sale are reasonable as they are the same

[[Page 35265]]

amounts charged by at least one other exchange of comparable size for 
comparable data products,\64\ and are lower than the fees charged by 
several other exchanges for comparable data products.\65\
---------------------------------------------------------------------------

    \64\ See BZX Fee Schedule available at https://www.cboe.com/us/equities/membership/fee_schedule/bzx/.
    \65\ See NYSE Proprietary Market Data Pricing list, available 
at: https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf; Nasdaq Global Data Products pricing 
list, available at: http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN.
---------------------------------------------------------------------------

    External Distribution Fees. The Exchange believes that it is 
reasonable to charge External Distribution fees for the Exchange Data 
Feeds because vendors receive value from redistributing the data in 
their business products provided to their customers. The Exchange 
believes that charging External Distribution fees is reasonable because 
the vendors that would be charged such fees profit by re-transmitting 
the Exchange's market data to their customers. These fee would be 
charged only once per month to each vendor account that redistributes 
any Exchange Data Feed, regardless of the number of customers to which 
that vendor redistributes the data. The Exchange also believes the 
proposed monthly External Distribution fee for the MEMOIR Depth Feed is 
reasonable because it is half the amount of the fee charged by at least 
one other exchange of comparable size for a comparable data 
product,\66\ and significantly less than the amount charged by several 
other exchanges for comparable data products.\67\ Similarly, the 
Exchange believes the proposed monthly External Distribution fees for 
the MEMOIR TOP and MEMOIR Last Sale feeds are reasonable because they 
are discounted compared to same amounts charged by at least one other 
exchange of comparable size for comparable data products, and 
significantly less than the amount charged by several other exchanges 
for comparable data products.\68\
---------------------------------------------------------------------------

    \66\ See BZX Fee Schedule available at https://www.cboe.com/us/equities/membership/fee_schedule/bzx/.
    \67\ See id.
    \68\ See NYSE Proprietary Market Data Pricing list, available 
at: https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf; Nasdaq Global Data Products pricing 
list, available at: http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN.
---------------------------------------------------------------------------

    User Fees. The Exchange believes that having separate Professional 
and Non-Professional User fees for the MEMOIR Depth feed is reasonable 
because it will make the product more affordable and result in greater 
availability to Professional and Non-Professional Users. Setting a 
modest Non-Professional User fee is reasonable because it provides an 
additional method for Non-Professional Users to access the Exchange 
Data Feeds by providing the same data that is available to Professional 
Users. The proposed monthly Professional User fee and monthly Non-
Professional User fee are reasonable because they are lower than the 
fees charged by at least one other exchange of comparable size for 
comparable data products,\69\ and significantly less than the amounts 
charged by several other exchanges for comparable data products.\70\ 
The Exchange also believes it is reasonable to charge the same low per 
User fee of $0.01 for both Professional Users and Non-Professional 
Users receiving the MEMOIR Top and MEMOIR Last Sale feeds, as this is 
not only pricing such data at a much lower cost than other exchanges 
charge for comparable data feeds \71\ but doing so will also simplify 
reporting for subscribers who externally distribute these data feeds to 
Users, as the Exchange believes that categorization of Users as 
Professional and Non-Professional is not meaningful for these products 
and that requiring such categorization would expose Firms to 
unnecessary audit risk of paying more for mis-categorization. The 
Exchange also believes that the proposal to require reporting of 
individual Users, but not devices, is reasonable as this too will 
eliminate unnecessary audit risk that can arise when recipients are 
required to apply complex counting rules such as whether or not to 
count devices or whether an individual accessing the same data through 
multiple devices should be counted once or multiple times.
---------------------------------------------------------------------------

    \69\ See BZX Fee Schedule, available at: https://www.cboe.com/us/equities/membership/fee_schedule/bzx/.
    \70\ See NYSE Proprietary Market Data Pricing list, available 
at: https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf; Nasdaq Global Data Products pricing 
list, available at: http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN.
    \71\ See id.
---------------------------------------------------------------------------

    Non-Display Use Fees. The Exchange believes the proposed Non-
Display Usage fees for the MEMOIR Depth feed are reasonable, because 
they reflect the value of the data to the data recipients in their 
profit-generating activities and do not impose the burden of counting 
non-display devices.
    The Exchange believes that the proposed Non-Display Usage fees 
reflect the significant value of the non-display data use to data 
recipients, which purchase such data on an entirely voluntary basis. 
Non-display data can be used by data recipients for a wide variety of 
profit-generating purposes, including proprietary and agency trading 
and smart order routing, as well as by data recipients that operate 
Trading Platforms that compete directly with the Exchange for order 
flow. The data also can be used for a variety of non-trading purposes 
that indirectly support trading, such as risk management and 
compliance. Although some of these non-trading uses do not directly 
generate revenues, they can nonetheless substantially reduce a 
recipient's costs by automating such functions so that they can be 
carried out in a more efficient and accurate manner and reduce errors 
and labor costs, thereby benefiting recipients. The Exchange believes 
that charging for non-trading uses is reasonable because data 
recipients can derive substantial value from such uses, for example, by 
automating tasks so that can be performed more quickly and accurately 
and less expensively than if they were performed manually.
    Previously, the non-display use data pricing policies of many 
exchanges required customers to count, and the exchanges to audit the 
count of, the number of non-display devices used by a customer. As non-
display use grew more prevalent and varied, however, exchanges received 
an increasing number of complaints about the impracticality and 
administrative burden associated with that approach. In response, 
several exchanges developed a non-display use pricing structure that 
does not require non-display devices to be counted or those counts to 
be audited, and instead categorizes different types of use. The 
Exchange proposes to distinguish between non-display use for the 
operation of a Trading Platform and other non-display use, which is 
similar to exchanges such as BZX and EDGX,\72\ while other exchanges 
maintain additional categories and in many cases charge multiple times 
for different types of non-display use or the operation of multiple 
Trading Platforms.\73\
---------------------------------------------------------------------------

    \72\ See BZX Fee Schedule, available at: https://www.cboe.com/us/equities/membership/fee_schedule/bzx/; EDGX Fee Schedule, 
available at: https://www.cboe.com/us/equities/membership/fee_schedule/edgx/.
    \73\ See supra notes 26-27.
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable to segment the fee for 
non-display use into these two categories. As noted above, the uses to 
which customers can put the MEMOIR Depth feed are numerous and varied, 
and the Exchange believes that charging separate fees for these 
separate categories of use is reasonable because

[[Page 35266]]

it reflects the actual value the customer derives from the data, based 
upon how the customer makes use of the data.
    The Exchange believes that the proposed fees for non-display use 
other than operation of a Trading Platform is reasonable. These fees 
are comparable to, and lower than, the fees charged by at least one 
other exchange of comparable size for a comparable data product,\74\ 
and significantly less than the amounts charged by several other 
exchanges for comparable data products.\75\ The Exchange believes that 
the proposed fees directly and appropriately reflect the significant 
value of using data on a non-display basis in a wide range of computer-
automated functions relating to both trading and non-trading activities 
and that the number and range of these functions continue to grow 
through innovation and technology developments. Further, in contrast to 
non-display use for operation of a Trading Platform, discussed below, 
the Exchange benefits from and wants to encourage other non-display use 
by market participants (including the fact that the Exchange receives 
orders resulting from algorithms and routers as well as more broadly 
beneficial uses such as risk management and compliance).
---------------------------------------------------------------------------

    \74\ See BZX Fee Schedule, available at: https://www.cboe.com/us/equities/membership/fee_schedule/bzx/.
    \75\ See NYSE Proprietary Market Data Pricing list, available 
at: https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf; Nasdaq Global Data Products pricing 
list, available at: http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN.
---------------------------------------------------------------------------

    The Exchange also believes, regarding non-display use for operation 
of a Trading Platform, it is reasonable to charge a higher monthly fee 
than for other non-display use because such use of the Exchange's data 
is directly in competition with the Exchange and the Exchange should be 
permitted to recoup some of its lost trading revenue by charging for 
the data that makes such competition possible. The Exchange also 
believes that it is reasonable to charge the proposed fees for non-
display use for operation of a Trading Platform because the proposed 
fees are comparable to, and lower than, the fees charged at least one 
other exchange of comparable size for a comparable data product,\76\ 
and significantly less than the amounts charged by several other 
exchanges for comparable data products, which also charge per Trading 
Platform operated by a data subscriber subject to a cap in most cases, 
rather than charging per Firm, as proposed by the Exchange.\77\
---------------------------------------------------------------------------

    \76\ See BZX Fee Schedule, available at: https://www.cboe.com/us/equities/membership/fee_schedule/bzx/.
    \77\ See supra notes 26-27.
---------------------------------------------------------------------------

    The proposed Non-Display Usage fees for the Exchange Data Feeds are 
also reasonable because they take into account the extra value of 
receiving the data for Non-Display Usage that includes a rich set of 
information including top of book quotations, depth-of-book quotations, 
executions and other information. The Exchange believes that the 
proposed fees directly and appropriately reflect the significant value 
of using the MEMOIR Depth feed on a non-display basis in a wide range 
of computer-automated functions relating to both trading and non-
trading activities and that the number and range of these functions 
continue to grow through innovation and technology developments.\78\
---------------------------------------------------------------------------

    \78\ See also Exchange Act Release No. 69157, March 18, 2013, 78 
FR 17946, 17949 (March 25, 2013) (SR-CTA/CQ-2013-01) (``[D]ata feeds 
have become more valuable, as recipients now use them to perform a 
far larger array of non-display functions. Some firms even base 
their business models on the incorporation of data feeds into black 
boxes and application programming interfaces that apply trading 
algorithms to the data, but that do not require widespread data 
access by the firm's employees. As a result, these firms pay little 
for data usage beyond access fees, yet their data access and usage 
is critical to their businesses.''
---------------------------------------------------------------------------

    For all of the foregoing reasons, the Exchange believes that the 
proposed fees for the Exchange Data Feeds are reasonable.
The Proposed Fees Are Equitably Allocated
    The Exchange believes the proposed fees for the Exchange Data Feeds 
are allocated fairly and equitably among the various categories of 
users of the feeds, and any differences among categories of users are 
justified and appropriate.
    Overall. The Exchange believes that the proposed fees are equitably 
allocated because they will apply uniformly to all data recipients that 
choose to subscribe to the Exchange Data Feeds. Any subscriber or 
vendor that chooses to subscribe to one or more Exchange Data Feeds is 
subject to the same Fee Schedule, regardless of what type of business 
they operate, and the decision to subscribe to one or more Exchange 
Data Feeds is based on objective differences in usage of Exchange Data 
Feeds among different Firms, which are still ultimately in the control 
of any particular Firm. The Exchange believes the proposed pricing 
between Exchange Data Feeds is equitably allocated because it is based, 
in part, upon the amount of information contained in each data feed and 
the value of that information to market participants. The MEMOIR Top 
and Last Sale data feeds, as described above, can be utilized to trade 
on the Exchange but contain less information than that is available on 
the MEMOIR Depth feed (i.e., even for a subscriber who takes both 
feeds, such feeds do not contain depth-of-book information). Thus, the 
Exchange believes it is an equitable allocation of fees for the 
products to be priced as proposed, with MEMOIR Last Sale having the 
lowest price, MEMOIR Top the next lowest price, and MEMOIR Depth the 
highest price (and more than MEMOIR Last Sale and MEMOIR Top combined).
    Internal Distribution Fee. The Exchange believes the proposed 
monthly fees for Internal Distribution of the Exchange Data Feeds are 
equitably allocated because they would be charged on an equal basis to 
all data recipients that receive the Exchange Data Feeds for internal 
distribution, regardless of what type of business they operate.
    External Distribution Fees. The Exchange believes the proposed 
monthly fees for External Distribution of the Exchange Data Feeds are 
equitably allocated because they would be charged on an equal basis to 
all data recipients that receive the Exchange Data Feeds that choose to 
redistribute the feeds externally. The Exchange also believes that the 
proposed monthly fees for External Distribution are equitably allocated 
when compared to lower proposed fees for Internal Distribution because 
data recipients that are externally distributing Exchange Data Feeds 
are able to monetize such distribution and spread such costs amongst 
multiple third party data recipients, whereas the Internal Distribution 
fee is applicable to use by a single data recipient (and its 
affiliates).
    User Fees. The Exchange believes that the fee structure 
differentiating Professional User fees from Non-Professional User fees 
for display use of the MEMOIR Depth feed is equitable. This structure 
has long been used by other exchanges and the SIPs to reduce the price 
of data to Non-Professional Users and make it more broadly 
available.\79\ Offering the MEMOIR Depth feed to Non-Professional Users 
at a lower cost than Professional Users results in greater equity among 
data

[[Page 35267]]

recipients, as Professional Users are categorized as such based on 
their employment and participation in financial markets, and thus, are 
compensated to participate in the markets. While Non-Professional Users 
too can receive significant financial benefits through their 
participation in the markets, the Exchange believes it is reasonable to 
charge more to those Users who are more directly engaged in the 
markets. The Exchange also believes it may be unreasonable to charge a 
Non-Professional User the same fee that it has proposed for 
Professional Users, as this fee would be higher than any other U.S. 
equities exchange charges to Non-Professional Users for receipt of a 
comparable data product. These User fees would be charged uniformly to 
all individuals that have access to the MEMOIR Depth feed based on the 
category of User. The Exchange also believes the proposed User fees for 
MEMOIR Top and MEMOIR Last Sale are equitable because the Exchange has 
proposed to charge Professional Users and Non-Professional Users the 
same low rate of $0.01 per month.
---------------------------------------------------------------------------

    \79\ See, e.g., Securities Exchange Act Release No. 59544 (March 
9, 2009), 74 FR 11162 (March 16, 2009) (SR-NYSE-2008-131) 
(establishing the $15 Non-Professional User Fee (Per User) for NYSE 
OpenBook); Securities Exchange Act Release No. 20002, File No. S7-
433 (July 22, 1983), 48 FR 34552 (July 29, 1983) (establishing Non-
Professional fees for CTA data); NASDAQ BX Equity 7 Pricing 
Schedule, Section 123.
---------------------------------------------------------------------------

    Non-Display Use Fees. The Exchange believes the proposed Non-
Display Usage fees are equitably allocated because they would require 
subscribers to pay fees only for the uses they actually make of the 
data. As noted above, non-display data can be used by data recipients 
for a wide variety of profit-generating purposes (including trading and 
order routing) as well as purposes that do not directly generate 
revenues (such as risk management and compliance) but nonetheless 
substantially reduce the recipient's costs by automating certain 
functions. The Exchange believes that it is equitable to charge non-
display data subscribers that use data for purposes other than 
operation of a Trading Platform as proposed because all such 
subscribers would have the ability to use such data for as many non-
display uses as they wish for one low fee. As noted above, this 
structure is comparable to that in place for the BZX Depth feed but 
several other exchanges charge multiple non-display fees to the same 
client to the extent they use a data feed in several different trading 
platforms or for several types of non-display use.\80\
---------------------------------------------------------------------------

    \80\ See supra, notes 26-27.
---------------------------------------------------------------------------

    The Exchange also believes, regarding non-display use for operation 
of a Trading Platform, it is equitable to charge a higher rate for each 
Firm operating a Trading Platform (as compared to other Non-Display 
Usage not by Trading Platforms) because such use of the data is 
directly in competition with the Exchange and the Exchange should be 
permitted to recoup some of its lost trading revenue by charging for 
the data that makes such competition possible. Further, in contrast to 
non-display use for operation of a Trading Platform, the Exchange 
benefits from and wants to encourage other non-display use by market 
participants (including the fact that the Exchange receives orders 
resulting from algorithms and routers as well as more broadly 
beneficial uses such as risk management and compliance). The Exchange 
believes that it is equitable to charge a single fee per Firm rather 
than multiple fees for a Firm that operates more than one Trading 
Platform because operators of Trading Platforms are many times viewed 
as a single competing venue or group, even if there a multiple 
liquidity pools operated by the same competitor.
    For all of the foregoing reasons, the Exchange believes that the 
proposed fees for the Exchange Data Feeds are equitably allocated.
The Proposed Fees Are Not Unfairly Discriminatory
    The Exchange believes the proposed fees for the Exchange Data Feeds 
are not unfairly discriminatory because any differences in the 
application of the fees are based on meaningful distinctions between 
customers, and those meaningful distinctions are not unfairly 
discriminatory between customers.
    Overall. The Exchange believes that the proposed fees are not 
unfairly discriminatory because they would apply to all data recipients 
that choose to subscribe to the same Exchange Data Feed(s). Any vendor 
or subscriber that chooses to subscribe to the Exchange Data Feeds is 
subject to the same Fee Schedule, regardless of what type of business 
they operate. Because the proposed fees for MEMOIR Depth are higher, 
vendors and subscribers seeking lower cost options may instead choose 
to receive data from the SIPs or through the MEMOIR Top and/or MEMOIR 
Last Sale feed for a lower cost. Alternatively, vendors and subscribers 
can choose to pay for the MEMOIR Depth feed in order to receive data in 
a single feed with depth-of-book information if such information is 
valuable to such vendors or subscribers. The Exchange notes that 
vendors or subscribers can also choose to subscribe to a combination of 
data feeds for redundancy purposes or to use different feeds for 
different purposes. In sum, each vendor or subscriber has the ability 
to choose the best business solution for itself. The Exchange does not 
believe it is unfairly discriminatory to base pricing upon the amount 
of information contained in each data feed and the value of that 
information to market participants. As described above, the MEMOIR Top 
and Last Sale data feeds, can be utilized to trade on the Exchange but 
contain less information than that is available on the MEMOIR Depth 
feed (i.e., even for a subscriber who takes both feeds, such feeds do 
not contain depth-of-book information). Thus, the Exchange believes it 
is not unfairly discriminatory for the products to be priced as 
proposed, with MEMOIR Last Sale having the lowest price, MEMOIR Top the 
next lowest price, and MEMOIR Depth the highest price (and more than 
MEMOIR Last Sale and MEMOIR Top combined).
    Internal Distribution Fees. The Exchange believes the proposed 
monthly fees for Internal Distribution of the Exchange Data Feeds are 
not unfairly discriminatory because they would be charged on an equal 
basis to all data recipients that receive the same Exchange Data 
Feed(s) for internal distribution, regardless of what type of business 
they operate.
    External Distribution Fees. The Exchange believes the proposed 
monthly fees for redistributing the Exchange Data Feeds are not 
unfairly discriminatory because they would be charged on an equal basis 
to all data recipients that receive the same Exchange Data Feed(s) that 
choose to redistribute the feed(s) externally. The Exchange also 
believes that having higher monthly fees for External Distribution than 
Internal Distribution is not unfairly discriminatory because data 
recipients that are externally distributing Exchange Data Feeds are 
able to monetize such distribution and spread such costs amongst 
multiple third party data recipients, whereas the Internal Distribution 
fee is applicable to use by a single data recipient (and its 
affiliates).
    User Fees. The Exchange believes that the fee structure 
differentiating Professional User fees from Non-Professional User fees 
for display use of the MEMOIR Depth feed is not unfairly 
discriminatory. This structure has long been used by other exchanges 
and the SIPs to reduce the price of data to Non-Professional Users and 
make it more broadly available.\81\ Offering the Exchange Data Feeds to 
Non-Professional Users with the same data as is available to 
Professional Users results in greater equity among data recipients. 
These User fees would be charged uniformly to all individuals that have 
access to the Exchange Data Feeds based on the category of User. The 
Exchange

[[Page 35268]]

also believes the proposed User fees for MEMOIR Top and MEMOIR Last 
Sale are not unfairly discriminatory because the Exchange has proposed 
to charge Professional Users and Non-Professional Users the same low 
rate of $0.01 per month.
---------------------------------------------------------------------------

    \81\ See supra note 79.
---------------------------------------------------------------------------

    Non-Display Use Fees. The Exchange believes the proposed Non-
Display Usage fees for the MEMOIR Depth feed are not unfairly 
discriminatory because they would require subscribers for non-display 
use to pay fees depending on their use of the data, either for 
operation of a Trading Platform or not, but would not impose multiple 
fees to the extent a Firm operates multiple Trading Platforms or has 
multiple different types of non-display use. As noted above, non-
display data can be used by data recipients for a wide variety of 
profit-generating purposes as well as purposes that do not directly 
generate revenues but nonetheless substantially reduce the recipient's 
costs by automating certain functions. This segmented fee structure is 
not unfairly discriminatory because no subscriber of non-display data 
would be charged a fee for a category of use in which it did not 
actually engage.
    The Exchange also believes that, regarding non-display use for 
operation of a Trading Platform, it is not unreasonably discriminatory 
to charge a higher fee for each Firm operating a Trading Platform (as 
compared to other Non-Display Usage not by Trading Platforms) because 
such use of the data is directly in competition with the Exchange and 
the Exchange should be permitted to recoup some of its lost trading 
revenue by charging for the data that makes such competition possible. 
The Exchange believes that it is not unreasonably discriminatory to 
charge a single fee for an operator of Trading Platforms that operates 
more than one Trading Platform because operators of Trading Platforms 
are many times viewed as a single competing venue or group, even if 
there a multiple liquidity pools operated by the same competitor. The 
Exchange again notes that certain competitors to the Exchange charge 
for non-display usage per Trading Platform,\82\ in contrast to the 
Exchange's proposal. In turn, to the extent they subscribe to Exchange 
Data Feeds, these same competitors will benefit from the Exchange's 
pricing model to the extent they operate multiple Trading Platforms (as 
most do) by paying a single fee rather than paying for each Trading 
Platform that they operate that consumes Exchange Data Feeds.
---------------------------------------------------------------------------

    \82\ See supra notes 26-27.
---------------------------------------------------------------------------

    For all of the foregoing reasons, the Exchange believes that the 
proposed fees for the Exchange Data Feeds are not unfairly 
discriminatory.

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

    In accordance with Section 6(b)(8) of the Act,\83\ the Exchange 
does not believe that the proposed rule change would impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act.
---------------------------------------------------------------------------

    \83\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

Intra-Market Competition
    The Exchange does not believe that the proposed rule change would 
place certain market participants at the Exchange at a relative 
disadvantage compared to other market participants or affect the 
ability of such market participants to compete. Since the pricing for 
the Exchange Data Feeds was announced by the Exchange, the Exchange has 
received no official complaints from Members, non-Members, or third-
parties that redistribute the Exchange Data Feeds, that the Exchange's 
fees or the proposed fees for Exchange Data Feeds would negatively 
impact their abilities to compete with other market participants or 
that they are placed at a disadvantage relative to others. The Exchange 
does not believe that the proposed fees for Exchange Data Feeds place 
certain market participants at a relative disadvantage to other market 
participants because, as noted above, the proposed fees are associated 
with usage of Exchange Data Feeds by each market participant based on 
the type of business they operate, and the decision to subscribe to one 
or more Exchange Data Feeds is based on objective differences in usage 
of Exchange Data Feeds among different Firms, which are still 
ultimately in the control of any particular Firm, and such fees do not 
impose a barrier to entry to smaller participants. Accordingly, the 
proposed fees for Exchange Data Feeds do not favor certain categories 
of market participants in a manner that would impose a burden on 
competition; rather, the allocation of the proposed fees reflects the 
types of Exchange Data Feeds consumed by various market participants 
and their usage thereof.
    As noted above, the current subscribers to the Exchange Data Feeds 
began changing their behavior in response to the imposition of fees as 
predicted in the Initial Proposal and as described herein. Following 
the date that fees for the Exchange Data Feeds were officially 
announced, fifteen (15) out of seventy-nine (79) subscribers, 
representing 19% of the subscribers to such data feeds, modified or 
canceled their subscriptions before the fees went into effect. In each 
instance, the subscriber told the Exchange that the reason for 
modifying or cancelling its subscription was the imminent imposition of 
fees. These modifications and cancellations are evidence that 
subscribing to the Exchange Data Feeds is discretionary, that each 
customer makes the decision whether to subscribe based on its own 
analysis of the benefits and costs to itself, and that customers can 
and do make those decisions quickly based on reactions to fee changes. 
Prior to the imposition of fees, four (4) customers (or 5% of market 
data subscribers) informed the Exchange that if the Exchange imposes 
the fees as proposed, such customers will limit their subscription the 
MEMOIR Top feed and/or the MEMOIR Last Sale feed, rather than the 
MEMOIR Depth feed, which is more expensive under the proposed fees. 
Notably, three (3) of these customers are active trading participants 
on the Exchange and have continued to participate on the Exchange 
without use of the Exchange's MEMOIR Depth feed. In addition, eleven 
(11) customers of the Exchange that were subscribed to receive Exchange 
Data Feeds have cancelled their subscriptions to such data feeds 
entirely (representing approximately 14% of market data subscribers). 
Five (5) of the eleven (11) customers that have cancelled all 
subscriptions to Exchange Data Feeds actively trade on the Exchange and 
have informed the Exchange that they will rely instead on SIP data to 
participate on the Exchange. This is clear evidence that the 
availability of these substitute products constrains the Exchange's 
ability to charge supra-competitive prices for the Exchange Data Feeds. 
The Exchange notes that the remaining customers that modified or 
cancelled their subscriptions to the Exchange Data Feeds (seven 
customers total) are not trading participants on the Exchange and 
likely subscribed to the Exchange Data Feeds initially because they 
were free but determined to cancel such subscriptions now that the 
Exchange is charging market data fees.
Inter-Market Competition
    The Exchange does not believe the proposed fees place an undue 
burden on competition on other SROs that is not necessary or 
appropriate. In particular, market participants are not forced to 
subscribe to any of the Exchange Data Feeds, as described above. 
Additionally, other exchanges have similar market data fees in place 
for their participants,

[[Page 35269]]

but with higher rates to connect.\84\ The Exchange is also unaware of 
any assertion that the proposed fees for Exchange Data Feeds would 
somehow unduly impair its competition with other exchanges.
---------------------------------------------------------------------------

    \84\ See supra notes 26-27; see supra note 29 and accompanying 
text.
---------------------------------------------------------------------------

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \85\ and Rule 19b-4(f)(2) \86\ thereunder.
---------------------------------------------------------------------------

    \85\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \86\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MEMX-2022-14 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-MEMX-2022-14. 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-MEMX-2022-14 and should be submitted on 
or before June 30, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\87\
---------------------------------------------------------------------------

    \87\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-12401 Filed 6-8-22; 8:45 am]
BILLING CODE 8011-01-P


