[Federal Register Volume 88, Number 88 (Monday, May 8, 2023)]
[Notices]
[Pages 29750-29769]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-09685]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97422; File No. SR-EMERALD-2023-12]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change by MIAX 
Emerald, LLC To Amend the Fee Schedule To Modify Certain Connectivity 
and Port Fees

May 2, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 20, 2023, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

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

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

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

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule as follows: (1) 
increase the fees for a 10 gigabit (``Gb'') ultra-low latency (``ULL'') 
fiber connection for Members \3\ and non-Members; and (2) adopt a 
tiered-pricing structure for Limited Service MIAX Emerald Express 
Interface (``MEI'') Ports \4\ available to Market Makers.\5\ The 
Exchange last increased the fees for both 10Gb ULL fiber connections 
and Limited Service MEI Ports beginning with a series of filings on 
October 1, 2020 (with the final filing made on March 24, 2021).\6\ 
Prior to that fee change, the Exchange provided Limited Service MEI 
Ports for $50 per port, after the first two Limited Service MEI Ports 
that are provided free of charge, and the Exchange incurred all the 
costs associated to provide those first two Limited Service MEI Ports 
since it commenced operations in March 2019. The Exchange then 
increased the fee by $50 to a modest $100 fee per Limited Service MEI 
Port and increased the fee for 10Gb ULL fiber connections from $6,000 
to $10,000 per month.
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    \3\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
    \4\ The MIAX Emerald Express Interface (``MEI'') is a connection 
to the MIAX Emerald System that enables Market Makers to submit 
simple and complex electronic quotes to MIAX Emerald. See the 
Definitions Section of the Fee Schedule.
    \5\ The term ``Market Makers'' refers to Lead Market Makers 
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered 
Market Makers (``RMMs'') collectively. See the Definitions Section 
of the Fee Schedule and Exchange Rule 100.
    \6\ See Securities Exchange Act Release Nos. 91460 (April 1, 
2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-11); 90184 
(October 14, 2020), 85 FR 66636 (October 20, 2020) (SR-EMERALD-2020-
12); 90600 (December 8, 2020), 85 FR 80831 (December 14, 2020) (SR-
EMERALD-2020-17); 91032 (February 1, 2021), 86 FR 8428 (February 5, 
2021) (SR-EMERALD-2021-02); and 91200 (February 24, 2021), 86 FR 
12221 (March 2, 2021) (SR-EMERALD-2021-07).
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    Also, in that fee change, the Exchange adopted fees for providing 
five different types of ports for the first time. These ports were FIX 
Ports, MEI Ports, Clearing Trade Drop Ports, FIX Drop Copy Ports, and 
Purge Ports.\7\ Again, the Exchange absorbed all costs associated with 
providing these ports since its launch in March 2019. As explained in 
that filing, expenditures, as well as research and development 
(``R&D'') in numerous areas resulted in a material increase in expense 
to the Exchange and were the primary drivers for that proposed fee 
change. In that filing, the Exchange allocated a total of $9.3 million 
in expenses to providing 10Gb ULL fiber connectivity, additional 
Limited Service MEI Ports, FIX Ports, MEI Ports, Clearing Trade Drop 
Ports, FIX Drop Copy Ports, and Purge Ports.\8\
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    \7\ See id. for a description of each of these ports.
    \8\ Id.
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    Since the time of 2021 increase discussed above, the Exchange 
experienced ongoing increases in expenses, particularly internal 
expenses.\9\ As discussed more fully below, the Exchange recently 
calculated increased annual aggregate costs of $11,361,586 for 
providing 10Gb ULL connectivity and $1,779,066 for providing Limited 
Service MEI Ports.
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    \9\ For example, the New York Stock Exchange, Inc.'s (``NYSE'') 
Secure Financial Transaction Infrastructure (``SFTI'') network, 
which contributes to the Exchange's connectivity cost, increased its 
fees by approximately 9% since 2021. Similarly, since 2021, the 
Exchange, and its affiliates, experienced an increase in data center 
costs of approximately 17% and an increase in hardware and software 
costs of approximately 19%. These percentages are based on the 
Exchange's actual 2021 and proposed 2023 budgets.
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    Much of the cost relates to monitoring and analysis of data and 
performance of the network via the subscriber's connection with 
nanosecond granularity, and continuous improvements in network 
performance with the goal of improving the subscriber's experience. The 
costs associated with maintaining and enhancing a state-of-the-art 
network is a significant expense for the Exchange, and thus the 
Exchange believes that it is reasonable and appropriate to help offset 
those increased costs by amending fees for connectivity services. 
Subscribers expect the Exchange to provide this level of support so 
they continue to receive the performance

[[Page 29751]]

they expect. This differentiates the Exchange from its competitors.
    The Exchange now proposes to amend the Fee Schedule to amend the 
fees for 10Gb ULL connectivity and Limited Service MEI Ports in order 
to recoup ongoing costs and increase in expenses set forth below in the 
Exchange's cost analysis. The Exchange initially filed this proposal on 
December 30, 2022 as SR-EMERALD-2022-38. On January 9, 2023, the 
Exchange withdrew SR-EMERALD-2022-38 and resubmitted this proposal as 
SR-EMERALD-2023-01 (the ``Initial Proposal'').\10\ On, February 23, 
2023, the Exchange withdrew the Initial Proposal and replaced it with a 
revised proposal (SR-EMERALD-2023-05) (the ``Second Proposal'').\11\ On 
April 20, 2023, the Exchange withdrew the Second Proposal and replaced 
it with this revised proposal (SR-EMERALD-2023-12).
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    \10\ See Securities Exchange Act Release No. 96628 (January 10, 
2023), 88 FR 2651 (January 17, 2023) (SR-EMERALD-2023-01).
    \11\ See Securities Exchange Act Release No. 97079 (March 8, 
2023), 88 FR 15764 (March 14, 2023) (SR-EMERALD-2023-05).
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    The Exchange previously included a cost analysis in the Initial 
Proposal. As described more fully below, the Exchange provides an 
updated cost analysis that includes, among other things, additional 
descriptions of how the Exchange allocated costs among it and its 
affiliated exchanges (MIAX PEARL, LLC (``MIAX Pearl'') (separately 
among MIAX Pearl Options and MIAX Pearl Equities) and MIAX \12\ 
(together with MIAX Pearl Options and MIAX Pearl Equities, the 
``affiliated markets'')) to ensure no cost was allocated more than 
once, as well as additional detail supporting its cost allocation 
processes and explanations as to why a cost allocation in this proposal 
may differ from the same cost allocation in a similar proposal 
submitted by one of its affiliated exchanges. Although the baseline 
cost analysis used to justify the proposed fees was made in the Initial 
Proposal and Second Proposal, the fees themselves have not changed 
since the Initial Proposal or Second Proposal and the Exchange still 
proposes fees that are intended to cover the Exchange's cost of 
providing 10Gb ULL connectivity and Limited Service MEI Ports with a 
reasonable mark-up over those costs.
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    \12\ The term ``MIAX'' means Miami International Securities 
Exchange, LLC. See Exchange Rule 100.
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* * * * *
    Starting in 2017, following the United States Court of Appeals for 
the District of Columbia's Susquehanna Decision \13\ and various other 
developments, the Commission began to undertake a heightened review of 
exchange filings, including non-transaction fee filings that was 
substantially and materially different from it prior review process 
(hereinafter referred to as the ``Revised Review Process''). In the 
Susquehanna Decision, the D.C. Circuit Court stated that the Commission 
could not maintain a practice of ``unquestioning reliance'' on claims 
made by a self-regulatory organization (``SRO'') in the course of 
filing a rule or fee change with the Commission.\14\ Then, on October 
16, 2018, the Commission issued an opinion in Securities Industry and 
Financial Markets Association finding that exchanges failed both to 
establish that the challenged fees were constrained by significant 
competitive forces and that these fees were consistent with the 
Act.\15\ On that same day, the Commission issued an order remanding to 
various exchanges and national market system (``NMS'') plans challenges 
to over 400 rule changes and plan amendments that were asserted in 57 
applications for review (the ``Remand Order'').\16\ The Remand Order 
directed the exchanges to ``develop a record,'' and to ``explain their 
conclusions, based on that record, in a written decision that is 
sufficient to enable us to perform our review.'' \17\ The Commission 
denied requests by various exchanges and plan participants for 
reconsideration of the Remand Order.\18\ However, the Commission did 
extend the deadlines in the Remand Order ``so that they d[id] not begin 
to run until the resolution of the appeal of the SIFMA Decision in the 
D.C. Circuit and the issuance of the court's mandate.'' \19\ Both the 
Remand Order and the Order Denying Reconsideration were appealed to the 
D.C. Circuit.
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    \13\ See Susquehanna International Group, LLP v. Securities & 
Exchange Commission, 866 F.3d 442 (D.C. Circuit 2017) (the 
``Susquehanna Decision'').
    \14\ Id.
    \15\ See Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 84432, 2018 WL 5023228 (October 16, 2018) (the ``SIFMA 
Decision'').
    \16\ See Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 84433, 2018 WL 5023230 (Oct. 16, 2018). See 15 U.S.C. 
78k-1, 78s; see also Rule 608(d) of Regulation NMS, 17 CFR 
242.608(d) (asserted as an alternative basis of jurisdiction in some 
applications).
    \17\ Id. at page 2.
    \18\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 85802, 2019 WL 2022819 (May 7, 2019) (the ``Order 
Denying Reconsideration'').
    \19\ Order Denying Reconsideration, 2019 WL 2022819, at *13.
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    While the above appeal to the D.C. Circuit was pending, on March 
29, 2019, the Commission issued an order disapproving a proposed fee 
change by BOX Exchange LLC (``BOX'') to establish connectivity fees 
(the ``BOX Order''), which significantly increased the level of 
information needed for the Commission to believe that an exchange's 
filing satisfied its obligations under the Act with respect to changing 
a fee.\20\ Despite approving hundreds of access fee filings in the 
years prior to the BOX Order (described further below) utilizing a 
``market-based'' test, the Commission changed course and disapproved 
BOX's proposal to begin charging connectivity at one-fourth the rate of 
competing exchanges' pricing.
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    \20\ See Securities Exchange Act Release No. 85459 (March 29, 
2019), 84 FR 13363 (April 4, 2019) (SR-BOX-2018-24, SR-BOX-2018-37, 
and SR-BOX-2019-04) (Order Disapproving Proposed Rule Changes to 
Amend the Fee Schedule on the BOX Market LLC Options Facility to 
Establish BOX Connectivity Fees for Participants and Non-
Participants Who Connect to the BOX Network). The Commission noted 
in the BOX Order that it ``historically applied a `market-based' 
test in its assessment of market data fees, which [the Commission] 
believe[s] present similar issues as the connectivity fees proposed 
herein.'' Id. at page 16. Despite this admission, the Commission 
disapproved BOX's proposal to begin charging $5,000 per month for 
10Gb connections (while allowing legacy exchanges to charge rates 
equal to 3-4 times that amount utilizing ``market-based'' fee 
filings from years prior).
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    Also while the above appeal was pending, on May 21, 2019, the 
Commission Staff issued guidance ``to assist the national securities 
exchanges and FINRA . . . in preparing Fee Filings that meet their 
burden to demonstrate that proposed fees are consistent with the 
requirements of the Securities Exchange Act.'' \21\ In the Staff 
Guidance, the Commission Staff states that, ``[a]s an initial step in 
assessing the reasonableness of a fee, staff considers whether the fee 
is constrained by significant competitive forces.'' \22\ The Staff 
Guidance also states that, ``. . . even where an SRO cannot 
demonstrate, or does not assert, that significant competitive forces 
constrain the fee at issue, a cost-based discussion may be an 
alternative basis upon which to show consistency with the Exchange 
Act.'' \23\
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    \21\ See Staff Guidance on SRO Rule Filings Relating to Fees 
(May 21, 2019), available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Staff Guidance'').
    \22\ Id.
    \23\ Id.
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    Following the BOX Order and Staff Guidance, on August 6, 2020, the 
D.C. Circuit vacated the Commission's SIFMA Decision in NASDAQ Stock 
Market, LLC v. SEC[hairsp] \24\ and remanded for further proceedings 
consistent with its

[[Page 29752]]

opinion.\25\ That same day, the D.C. Circuit issued an order remanding 
the Remand Order to the Commission for reconsideration in light of 
NASDAQ. The court noted that the Remand Order required the exchanges 
and NMS plan participants to consider the challenges that the 
Commission had remanded in light of the SIFMA Decision. The D.C. 
Circuit concluded that because the SIFMA Decision ``has now been 
vacated, the basis for the [Remand Order] has evaporated.'' \26\ 
Accordingly, on August 7, 2020, the Commission vacated the Remand Order 
and ordered the parties to file briefs addressing whether the holding 
in NASDAQ v. SEC that Exchange Act section 19(d) does not permit 
challenges to generally applicable fee rules requiring dismissal of the 
challenges the Commission previously remanded.\27\ The Commission 
further invited ``the parties to submit briefing stating whether the 
challenges asserted in the applications for review . . . should be 
dismissed, and specifically identifying any challenge that they contend 
should not be dismissed pursuant to the holding of Nasdaq v. SEC.'' 
\28\ Without resolving the above issues, on October 5, 2020, the 
Commission issued an order granting SIFMA and Bloomberg's request to 
withdraw their applications for review and dismissed the 
proceedings.\29\
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    \24\ NASDAQ Stock Mkt., LLC v. SEC, No 18-1324,--Fed. App'x,--
2020 WL 3406123 (D.C. Cir. June 5, 2020). The court's mandate was 
issued on August 6, 2020.
    \25\ Nasdaq v. SEC, 961 F.3d 421, at 424, 431 (D.C. Cir. 2020). 
The court's mandate issued on August 6, 2020. The D.C. Circuit held 
that Exchange Act ``section 19(d) is not available as a means to 
challenge the reasonableness of generally-applicable fee rules.'' 
Id. The court held that ``for a fee rule to be challengeable under 
section 19(d), it must, at a minimum, be targeted at specific 
individuals or entities.'' Id. Thus, the court held that ``section 
19(d) is not an available means to challenge the fees at issue'' in 
the SIFMA Decision. Id.
    \26\ Id. at *2; see also id. (``[T]he sole purpose of the 
challenged remand has disappeared.'').
    \27\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 89504, 2020 WL 4569089 (August 7, 2020) (the ``Order 
Vacating Prior Order and Requesting Additional Briefs'').
    \28\ Id.
    \29\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act 
Release No. 90087 (October 5, 2020).
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    As a result of the Commission's loss of the NASDAQ vs. SEC case 
noted above, the Commission never followed through with its intention 
to subject the over 400 fee filings to ``develop a record,'' and to 
``explain their conclusions, based on that record, in a written 
decision that is sufficient to enable us to perform our review.'' \30\ 
As such, all of those fees remained in place and amounted to a baseline 
set of fees for those exchanges that had the benefit of getting their 
fees in place before the Commission Staff's fee review process 
materially changed. The net result of this history and lack of 
resolution in the D.C. Circuit Court resulted in an uneven competitive 
landscape where the Commission subjects all new non-transaction fee 
filings to the new Revised Review Process, while allowing the 
previously challenged fee filings, mostly submitted by incumbent 
exchanges prior to 2019, to remain in effect and not subject to the 
``record'' or ``review'' earlier intended by the Commission.
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    \30\ See supra note 25, at page 2.
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    While the Exchange appreciates that the Staff Guidance articulates 
an important policy goal of improving disclosures and requiring 
exchanges to justify that their market data and access fee proposals 
are fair and reasonable, the practical effect of the Revised Review 
Process, Staff Guidance, and the Commission's related practice of 
continuous suspension of new fee filings, is anti-competitive, 
discriminatory, and has put in place an un-level playing field, which 
has negatively impacted smaller, nascent, non-legacy exchanges (``non-
legacy exchanges''), while favoring larger, incumbent, entrenched, 
legacy exchanges (``legacy exchanges'').\31\ The legacy exchanges all 
established a significantly higher baseline for access and market data 
fees prior to the Revised Review Process. From 2011 until the issuance 
of the Staff Guidance in 2019, national securities exchanges filed, and 
the Commission Staff did not abrogate or suspend (allowing such fees to 
become effective), at least 92 filings \32\ to amend exchange 
connectivity or port fees (or similar access fees). The support for 
each of those filings was a simple statement by the relevant exchange 
that the fees were constrained by competitive forces.\33\ These fees 
remain in effect today.
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    \31\ Commission Chair Gary Gensler recently reiterated the 
Commission's mandate to ensure competition in the equities markets. 
See ``Statement on Minimum Price Increments, Access Fee Caps, Round 
Lots, and Odd-Lots'', by Chair Gary Gensler, dated December 14, 2022 
(stating ``[i]n 1975, Congress tasked the Securities and Exchange 
Commission with responsibility to facilitate the establishment of 
the national market system and enhance competition in the securities 
markets, including the equity markets'' (emphasis added)). In that 
same statement, Chair Gary Gensler cited the five objectives laid 
out by Congress in 11A of the Exchange Act (15 U.S.C. 78k-1), 
including ensuring ``fair competition among brokers and dealers, 
among exchange markets, and between exchange markets and markets 
other than exchange markets. . . .'' (emphasis added). Id. at note 
1. See also Securities Acts Amendments of 1975, available at https://www.govtrack.us/congress/bills/94/s249.
    \32\ This timeframe also includes challenges to over 400 rule 
filings by SIFMA and Bloomberg discussed above. Sec. Indus. & Fin. 
Mkts. Ass'n, Securities Exchange Act Release No. 84433, 2018 WL 
5023230 (Oct. 16, 2018). Those filings were left to stand, while at 
the same time, blocking newer exchanges from the ability to 
establish competitive access and market data fees. See The Nasdaq 
Stock Market, LLC v. SEC, Case No. 18-1292 (D.C. Cir. June 5, 2020). 
The expectation at the time of the litigation was that the 400 rule 
flings challenged by SIFMA and Bloomberg would need to be justified 
under revised review standards.
    \33\ See, e.g., Securities Exchange Act Release Nos. 74417 
(March 3, 2015), 80 FR 12534 (March 9, 2015) (SR-ISE-2015-06); 83016 
(April 9, 2018), 83 FR 16157 (April 13, 2018) (SR-PHLX-2018-26); 
70285 (August 29, 2013), 78 FR 54697 (September 5, 2013) (SR-
NYSEMKT-2013-71); 76373 (November 5, 2015), 80 FR 70024 (November 
12, 2015) (SR-NYSEMKT-2015-90); 79729 (January 4, 2017), 82 FR 3061 
(January 10, 2017) (SR-NYSEARCA-2016-172).
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    The net result is that the non-legacy exchanges are effectively now 
blocked by the Commission Staff from adopting or increasing fees to 
amounts comparable to the legacy exchanges (which were not subject to 
the Revised Review Process and Staff Guidance), despite providing 
enhanced disclosures and rationale to support their proposed fee 
changes that far exceed any such support provided by legacy exchanges. 
Simply put, legacy exchanges were able to increase their non-
transaction fees during an extended period in which the Commission 
applied a ``market-based'' test that only relied upon the assumed 
presence of significant competitive forces, while exchanges today are 
subject to a cost-based test requiring extensive cost and revenue 
disclosures, a process that is complex, inconsistently applied, and 
rarely results in a successful outcome, i.e., non-suspension. The 
Revised Review Process and Staff Guidance changed decades-long 
Commission Staff standards for review, resulting in unfair 
discrimination and placing an undue burden on inter-market competition 
between legacy exchanges and non-legacy exchanges.
    Commission Staff now require exchange filings, including from non-
legacy exchanges such as the Exchange, to provide detailed cost-based 
analysis in place of competition-based arguments to support such 
changes. However, even with the added detailed cost and expense 
disclosures, the Commission Staff continues to either suspend such 
filings and institute disapproval proceedings, or put the exchanges in 
the unenviable position of having to repeatedly withdraw and re-file 
with additional detail in order to continue to charge those fees.\34\ 
By impeding any path forward for non-legacy exchanges to establish 
commensurate non-

[[Page 29753]]

transaction fees, or by failing to provide any alternative means for 
smaller markets to establish ``fee parity'' with legacy exchanges, the 
Commission is stifling competition: non-legacy exchanges are, in 
effect, being deprived of the revenue necessary to compete on a level 
playing field with legacy exchanges. This is particularly harmful, 
given that the costs to maintain exchange systems and operations 
continue to increase. The Commission Staff's change in position impedes 
the ability of non-legacy exchanges to raise revenue to invest in their 
systems to compete with the legacy exchanges who already enjoy 
disproportionate non-transaction fee based revenue. For example, the 
Cboe Exchange, Inc. (``Cboe'') reported ``access and capacity fee'' 
revenue of $70,893,000 for 2020 \35\ and $80,383,000 for 2021.\36\ Cboe 
C2 Exchange, Inc. (``C2'') reported ``access and capacity fee'' revenue 
of $19,016,000 for 2020 \37\ and $22,843,000 for 2021.\38\ Cboe BZX 
Exchange, Inc. (``BZX'') reported ``access and capacity fee'' revenue 
of $38,387,000 for 2020 \39\ and $44,800,000 for 2021.\40\ Cboe EDGX 
Exchange, Inc. (``EDGX'') reported ``access and capacity fee'' revenue 
of $26,126,000 for 2020 \41\ and $30,687,000 for 2021.\42\ For 2021, 
the affiliated Cboe, C2, BZX, and EDGX (the four largest exchanges of 
the Cboe exchange group) reported $178,712,000 in ``access and capacity 
fees'' in 2021. NASDAQ Phlx, LLC (``NASDAQ Phlx'') reported ``Trade 
Management Services'' revenue of $20,817,000 for 2019.\43\ The Exchange 
notes it is unable to compare ``access fee'' revenues with NASDAQ Phlx 
(or other affiliated NASDAQ exchanges) because after 2019, the ``Trade 
Management Services'' line item was bundled into a much larger line 
item in PHLX's Form 1, simply titled ``Market services.'' \44\
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    \34\ The Exchange has filed, and subsequently withdrawn, various 
forms of this proposed fee numerous times since August 2021 with 
each proposal containing hundreds of cost and revenue disclosures 
never previously disclosed by legacy exchanges in their access and 
market data fee filings prior to 2019.
    \35\ According to Cboe's 2021 Form 1 Amendment, access and 
capacity fees represent fees assessed for the opportunity to trade, 
including fees for trading-related functionality. See Cboe 2021 Form 
1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000465.pdf.
    \36\ See Cboe 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001155.pdf.
    \37\ See C2 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000469.pdf.
    \38\ See C2 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001156.pdf.
    \39\ See BZX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000465.pdf.
    \40\ See BZX 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001152.pdf.
    \41\ See EDGX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000467.pdf.
    \42\ See EDGX 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001154.pdf.
    \43\ According to PHLX, ``Trade Management Services'' includes 
``a wide variety of alternatives for connectivity to and accessing 
[the PHLX] markets for a fee. These participants are charged monthly 
fees for connectivity and support in accordance with [PHLX's] 
published fee schedules.'' See PHLX 2020 Form 1 Amendment, available 
at https://www.sec.gov/Archives/edgar/vprr/2001/20012246.pdf.
    \44\ See PHLX Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000475.pdf. The Exchange 
notes that this type of Form 1 accounting appears to be designed to 
obfuscate the true financials of such exchanges and has the effect 
of perpetuating fee and revenue advantages of legacy exchanges.
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    The much higher non-transaction fees charged by the legacy 
exchanges provides them with two significant competitive advantages. 
First, legacy exchanges are able to use their additional non-
transaction revenue for investments in infrastructure, vast marketing 
and advertising on major media outlets,\45\ new products and other 
innovations. Second, higher non-transaction fees provide the legacy 
exchanges with greater flexibility to lower their transaction fees (or 
use the revenue from the higher non-transaction fees to subsidize 
transaction fee rates), which are more immediately impactful in 
competition for order flow and market share, given the variable nature 
of this cost on member firms. The prohibition of a reasonable path 
forward denies the Exchange (and other non-legacy exchanges) this 
flexibility, eliminates the ability to remain competitive on 
transaction fees, and hinders the ability to compete for order flow and 
market share with legacy exchanges. While one could debate whether the 
pricing of non-transaction fees are subject to the same market forces 
as transaction fees, there is little doubt that subjecting one exchange 
to a materially different standard than that historically applied to 
legacy exchanges for non-transaction fees leaves that exchange at a 
disadvantage in its ability to compete with its pricing of transaction 
fees.
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    \45\ See, e.g., CNBC Debuts New Set on NYSE Floor, available at 
https://www.cnbc.com/id/46517876.
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    While the Commission has clearly noted that the Staff Guidance is 
merely guidance and ``is not a rule, regulation or statement of the . . 
. Commission . . . the Commission has neither approved nor disapproved 
its content . . .'',\46\ this is not the reality experienced by 
exchanges such as MIAX Emerald. As such, non-legacy exchanges are 
forced to rely on an opaque cost-based justification standard. However, 
because the Staff Guidance is devoid of detail on what must be 
contained in cost-based justification, this standard is nearly 
impossible to meet despite repeated good-faith efforts by the Exchange 
to provide substantial amount of cost-related details. For example, the 
Exchange has attempted to increase fees using a cost-based 
justification numerous times, having submitted over six filings.\47\ 
However, despite providing 100+ page filings describing in extensive 
detail its costs associated with providing the services described in 
the filings, Commission Staff continues to suspend such filings, with 
the rationale that the Exchange has not provided sufficient detail of 
its costs and without ever being precise about what additional data 
points are required. The Commission Staff appears to be interpreting 
the reasonableness standard set forth in section 6(b)(4) of the Act 
\48\ in a manner that is not possible to achieve. This essentially 
nullifies the cost-based approach for exchanges as a legitimate 
alternative as laid out in the Staff Guidance. By refusing to accept a 
reasonable cost-based argument to justify non-transaction fees (in 
addition to refusing to accept a competition-based argument as 
described above), or by failing to provide the detail required to 
achieve that standard, the Commission Staff is effectively preventing 
non-legacy exchanges from making any non-transaction fee changes, which 
benefits the legacy exchanges and is anticompetitive to the non-legacy 
exchanges. This does not meet the fairness standard under the Act and 
is discriminatory.
---------------------------------------------------------------------------

    \46\ See supra note 21, at note 1.
    \47\ See Securities Exchange Act Release Nos. 94889 (May 11, 
2022), 87 FR 29928 (May 17, 2022) (SR-EMERALD-2022-19); 94718 (April 
14, 2022), 87 FR 23633 (April 20, 2022) (SR-EMERALD-2022-15); 94717 
(April 14, 2022), 87 FR 23648 (April 20, 2022) (SR-EMERALD-2022-13); 
94260 (February 15, 2022), 87 FR 9695 (February 22, 2022) (SR-
EMERALD-2022-05); 94257 (February 15, 2022), 87 FR 9678 (February 
22, 2022) (SR-EMERALD-2022-04); 93772 (December 14, 2021), 86 FR 
71965 (December 20, 2021) (SR-EMERALD-2021-43); 93776 (December 14, 
2021), 86 FR 71983 (December 20, 2021) (SR-EMERALD-2021-42); 93188 
(September 29, 2021), 86 FR 55052 (October 5, 2021) (SR-EMERALD-
2021-31); (SR-EMERALD-2021-30) (withdrawn without being noticed by 
the Commission); 93166 (September 28, 2021), 86 FR 54760 (October 4, 
2021) (SR-EMERALD-2021-29); 92662 (August 13, 2021), 86 FR 46726 
(August 19, 2021) (SR-EMERALD-2021-25); 92645 (August 11, 2021), 86 
FR 46048 (August 17, 2021) (SR-EMERALD-2021-23).
    \48\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    Because of the un-level playing field created by the Revised Review 
Process and Staff Guidance, the Exchange believes that the Commission 
Staff, at this point, should either (a) provide sufficient clarity on 
how its cost-based

[[Page 29754]]

standard can be met, including a clear and exhaustive articulation of 
required data and its views on acceptable margins,\49\ to the extent 
that this is pertinent; (b) establish a framework to provide for 
commensurate non-transaction based fees among competing exchanges to 
ensure fee parity; \50\ or (c) accept that certain competition-based 
arguments are applicable given the linkage between non-transaction fees 
and transaction fees, especially where non-transaction fees among 
exchanges are based upon disparate standards of review, lack parity, 
and impede fair competition. Considering the absence of any such 
framework or clarity, the Exchange believes that the Commission does 
not have a reasonable basis to deny the Exchange this change in fees, 
where the proposed change would result in fees meaningfully lower than 
comparable fees at competing exchanges and where the associated non-
transaction revenue is meaningfully lower than competing exchanges.
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    \49\ To the extent that the cost-based standard includes 
Commission Staff making determinations as to the appropriateness of 
certain profit margins, the Exchange believes that Staff should be 
clear as to what they determine is an appropriate profit margin.
    \50\ In light of the arguments above regarding disparate 
standards of review for historical legacy non-transaction fees and 
current non-transaction fees for non-legacy exchanges, a fee parity 
alternative would be one possible way to avoid the current unfair 
and discriminatory effect of the Staff Guidance and Revised Review 
Process. See, e.g., CSA Staff Consultation Paper 21-401, Real-Time 
Market Data Fees, available at https://www.bcsc.bc.ca/-/media/PWS/Resources/Securities_Law/Policies/Policy2/21401_Market_Data_Fee_CSA_Staff_Consultation_Paper.pdf.
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    In light of the above, disapproval of this would not meet the 
fairness standard under the Act, would be discriminatory and places a 
substantial burden on competition. The Exchange would be uniquely 
disadvantaged by not being able to increase its access fees to 
comparable levels (or lower levels than current market rates) to those 
of other options exchanges for connectivity. If the Commission Staff 
were to disapprove this proposal, that action, and not market forces, 
would substantially affect whether the Exchange can be successful in 
its competition with other options exchanges. Disapproval of this 
filing could also be viewed as an arbitrary and capricious decision 
should the Commission Staff continue to ignore its past treatment of 
non-transaction fee filings before implementation of the Revised Review 
Process and Staff Guidance and refuse to allow such filings to be 
approved despite significantly enhanced arguments and cost 
disclosures.\51\
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    \51\ The Exchange's costs have clearly increased and continue to 
increase, particularly regarding capital expenditures, as well as 
employee benefits provided by third parties (e.g., healthcare and 
insurance). Yet, practically no fee change proposed by the Exchange 
to cover its ever-increasing costs has been acceptable to the 
Commission Staff since 2021. The only other fair and reasonable 
alternative would be to require the numerous fee filings 
unquestioningly approved before the Staff Guidance and Revised 
Review Process to ``develop a record,'' and to ``explain their 
conclusions, based on that record, in a written decision that is 
sufficient to enable us to perform our review,'' and to ensure a 
comparable review process with the Exchange's filing.
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    Lastly, the Exchange notes that the Commission Staff has allowed 
similar fee increases by other exchanges to remain in effect by 
publishing those filings for comment and allowing the exchange to 
withdraw and re-file numerous times.\52\ Recently, the Commission Staff 
has not afforded the Exchange the same flexibility.\53\ This again is 
evidence that the Commission Staff is not treating non-transaction fee 
filings in a consistent manner and is holding exchanges to different 
levels of scrutiny in reviewing filings.
---------------------------------------------------------------------------

    \52\ See, e.g., 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); SR-MEMX-2022-12 (withdrawn before being noticed); 94924 (May 
16, 2022), 87 FR 31026 (May 20, 2022) (SR-MEMX-2022-13); 95299 (July 
15, 2022), 87 FR 43563 (July 21, 2022) (SR-MEMX-2022-17); SR-MEMX-
2022-24 (withdrawn before being noticed); 95936 (September 27, 
2022), 87 FR 59845 (October 3, 2022) (SR-MEMX-2022-26); 94901 (May 
12, 2022), 87 FR 30305 (May 18, 2022) (SR-MRX-2022-04); SR-MRX-2022-
06 (withdrawn before being noticed); 95262 (July 12, 2022), 87 FR 
42780 (July 18, 2022) (SR-MRX-2022-09); 95710 (September 8, 2022), 
87 FR 56464 (September 14, 2022) (SR-MRX-2022-12); 96046 (October 
12, 2022), 87 FR 63119 (October 18, 2022) (SR-MRX-2022-20); 95936 
(September 27, 2022), 87 FR 59845 (October 3, 2022) (SR-MEMX-2022-
26); and 96430 (December 1, 2022), 87 FR 75083 (December 7, 2022) 
(SR-MEMX-2022-32).
    \53\ See Securities Exchange Act Release Nos. 94889 (May 11, 
2022), 87 FR 29928 (May 17, 2022) (SR-EMERALD-2022-19); 94718 (April 
14, 2022), 87 FR 23633 (April 20, 2022) (SR-EMERALD-2022-15).
---------------------------------------------------------------------------

* * * * *
10Gb ULL Connectivity Fee Change
    The Exchange proposes to amend the Fee Schedule to increase the 
fees for Members and non-Members to access the Exchange's system 
networks \54\ via a 10Gb ULL fiber connection. Specifically, the 
Exchange proposes to amend sections (5)(a)-(b) of the Fee Schedule to 
increase the 10Gb ULL connectivity fee for Members and non-Members from 
$10,000 per month to $13,500 per month (``10Gb ULL Fee'').\55\
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    \54\ The Exchange's system networks consist of the Exchange's 
extranet, internal network, and external network.
    \55\ Market participants that purchase additional 10Gb ULL 
connections as a result of this change will not be subject to the 
Exchange's Member Network Connectivity Testing and Certification Fee 
under Section (4)(c) of the Exchange's fee schedule. See Section 
(4)(c) of the Exchange's fee schedule available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_10192022.pdf (providing that ``Network 
Connectivity Testing and Certification Fees will not be assessed in 
situations where the Exchange initiates a mandatory change to the 
Exchange's system that requires testing and certification. Member 
Network Connectivity Testing and Certification Fees will not be 
assessed for testing and certification of connectivity to the 
Exchange's Disaster Recovery Facility.'').
---------------------------------------------------------------------------

    The Exchange will continue to assess monthly Member and non-Member 
network connectivity fees for connectivity to the primary and secondary 
facilities in any month the Member or non-Member is credentialed to use 
any of the Exchange APIs or market data feeds in the production 
environment. The Exchange will continue to pro-rate the fees when a 
Member or non-Member makes a change to the connectivity (by adding or 
deleting connections) with such pro-rated fees based on the number of 
trading days that the Member or non-Member has been credentialed to 
utilize any of the Exchange APIs or market data feeds in the production 
environment through such connection, divided by the total number of 
trading days in such month multiplied by the applicable monthly rate.
Limited Service MEI Ports
Background
    The Exchange also proposes to amend section (5)(d) of the Fee 
Schedule to adopt a tiered-pricing structure for Limited Service MEI 
Ports available to Market Makers. The Exchange allocates two (2) Full 
Service MEI Ports \56\ and two (2) Limited Service MEI Ports \57\ per 
matching engine \58\ to which each

[[Page 29755]]

Market Maker connects. Market Makers may also request additional 
Limited Service MEI Ports for each matching engine to which they 
connect. The Full Service MEI Ports and Limited Service MEI Ports all 
include access to the Exchange's primary and secondary data centers and 
its disaster recovery center. Market Makers may request additional 
Limited Service MEI Ports. Currently, Market Makers are assessed a $100 
monthly fee for each Limited Service MEI Port for each matching engine 
above the first two Limited Service MEI Ports that are included for 
free.
---------------------------------------------------------------------------

    \56\ The term ``Full Service MEI Ports'' means a port which 
provides Market Makers with the ability to send Market Maker simple 
and complex quotes, eQuotes, and quote purge messages to the MIAX 
Emerald System. Full Service MEI Ports are also capable of receiving 
administrative information. Market Makers are limited to two Full 
Service MEI Ports per Matching Engine. See the Definitions Section 
of the Fee Schedule.
    \57\ The term ``Limited Service MEI Ports'' means a port which 
provides Market Makers with the ability to send simple and complex 
eQuotes and quote purge messages only, but not Market Maker Quotes, 
to the MIAX Emerald System. Limited Service MEI Ports are also 
capable of receiving administrative information. Market Makers 
initially receive two Limited Service MEI Ports per Matching Engine. 
See the Definitions Section of the Fee Schedule.
    \58\ The term ``Matching Engine'' means a part of the MIAX 
Emerald electronic system that processes options orders and trades 
on a symbol-by-symbol basis. Some Matching Engines will process 
option classes with multiple root symbols, and other Matching 
Engines may be dedicated to one single option root symbol (for 
example, options on SPY may be processed by one single Matching 
Engine that is dedicated only to SPY). A particular root symbol may 
only be assigned to a single designated Matching Engine. A 
particular root symbol may not be assigned to multiple Matching 
Engines. See the Definitions Section of the Fee Schedule.
---------------------------------------------------------------------------

Limited Service MEI Port Fee Changes
    The Exchange now proposes to move from a flat monthly fee per 
Limited Service MEI Port for each matching engine to a tiered-pricing 
structure for Limited Service MEI Ports for each matching engine under 
which the monthly fee would vary depending on the number of Limited 
Service MEI Ports each Market Maker elects to purchase. Specifically, 
the Exchange will continue to provide the first and second Limited 
Service MEI Ports for each matching engine free of charge. For Limited 
Service MEI Ports, the Exchange proposes to adopt the following tiered-
pricing structure: (i) the third and fourth Limited Service MEI Ports 
for each matching engine will increase from the current flat monthly 
fee of $100 to $200 per port; (ii) the fifth and sixth Limited Service 
MEI Ports for each matching engine will increase from the current flat 
monthly fee of $100 to $300 per port; and (iii) the seventh or more 
Limited Service MEI Ports will increase from the current monthly flat 
fee of $100 to $400 per port.\59\ The Exchange believes a tiered-
pricing structure will encourage Market Makers to be more efficient 
when determining how to connect to the Exchange. This should also 
enable the Exchange to better monitor and provide access to the 
Exchange's network to ensure sufficient capacity and headroom in the 
System \60\ in accordance with its fair access requirements under 
section 6(b)(5) of the Act.\61\
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    \59\ As noted in the Fee Schedule, Market Makers will continue 
to be limited to fourteen Limited Service MEI Ports per Matching 
Engine. The Exchange also proposes to make a ministerial clarifying 
change to remove the defined term ``Additional Limited Service MEI 
Ports'' as a result of moving to a tiered pricing structure where 
the first two Limited Service MEI Ports continue to be provided free 
of charge. The Exchange proposes to make a related change to add the 
term ``Limited Service MEI Ports'' after the word ``fourteen'' in 
the Fee Schedule.
    \60\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See the Definitions 
Section of the Fee Schedule and Exchange Rule 100.
    \61\ See 15 U.S.C. 78f(b). The Exchange may offer access on 
terms that are not unfairly discriminatory among its Members, and 
ensure sufficient capacity and headroom in the System. The Exchange 
monitors the System's performance and makes adjustments to its 
System based on market conditions and Member demand.
---------------------------------------------------------------------------

    The Exchange offers various types of ports with differing prices 
because each port accomplishes different tasks, are suited to different 
types of Members, and consume varying capacity amounts of the network. 
For instance, Market Makers who take the maximum amount of Limited 
Service MEI Ports account for approximately greater than 99% of message 
traffic over the network, while Market Makers with fewer Limited 
Service MEI Ports account for approximately less than 1% of message 
traffic over the network. In the Exchange's experience, Market Makers 
who only utilize the two free Limited Service MEI Ports do not have a 
business need for the high performance network solutions required by 
Market Makers who take the maximum amount of Limited Service MEI Ports. 
The Exchange's high performance network solutions and supporting 
infrastructure (including employee support), provides unparalleled 
system throughput and the capacity to handle approximately 18 million 
quote messages per second. Based on November 2022 trading results, on 
an average day, the Exchange handles over approximately 6.9 billion 
quotes, and more than 146 billion quotes over the entire month. Of that 
total, Market Makers with the maximum amount of Limited Service MEI 
Ports generated over 4 billion quotes, and Market Makers who utilized 
the two free Limited Service MEI Ports generated approximately 1.6 
billion quotes. Also for November 2022, Market Makers who utilized 7 to 
9 Limited Service MEI ports submitted an average of 1,264,703,600 
quotes per day. To achieve a consistent, premium network performance, 
the Exchange must build out and maintain a network that has the 
capacity to handle the message rate requirements of its most heavy 
network consumers. These billions of messages per day consume the 
Exchange's resources and significantly contribute to the overall 
network connectivity expense for storage and network transport 
capabilities. The Exchange must also purchase additional storage 
capacity on an ongoing basis to ensure it has sufficient capacity to 
store these messages as part of its surveillance program and to satisfy 
its record keeping requirements under the Exchange Act.\62\ Thus, as 
the number of connections a Market Maker has increases, certain other 
costs incurred by the Exchange that are correlated to, though not 
directly affected by, connection costs (e.g., storage costs, 
surveillance costs, service expenses) also increase. The Exchange 
sought to design the proposed tiered-pricing structure to set the 
amount of the fees to relate to the number of connections a firm 
purchases. The more connections purchased by a Market Maker likely 
results in greater expenditure of Exchange resources and increased cost 
to the Exchange. With this in mind, the Exchange proposes no fee or 
lower fees for those Market Makers who receive fewer Limited Service 
MEI Ports since those Market Makers generally tend to send the least 
amount of orders and messages over those connections. Given this 
difference in network utilization rate, the Exchange believes that it 
is reasonable, equitable, and not unfairly discriminatory that Market 
Makers who take the most Limited Service MEI Ports pay for the vast 
majority of the shared network resources from which all Member and non-
Member users benefit, but is designed and maintained from a capacity 
standpoint to specifically handle the message rate and performance 
requirements of those Market Makers.
---------------------------------------------------------------------------

    \62\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

    The Exchange proposes to increase its monthly Limited Service MEI 
Port fees to recover a portion of the costs associated with directly 
accessing the Exchange.
Implementation
    The proposed fee changes are immediately effective.
2. Statutory Basis
    The Exchange believes that the proposed fees are consistent with 
section 6(b) of the Act \63\ in general, and furthers the objectives of 
section 6(b)(4) of the Act \64\ in particular, in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among Members and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposed 
fees further the objectives of section

[[Page 29756]]

6(b)(5) of the Act \65\ in that they are designed to promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general protect investors and the public interest and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers and dealers.
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 78f(b).
    \64\ 15 U.S.C. 78f(b)(4).
    \65\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the information provided to justify the 
proposed fees meets or exceeds the amount of detail required in respect 
of proposed fee changes under the Revised Review Process and as set 
forth in recent Staff Guidance. Based on both the BOX Order \66\ and 
the Staff Guidance,\67\ the Exchange believes that the proposed fees 
are consistent with the Act because they are: (i) reasonable, equitably 
allocated, not unfairly discriminatory, and not an undue burden on 
competition; (ii) comply with the BOX Order and the Staff Guidance; and 
(iii) supported by evidence (including comprehensive revenue and cost 
data and analysis) that they are fair and reasonable and will not 
result in excessive pricing or supra-competitive profit.
---------------------------------------------------------------------------

    \66\ See supra note 20.
    \67\ See supra note 21.
---------------------------------------------------------------------------

    The Exchange believes that exchanges, in setting fees of all types, 
should meet high standards of transparency to demonstrate why each new 
fee or fee amendment meets the requirements of the Act that fees be 
reasonable, equitably allocated, not unfairly discriminatory, and not 
create an undue burden on competition among market participants. The 
Exchange believes this high standard is especially important when an 
exchange imposes various fees for market participants to access an 
exchange's marketplace.
    In the Staff Guidance, the Commission Staff states that, ``[a]s an 
initial step in assessing the reasonableness of a fee, staff considers 
whether the fee is constrained by significant competitive forces.'' 
\68\ The Staff Guidance further states that, ``. . . even where an SRO 
cannot demonstrate, or does not assert, that significant competitive 
forces constrain the fee at issue, a cost-based discussion may be an 
alternative basis upon which to show consistency with the Exchange 
Act.'' \69\ In the Staff Guidance, the Commission Staff further states 
that, ``[i]f an SRO seeks to support its claims that a proposed fee is 
fair and reasonable because it will permit recovery of the SRO's costs, 
. . . , specific information, including quantitative information, 
should be provided to support that argument.'' \70\
---------------------------------------------------------------------------

    \68\ Id.
    \69\ Id.
    \70\ Id.
---------------------------------------------------------------------------

    The proposed fees are reasonable because they promote parity among 
exchange pricing for access, which promotes competition, including in 
the Exchanges' ability to competitively price transaction fees, invest 
in infrastructure, new products and other innovations, all while 
allowing the Exchange to recover its costs to provide dedicated access 
via 10Gb ULL connectivity and Limited Service MEI Ports. As discussed 
above, the Revised Review Process and Staff Guidance have created an 
uneven playing field between legacy and non-legacy exchanges by 
severely restricting non-legacy exchanges from being able to increase 
non-transaction relates fees to provide them with additional necessary 
revenue to better compete with legacy exchanges, which largely set fees 
prior to the Revised Review Process. The much higher non-transaction 
fees charged by the legacy exchanges provides them with two significant 
competitive advantages: (i) additional non-transaction revenue that may 
be used to fund areas other than the non-transaction service related to 
the fee, such as investments in infrastructure, advertising, new 
products and other innovations; and (ii) greater flexibility to lower 
their transaction fees by using the revenue from the higher non-
transaction fees to subsidize transaction fee rates. The latter is more 
immediately impactful in competition for order flow and market share, 
given the variable nature of this cost on Member firms. The absence of 
a reasonable path forward to increase non-transaction fees to 
comparable (or lower rates) limits the Exchange's flexibility to, among 
other things, make additional investments in infrastructure and 
advertising, diminishes the ability to remain competitive on 
transaction fees, and hinders the ability to compete for order flow and 
market share. Again, while one could debate whether the pricing of non-
transaction fees are subject to the same market forces as transaction 
fees, there is little doubt that subjecting one exchange to a 
materially different standard than that applied to other exchanges for 
non-transaction fees leaves that exchange at a disadvantage in its 
ability to compete with its pricing of transaction fees.
The Proposed Fees Ensure Parity Among Exchange Access Fees, Which 
Promotes Competition
    The Exchange initially adopted a fee of $50 per port, after the 
first two Limited Service MEI Ports that are provided free of charge, 
and the Exchange incurred all the costs associated to provide those 
first two Limited Service MEI Ports since it commenced operations in 
March 2019. At that same time, the Exchange only charged $6,000 per 
month for each 10Gb ULL connection. As a new exchange entrant, the 
Exchange chose to offer connectivity and ports at very low fees to 
encourage market participants to trade on the Exchange and experience, 
among things, the quality of the Exchange's technology and trading 
functionality. This practice is not uncommon. New exchanges often do 
not charge fees or charge lower fees for certain services such as 
memberships/trading permits to attract order flow to an exchange, and 
later amend their fees to reflect the true value of those services, 
absorbing all costs to provide those services in the meantime. Allowing 
new exchange entrants time to build and sustain market share through 
various pricing incentives before increasing non-transaction fees 
encourages market entry and fee parity, which promotes competition 
among exchanges. It also enables new

[[Page 29757]]

exchanges to mature their markets and allow market participants to 
trade on the new exchanges without fees serving as a potential barrier 
to attracting memberships and order flow.\71\
---------------------------------------------------------------------------

    \71\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (stating, ``[t]he 
Exchange established this lower (when compared to other options 
exchanges in the industry) Participant Fee in order to encourage 
market participants to become Participants of BOX . . .''). See also 
Securities Exchange Act Release No. 90076 (October 2, 2020), 85 FR 
63620 (October 8, 2020) (SR-MEMX-2020-10) (proposing to adopt the 
initial fee schedule and stating that ``[u]nder the initial proposed 
Fee Schedule, the Exchange proposes to make clear that it does not 
charge any fees for membership, market data products, physical 
connectivity or application sessions.''). MEMX's market share has 
increased and recently proposed to adopt numerous non-transaction 
fees, including fees for membership, market data, and connectivity. 
See Securities Exchange Act Release Nos. 93927 (January 7, 2022), 87 
FR 2191 (January 13, 2022) (SR-MEMX-2021-19) (proposing to adopt 
membership fees); 96430 (December 1, 2022), 87 FR 75083 (December 7, 
2022) (SR-MEMX-2022-32) and 95936 (September 27, 2022), 87 FR 59845 
(October 3, 2022) (SR-MEMX-2022-26) (proposing to adopt fees for 
connectivity). See also, e.g., Securities Exchange Act Release No. 
88211 (February 14, 2020), 85 FR 9847 (February 20, 2020) (SR-
NYSENAT-2020-05), available at https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2020/SR-NYSENat-2020-05.pdf (initiating market data fees for the NYSE National exchange 
after initially setting such fees at zero).
---------------------------------------------------------------------------

    Later in 2020, as the Exchange's market share increased,\72\ the 
Exchange then increased the fee by $50 to a modest $100 fee per Limited 
Service MEI Port and increased the fee for 10Gb ULL fiber connections 
from $6,000 to $10,000 per month.\73\ The Exchange balanced business 
and competitive concerns with the need to financially compete with the 
larger incumbent exchanges that charge higher fees for similar 
connectivity and use that revenue to invest in their technology and 
other service offerings.
---------------------------------------------------------------------------

    \72\ The Exchange experienced a monthly average trading volume 
of 3.43% for the month of October 2020. See Market at a Glance, 
available at www.miaxoptions.com.
    \73\ See Securities Exchange Act Release Nos. 91460 (April 1, 
2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-11); 90184 
(October 14, 2020), 85 FR 66636 (October 20, 2020) (SR-EMERALD-2020-
12); 90600 (December 8, 2020), 85 FR 80831 (December 14, 2020) (SR-
EMERALD-2020-17); 91032 (February 1, 2021), 86 FR 8428 (February 5, 
2021) (SR-EMERALD-2021-02); and 91200 (February 24, 2021), 86 FR 
12221 (March 2, 2021) (SR-EMERALD-2021-07).
---------------------------------------------------------------------------

    The proposed changes to the Fee Schedule are reasonable in several 
respects. As a threshold matter, the Exchange is subject to significant 
competitive forces, which constrains its pricing determinations for 
transaction fees as well as non-transaction fees. The fact that the 
market for order flow is competitive has long been recognized by the 
courts. In NetCoalition v. Securities and Exchange Commission, the D.C. 
Circuit stated, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .'' \74\
---------------------------------------------------------------------------

    \74\ See NetCoalition, 615 F.3d at 539 (D.C. Cir. 2010) (quoting 
Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 
74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention to determine 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, 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.'' \75\
---------------------------------------------------------------------------

    \75\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Congress directed the Commission to ``rely on `competition, 
whenever possible, in meeting its regulatory responsibilities for 
overseeing the SROs and the national market system.' '' \76\ As a 
result, and as evidenced above, the Commission has historically relied 
on competitive forces to determine whether a fee proposal is equitable, 
fair, reasonable, and not unreasonably or unfairly discriminatory. ``If 
competitive forces are operative, the self-interest of the exchanges 
themselves will work powerfully to constrain unreasonable or unfair 
behavior.'' \77\ Accordingly, ``the existence of significant 
competition provides a substantial basis for finding that the terms of 
an exchange's fee proposal are equitable, fair, reasonable, and not 
unreasonably or unfairly discriminatory.'' \78\ In the Revised Review 
Process and Staff Guidance, Commission Staff indicated that they would 
look at factors beyond the competitive environment, such as cost, only 
if a ``proposal lacks persuasive evidence that the proposed fee is 
constrained by significant competitive forces.'' \79\
---------------------------------------------------------------------------

    \76\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep. 
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that 
the national market system evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed.'').
    \77\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \78\ Id.
    \79\ See Staff Guidance, supra note 21.
    \80\ See supra note 72.
---------------------------------------------------------------------------

    The Exchange believes the competing exchanges' 10Gb connectivity 
and port fees are useful examples of alternative approaches to 
providing and charging for access and demonstrating how such fees are 
competitively set and constrained. To that end, the Exchange believes 
the proposed fees are competitive and reasonable because the proposed 
fees are similar to or less than fees charged for similar connectivity 
and port access provided by other options exchanges with comparable 
market shares. As such, the Exchange believes that denying its ability 
to institute fees that allow the Exchange to recoup its costs and some 
margin in a manner that is closer to parity with legacy exchanges, in 
effect, impedes its ability to compete, including in its pricing of 
transaction fees and ability to invest in competitive infrastructure 
and other offerings.
    The following table shows how the Exchange's proposed fees remain 
similar to or less than fees charged for similar connectivity and port 
access provided by other options exchanges with similar market share. 
Each of the market data rates in place at competing options exchanges 
were filed with the Commission for immediate effectiveness and remain 
in place today.

------------------------------------------------------------------------
                                     Type of          Monthly fee (per
           Exchange               connection or      connection or per
                                       port                port)
------------------------------------------------------------------------
MIAX Emerald (as proposed)      10Gb ULL           $13,500.
 (equity options market share    connection.       1-2 ports: FREE (not
 of 3.27% for the month of      Limited Service     changed in this
 March 2023) \80\                MEI Ports.         proposal); 3-4
                                                    ports: $200 each; 5-
                                                    6 ports: $300 each;
                                                    7 or more ports:
                                                    $400 each.

[[Page 29758]]

 
NASDAQ \81\ (equity options     10Gb Ultra fiber   $15,000 per
 market share of 7.51% for the   connection.        connection.
 month of March 2023) \82\      SQF Port.........  1-5 ports: $1,500 per
                                                    port; 6-20 ports:
                                                    $1,000 per port; 21
                                                    or more ports: $500
                                                    per port.
NASDAQ ISE LLC (``ISE'') \83\   10Gb Ultra fiber   $15,000 per
 (equity options market share    connection.        connection.
 of 5.91% for the month of      SQF Port \85\....  $1,100 per port.
 March 2023) \84\
NYSE American LLC (``NYSE       10Gb LX LCN        $22,000 per
 American'') \86\ (equity        connection.        connection.
 options market share of 7.50%  Order/Quote Entry  1-40 Ports: $450 per
 for the month of March 2023)    Port.              port; 41 or more
 \87\                                               Ports: $150 per
                                                    port.
NASDAQ GEMX, LLC (``GEMX'')     10Gb Ultra         $15,000 per
 \88\ (equity options market     connection         connection.
 share of 2.00% for the month   SQF Port.........  $1,250 per port.
 of March 2023) \89\
------------------------------------------------------------------------

    There is no requirement, regulatory or otherwise, that any broker-
dealer connect to and access any (or all of) the available options 
exchanges. Market participants may choose to become a member of one or 
more options exchanges based on the market participant's assessment of 
the business opportunity relative to the costs of the Exchange. With 
this, there is elasticity of demand for exchange membership. As an 
example, the Exchange's affiliate, MIAX Pearl Options, experienced a 
decrease in membership as the result of similar fees proposed herein. 
One MIAX Pearl Options Market Maker terminated their MIAX Pearl Options 
membership effective January 1, 2023, as a direct result of the 
proposed connectivity and port fee changes on MIAX Pearl Options.
---------------------------------------------------------------------------

    \81\ See NASDAQ Pricing Schedule, Options 7, Section 3, Ports 
and Other Services and NASDAQ Rules, General 8: Connectivity, 
Section 1. Co-Location Services.
    \82\ See supra note 72.
    \83\ See ISE Pricing Schedule, Options 7, Section 7, 
Connectivity Fees and ISE Rules, General 8: Connectivity.
    \84\ See supra note 72.
    \85\ Similar to the Exchange's MEI Ports, SQF ports are 
primarily utilized by Market Makers.
    \86\ See NYSE American Options Fee Schedule, Section V.A. Port 
Fees and Section V.B. Co-Location Fees.
    \87\ See supra note 72.
    \88\ See GEMX Pricing Schedule, Options 7, Section 6, 
Connectivity Fees and GEMX Rules, General 8: Connectivity.
    \89\ See supra note 72.
---------------------------------------------------------------------------

    It is not a requirement for market participants to become members 
of all options exchanges, in fact, certain market participants conduct 
an options business as a member of only one options market.\90\ A very 
small number of market participants choose to become a member of all 
sixteen options exchanges. Most firms that actively trade on options 
markets are not currently Members of the Exchange and do not purchase 
connectivity or port services at the Exchange. Connectivity and ports 
are only available to Members or service bureaus, and only a Member may 
utilize a port.\91\
---------------------------------------------------------------------------

    \90\ BOX recently adopted an electronic market maker trading 
permit fee. See Securities Exchange Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17). In that 
proposal, BOX stated that, ``. . . it is not aware of any reason why 
Market Makers could not simply drop their access to an exchange (or 
not initially access an exchange) if an exchange were to establish 
prices for its non-transaction fees that, in the determination of 
such Market Maker, did not make business or economic sense for such 
Market Maker to access such exchange. [BOX] again notes that no 
market makers are required by rule, regulation, or competitive 
forces to be a Market Maker on [BOX].'' Also in 2022, MEMX 
established a monthly membership fee. See Securities Exchange Act 
Release No. 93927 (January 7, 2022), 87 FR 2191 (January 13, 2022) 
(SR-MEMX-2021-19). In that proposal, MEMX reasoned that that there 
is value in becoming a member of the exchange and stated that it 
believed that the proposed membership fee ``is not unfairly 
discriminatory because no broker-dealer is required to become a 
member of the Exchange'' and that ``neither the trade-through 
requirements under Regulation NMS nor broker-dealers' best execution 
obligations require a broker-dealer to become a member of every 
exchange.''
    \91\ Service Bureaus may obtain ports on behalf of Members.
---------------------------------------------------------------------------

    One other exchange recently noted in a proposal to amend their own 
trading permit fees that of the 62 market making firms that are 
registered as Market Makers across Cboe, MIAX, and BOX, 42 firms access 
only one of the three exchanges.\92\ The Exchange and its affiliates, 
MIAX Pearl and MIAX, have a total of 47 members. Of those 47 total 
members, 35 are members of all three affiliated exchanges, four are 
members of only two (2) affiliated exchanges, and eight (8) are members 
of only one affiliated exchange. The Exchange also notes that no firm 
is a Member of the Exchange only. The above data evidences that a 
broker-dealer need not have direct connectivity to all options 
exchanges, let alone the Exchange and its two affiliates, and broker-
dealers may elect to do so based on their own business decisions and 
need to directly access each exchange's liquidity pool.
---------------------------------------------------------------------------

    \92\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change to Amend the 
Fee Schedule on the BOX Options Market LLC Facility To Adopt 
Electronic Market Maker Trading Permit Fees). The Exchange believes 
that BOX's observation demonstrates that market making firms can, 
and do, select which exchanges they wish to access, and, 
accordingly, options exchanges must take competitive considerations 
into account when setting fees for such access.
---------------------------------------------------------------------------

    Not only is there not an actual regulatory requirement to connect 
to every options exchange, the Exchange believes there is also no ``de 
facto'' or practical requirement as well, as further evidenced by the 
broker-dealer membership analysis of the options exchanges discussed 
above. As noted above, this is evidenced by the fact that one MIAX 
Options Pearl Market Maker terminated their MIAX Pearl Options 
membership effective January 1, 2023 as a direct result of the proposed 
connectivity and port fee changes on MIAX Pearl Options (which are 
similar to the changes proposed herein). Indeed, broker-dealers choose 
if and how to access a particular exchange and because it is a choice, 
the Exchange must set reasonable pricing, otherwise prospective members 
would not connect and existing members would disconnect from the 
Exchange. The decision to become a member of an exchange, particularly 
for registered market makers, is complex, and not solely based on the 
non-transactional costs assessed by an exchange. As noted herein, 
specific factors include, but are not limited to: (i) an exchange's 
available liquidity in options series; (ii) trading functionality 
offered on a particular market; (iii) product offerings; (iv) customer 
service on an exchange; and (v) transactional pricing. Becoming a 
member of the exchange does not ``lock'' a potential member into a 
market or diminish the overall competition for exchange services.
    In lieu of becoming a member at each options exchange, a market 
participant may join one exchange and elect to have their orders routed 
in the event that a better price is available on an away market. 
Nothing in the Order Protection Rule requires a firm to become a Member 
at--or establish connectivity

[[Page 29759]]

to--the Exchange.\93\ If the Exchange is not at the NBBO, the Exchange 
will route an order to any away market that is at the NBBO to ensure 
that the order was executed at a superior price and prevent a trade-
through.\94\
---------------------------------------------------------------------------

    \93\ See Options Order Protection and Locked/Crossed Market Plan 
(August 14, 2009), available at https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf.
    \94\ Members may elect to not route their orders by utilizing 
the Do Not Route order type. See Exchange Rule 516(g).
---------------------------------------------------------------------------

    With respect to the submission of orders, Members may also choose 
not to purchase any connection at all from the Exchange, and instead 
rely on the port of a third party to submit an order. For example, a 
third-party broker-dealer Member of the Exchange may be utilized by a 
retail investor to submit orders into an Exchange. An institutional 
investor may utilize a broker-dealer, a service bureau,\95\ or request 
sponsored access \96\ through a member of an exchange in order to 
submit a trade directly to an options exchange.\97\ A market 
participant may either pay the costs associated with becoming a member 
of an exchange or, in the alternative, a market participant may elect 
to pay commissions to a broker-dealer, pay fees to a service bureau to 
submit trades, or pay a member to sponsor the market participant in 
order to submit trades directly to an exchange.
---------------------------------------------------------------------------

    \95\ Service Bureaus provide access to market participants to 
submit and execute orders on an exchange. On the Exchange, a Service 
Bureau may be a Member. Some Members utilize a Service Bureau for 
connectivity and that Service Bureau may not be a Member. Some 
market participants utilize a Service Bureau who is a Member to 
submit orders.
    \96\ Sponsored Access is an arrangement whereby a Member permits 
its customers to enter orders into an exchange's system that bypass 
the Member's trading system and are routed directly to the Exchange, 
including routing through a service bureau or other third-party 
technology provider.
    \97\ This may include utilizing a floor broker and submitting 
the trade to one of the five options trading floors.
---------------------------------------------------------------------------

    Non-Member third-parties, such as service bureaus and extranets, 
resell the Exchange's connectivity. This indirect connectivity is 
another viable alternative for market participants to trade on the 
Exchange without connecting directly to the Exchange (and thus not pay 
the Exchange's connectivity fees), which alternative is already being 
used by non-Members and further constrains the price that the Exchange 
is able to charge for connectivity and other access fees to its market. 
The Exchange notes that it could, but chooses not to, preclude market 
participants from reselling its connectivity. Unlike other exchanges, 
the Exchange also does not currently assess fees on third-party 
resellers on a per customer basis (i.e., fees based on the number of 
firms that connect to the Exchange indirectly via the third-party).\98\ 
Indeed, the Exchange does not receive any connectivity revenue when 
connectivity is resold by a third-party, which often is resold to 
multiple customers, some of whom are agency broker-dealers that have 
numerous customers of their own.\99\ Particularly, in the event that a 
market participant views the Exchange's direct connectivity and access 
fees as more or less attractive than competing markets, that market 
participant can choose to connect to the Exchange indirectly or may 
choose not to connect to the Exchange and connect instead to one or 
more of the other 16 options markets. Accordingly, the Exchange 
believes that the proposed fees are fair and reasonable and constrained 
by competitive forces.
---------------------------------------------------------------------------

    \98\ See, e.g., Nasdaq Price List--U.S. Direct Connection and 
Extranet Fees, available at, U.S. Direct-Extranet Connection 
(nasdaqtrader.com); and Securities Exchange Act Release Nos. 74077 
(January 16, 2022), 80 FR 3683 (January 23, 2022) (SR-NASDAQ-2015-
002); and 82037 (November 8, 2022), 82 FR 52953 (November 15, 2022) 
(SR-NASDAQ-2017-114).
    \99\ The Exchange notes that resellers, such as SFTI, are not 
required to publicize, let alone justify or file with the Commission 
their fees, and as such could charge the market participant any fees 
it deems appropriate (including connectivity fees higher than the 
Exchange's connectivity fees), even if such fees would otherwise be 
considered potentially unreasonable or uncompetitive fees.
---------------------------------------------------------------------------

    The Exchange is obligated to regulate its Members and secure access 
to its environment. In order to properly regulate its Members and 
secure the trading environment, the Exchange takes measures to ensure 
access is monitored and maintained with various controls. Connectivity 
and ports are methods utilized by the Exchange to grant Members secure 
access to communicate with the Exchange and exercise trading rights. 
When a market participant elects to be a Member, and is approved for 
membership by the Exchange, the Member is granted trading rights to 
enter orders and/or quotes into Exchange through secure connections.
    Again, there is no legal or regulatory requirement that a market 
participant become a Member of the Exchange. This is again evidenced by 
the fact that one MIAX Pearl Options Market Maker terminated their MIAX 
Pearl Options membership effective January 1, 2023 as a direct result 
of the proposed connectivity and port fee changes on MIAX Pearl 
Options. If a market participant chooses to become a Member, they may 
then choose to purchase connectivity beyond the one connection that is 
necessary to quote or submit orders on the Exchange. Members may freely 
choose to rely on one or many connections, depending on their business 
model.
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.
    In proposing to charge fees for connectivity services, the Exchange 
is especially diligent in assessing those fees in a transparent way 
against its own aggregate costs of providing the related service, and 
in 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,\100\ and Rule 19b-4 thereunder,\101\ with respect to the 
types of information SROs should provide when filing fee changes, and 
section 6(b) of the Act,\102\ which requires, among other things, that 
exchange fees be reasonable and equitably allocated,\103\ not designed 
to permit unfair discrimination,\104\ and that they not impose a burden 
on competition not necessary or appropriate in furtherance of the 
purposes of the Act.\105\ This rule change proposal addresses those 
requirements, and the analysis and data in each of the sections that 
follow are designed to clearly and comprehensively show how they are 
met.\106\ The Exchange reiterates that the legacy exchanges with whom 
the Exchange vigorously competes for order flow and market share, were 
not subject to any such diligence or transparency in

[[Page 29760]]

setting their baseline non-transaction fees, most of which were put in 
place before the Revised Review Process and Staff Guidance.
---------------------------------------------------------------------------

    \100\ 15 U.S.C. 78s(b)(1).
    \101\ 17 CFR 240.19b-4.
    \102\ 15 U.S.C. 78f(b).
    \103\ 15 U.S.C. 78f(b)(4).
    \104\ 15 U.S.C. 78f(b)(5).
    \105\ 15 U.S.C. 78f(b)(8).
    \106\ See Staff Guidance, supra note 21.
---------------------------------------------------------------------------

    As detailed below, the Exchange recently calculated its aggregate 
annual costs for providing physical 10Gb ULL connectivity to the 
Exchange at $11,361,586 (or approximately $946,799 per month, rounded 
to the nearest dollar when dividing the annual cost by 12 months) and 
its aggregate annual costs for providing Limited Service MEI Ports at 
$1,799,066 (or approximately $148,255 per month, rounded to the nearest 
dollar when dividing the annual cost by 12 months). In order to cover 
the aggregate costs of providing connectivity to its Users (both 
Members and non-Members \107\) going forward and to make a modest 
profit, as described below, the Exchange proposes to modify its Fee 
Schedule to charge a fee of $13,500 per month for each physical 10Gb 
ULL connection. The Exchange also proposes to modify its Fee Schedule 
to charge tiered rates for additional Limited Service MEI Ports.
---------------------------------------------------------------------------

    \107\ Types of market participants that obtain connectivity 
services from the Exchange but are not Members include service 
bureaus and extranets. Service bureaus offer technology-based 
services to other companies for a fee, including order entry 
services, and thus, may access Limited Service MEI Ports on behalf 
of one or more Members. Extranets offer physical connectivity 
services to Members and non-Members.
---------------------------------------------------------------------------

    In 2020, the Exchange completed a study of its aggregate costs to 
produce market data and connectivity (the ``Cost Analysis'').\108\ The 
Cost Analysis required a detailed analysis of the Exchange's aggregate 
baseline costs, including a determination and allocation of costs for 
core services provided by the Exchange--transaction execution, market 
data, membership services, physical connectivity, and port access 
(which provide order entry, cancellation and modification 
functionality, risk functionality, the ability to receive drop copies, 
and other functionality). The Exchange 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'').
---------------------------------------------------------------------------

    \108\ The Exchange frequently updates it Cost Analysis as 
strategic initiatives change, costs increase or decrease, and market 
participant needs and trading activity changes. The Exchange's most 
recent Cost Analysis was conducted ahead of this filing.
---------------------------------------------------------------------------

    As an initial step, the Exchange determined the total cost for the 
Exchange and the affiliated markets). That total cost was then divided 
among the Exchange and each of its affiliated markets based on a number 
of factors, including server counts, additional hardware and software 
utilization, current or anticipated functional or non-functional 
development projects, capacity needs, end-of-life or end-of-service 
intervals, number of members, market model (e.g., price time or pro-
rata), which may impact message traffic, individual system 
architectures that impact platform size,\109\ storage needs, dedicated 
infrastructure versus shared infrastructure allocated per platform 
based on the resources required to support each platform, number of 
available connections, and employees allocated time. This will result 
in different allocation percentages among the Exchange and its 
affiliated markets. Meanwhile this allocation methodology ensures that 
no portion of any cost was allocated twice or double-counted between 
the Exchange and its affiliated markets.
---------------------------------------------------------------------------

    \109\ For example, the Exchange maintains 12 matching engines, 
MIAX Pearl Options maintains 12 matching engines, MIAX Pearl 
Equities maintains 24 matching engines, and MIAX maintains 24 
matching engines.
---------------------------------------------------------------------------

    Next, the Exchange adopted an allocation methodology with 
thoughtful and consistently applied principles to guide how much of a 
particular cost amount allocated to the Exchange pursuant to the above 
methodology should be allocated within the Exchange 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 1Gb and 10Gb ULL 
connectivity (62%), with smaller allocations to all ports (10%), and 
the remainder to the provision of transaction execution, membership 
services and market data services (28%). This next level of the 
allocation methodology at the individual exchange level also took into 
account a number of factors similar to those set forth under the first 
allocation methodology described above, to determine the appropriate 
allocation to connectivity or market data versus what is to be 
allocated to providing other services. The allocation methodology was 
developed through an assessment of costs with senior management 
intimately 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. Each of the below 
cost allocations is unique to the Exchange and represents a percentage 
of overall cost that was allocated to the Exchange pursuant to the 
initial allocation described above.
    By allocating segmented costs to each core service, the Exchange 
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 five primary sources of revenue that it can potentially 
use to fund its operations: transaction fees, fees for connectivity and 
port services, membership fees, regulatory fees, and market data fees. 
Accordingly, the Exchange must cover its expenses from these five 
primary sources of revenue. The Exchange also notes that as a general 
matter each of these sources of revenue is based on services that are 
interdependent. For instance, the Exchange's system for executing 
transactions is dependent on physical hardware and connectivity; only 
Members and parties that they sponsor to participate directly on the 
Exchange may submit orders to the Exchange; many Members (but not all) 
consume market data from the Exchange in order to trade on the 
Exchange; and the Exchange consumes market data from external sources 
in order to comply with regulatory obligations. Accordingly, given this 
interdependence, the allocation of costs to each service or revenue 
source required judgment of the Exchange and was weighted based on 
estimates of the Exchange that the Exchange believes are reasonable, as 
set forth below. While there is no standardized and generally accepted 
methodology for the allocation of an exchange's costs, the Exchange's 
methodology is the result of an extensive review and analysis and will 
be consistently applied going forward for any other potential fee 
proposals. In the absence of the Commission attempting to specify a 
methodology for the allocation of exchanges' interdependent costs, the 
Exchange will continue to be left with its best efforts to attempt to 
conduct such an allocation in a thoughtful and reasonable manner.
    Through the Exchange's extensive updated 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 connectivity services, and, if such expense did so relate, what 
portion (or percentage) of such expense actually supports the provision 
of connectivity services, and thus bears a relationship that is, ``in 
nature and closeness,'' directly related to network connectivity 
services. In turn, the Exchange allocated certain costs more to 
physical connectivity and others to ports, while certain costs were

[[Page 29761]]

only allocated to such services at a very low percentage or not at all, 
using consistent allocation methodologies as described above. Based on 
this analysis, the Exchange estimates that the cost drivers to provide 
10Gb ULL connectivity and Limited Service MEI Port services, including 
both physical 10Gb connections and Limited Service MEI Ports, result in 
an aggregate monthly cost of approximately $1,095,054 (utilizing the 
rounded numbers when dividing the annual cost for 10Gb ULL connectivity 
and annual cost for Limited Service MEI Ports by 12 months, then adding 
both numbers together), as further detailed below.
Costs Related to Offering Physical 10Gb ULL Connectivity
    The following chart details the individual line-item costs 
considered by the Exchange to be related to offering physical dedicated 
10Gb ULL connectivity via an unshared network as well as the percentage 
of the Exchange's overall costs that such costs represent for such area 
(e.g., as set forth below, the Exchange allocated approximately 28.1% 
of its overall Human Resources cost to offering physical connectivity).

----------------------------------------------------------------------------------------------------------------
                                                                    Annual cost    Monthly cost
                          Cost drivers                                 \110\           \111\      Percent of all
----------------------------------------------------------------------------------------------------------------
Human Resources.................................................      $3,520,856        $293,405              28
Connectivity (external fees, cabling, switches, etc.)...........          71,675           5,973            61.9
Internet Services, including External Market Data...............         373,249          31,104            84.8
Data Center.....................................................         752,545          62,712            61.9
Hardware and Software Maintenance and Licenses..................         666,208          55,517            50.9
Depreciation....................................................       1,929,118         160,760            63.8
Allocated Shared Expenses.......................................       4,047,935         337,328            51.3
                                                                 -----------------------------------------------
    Total.......................................................      11,361,586         946,799            42.8
----------------------------------------------------------------------------------------------------------------

    Below are additional details regarding each of the line-item costs 
considered by the Exchange to be related to offering physical 10Gb ULL 
connectivity. The Exchange notes that some of its cost allocation 
percentages for certain categories of expense differ when compared to 
the same categories of expense described by the Exchange's affiliates 
in their similar proposed fee changes for connectivity and ports. This 
is because the Exchange's cost allocation methodology utilizes the 
actual projected costs of the Exchange (which are specific to the 
Exchange, and are independent of the costs projected and utilized by 
the Exchange's affiliates) to determine its actual costs. The Exchange 
provides additional explanation below (including the reason for the 
deviation) where the Exchange considers such deviation in allocations 
to be non de minimis.
---------------------------------------------------------------------------

    \110\ The Annual Cost includes figures rounded to the nearest 
dollar.
    \111\ The Monthly Cost was determined by dividing the Annual 
Cost for each line item by twelve (12) months and rounding up or 
down to the nearest dollar.
---------------------------------------------------------------------------

Human Resources
    For personnel costs (Human Resources), the Exchange calculated an 
allocation of employee time for employees whose functions include 
providing and maintaining physical connectivity and performance thereof 
(primarily the Exchange's network infrastructure team, which spends 
most of their time performing functions necessary to provide physical 
connectivity) and for which the Exchange allocated a percentage of 
42.4% of each employee's time assigned to the Exchange based on the 
above-described allocation methodology. The Exchange also allocated 
Human Resources costs to provide physical connectivity to a limited 
subset of personnel with ancillary functions related to establishing 
and maintaining such connectivity (such as information security and 
finance personnel), for which the Exchange allocated cost on an 
employee-by-employee basis (i.e., only including those personnel who do 
support functions related to providing physical connectivity) and then 
applied a smaller allocation to such employees (less than 20%). The 
Exchange notes that it and its affiliated markets have 184 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. Specifically, twice a year and as 
needed with additional new hires and new project initiatives, in 
consultation with employees as needed, managers and department heads 
assign a percentage of time to every employee and then allocate that 
time amongst the Exchange and its affiliated markets to determine that 
market's individual Human Resources expense. Then, again managers and 
department heads assign a percentage of each employee's time allocated 
to the Exchange into buckets including network connectivity, ports, 
market data, and other exchange services. This process ensures that 
every employee is 100% allocated, ensuring there is no double counting 
between the Exchange and its affiliated markets.
    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 physical connectivity, 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 physical connectivity. This includes 
personnel from the following Exchange departments that are 
predominately involved in providing 1Gb and 10Gb ULL connectivity: 
Business Systems Development, Trading Systems Development, Systems 
Operations and Network Monitoring, Network and Data Center Operations, 
Listings, Trading Operations, and Project Management. The Exchange 
notes that senior level executives were only allocated Human Resources 
costs to the extent the Exchange believed they are involved in 
overseeing tasks related to providing physical connectivity. 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 and Internet Services
    The Connectivity cost includes external fees paid to connect to 
other exchanges and third parties, cabling and switches required to 
operate the Exchange. The Connectivity line-item is more narrowly 
focused on technology used to complete connections to the Exchange and 
to connect to external markets. The Exchange notes that its 
connectivity to external markets is required in order to receive market 
data

[[Page 29762]]

to run the Exchange's matching engine and basic operations compliant 
with existing regulations, primarily Regulation NMS.
    The Exchange relies on various connectivity and content service 
providers for connectivity and data feeds for the entire U.S. options 
industry, as well as content, connectivity, and infrastructure services 
for critical components of the network that are necessary to provide 
and maintain its System Networks and access to its System Networks via 
10Gb ULL connectivity. Specifically, the Exchange utilizes connectivity 
and content service providers to connect to other national securities 
exchanges, the Options Price Reporting Authority (``OPRA''), and to 
receive market data from other exchanges and market data providers. The 
Exchange understands that these service providers provide services to 
most, if not all, of the other U.S. exchanges and other market 
participants. Connectivity and market data provided these service 
providers is critical to the Exchanges daily operations and performance 
of its System Networks to which market participants connect to via 10Gb 
ULL connectivity. Without these services providers, the Exchange would 
not be able to connect to other national securities exchanges, market 
data providers, or OPRA and, therefore, would not be able to operate 
and support its System Networks. The Exchange does not employ a 
separate fee to cover its connectivity and content service provider 
expense and recoups that expense, in part, by charging for 10Gb ULL 
connectivity.
    Lastly, the Exchange notes that this allocation percentage appears 
to be greater than its affiliates by more than a de minimis amount as 
MIAX Emerald allocated 84.8% of its Internet Services, including 
External Market Data expense towards 10Gb ULL connectivity, while MIAX, 
MIAX Pearl Options and MIAX Pearl Equities allocated 73.3%, 73.3% and 
72.5%, respectively, to the same category of expense. However, the 
Exchange believes that this is not, in dollar amounts, a non de minimis 
difference. This is because the total dollar amount of expense covered 
by this expense category is relatively small. Thus, non de minimis 
differences in total amounts create the appearance of non de minimis 
differences in allocation percentages when compared across markets. For 
instance, despite the non de minimis difference in cost allocation 
percentages for the Internet Services, including External Market Data 
cost driver across the Exchange and its affiliates' platforms, the 
actual dollar amount difference is approximately only $44,000.
Data Center
    Data Center costs includes an allocation of the costs the Exchange 
incurs to provide physical connectivity in the third-party data centers 
where it maintains its equipment (such as dedicated space, security 
services, cooling and power). The Exchange notes that it does not own 
the Primary Data Center or the Secondary Data Center, but instead, 
leases space in data centers operated by third parties. The Exchange 
has allocated a high percentage of the Data Center cost (61.9%) to 
physical 10Gb ULL connectivity because the third-party data centers and 
the Exchange's physical equipment contained therein is the most direct 
cost in providing physical access to the Exchange. In other words, for 
the Exchange to operate in a dedicated space with connectivity of 
participants to a physical trading platform, the data centers are a 
very tangible cost, and in turn, if the Exchange did not maintain such 
a presence then physical connectivity would be of no value to market 
participants.
External Market Data
    External Market Data includes fees paid to third parties, including 
other exchanges, to receive and consume market data from other markets. 
The Exchange included External Market Data fees to the provision of 
10Gb ULL connectivity as such market data is necessary here to offer 
certain services related to such connectivity, such as certain risk 
checks that are performed prior to execution, and checking for other 
conditions (e.g., re-pricing of orders to avoid lock or crossed 
markets, trading collars). This allocation was included as part of the 
Internet Services cost described above. Thus, as market data from other 
exchanges is consumed at the matching engine level, (to which 10Gb ULL 
connectivity provides access to) in order to validate orders before 
additional entering the matching engine or being executed, the Exchange 
believes it is reasonable to allocate a small amount of such costs to 
10Gb ULL connectivity.
Hardware and Software Maintenance and Licenses
    Hardware and Software Licenses includes hardware and software 
licenses used to operate and monitor physical assets necessary to offer 
physical connectivity to the Exchange.\112\
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    \112\ This expense may be less than the Exchange's affiliated 
markets, specifically MIAX Pearl, because, unlike the Exchange, MIAX 
Pearl (the options and equities markets) maintains an additional 
gateway to accommodate its member's access and connectivity needs. 
This added gateway contributes to the difference in allocations 
between the Exchange and MIAX Pearl.
---------------------------------------------------------------------------

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. As noted above, the Exchange 
allocated 63.8% of all depreciation costs to providing physical 10Gb 
ULL connectivity. The Exchange notes, however, that it did not allocate 
depreciation costs for any depreciated software necessary to operate 
the Exchange to physical connectivity, as such software does not impact 
the provision of physical connectivity. The Exchange also notes that 
this allocation differs from its affiliated markets due to a number of 
factors, such as the age of physical assets and software (e.g., older 
physical assets and software were previously depreciated and removed 
from the allocation), or certain system enhancements that required new 
physical assets and software, thus providing a higher contribution to 
the depreciated cost.
Allocated Shared Expenses
    Finally, a limited portion of general shared expenses was allocated 
to overall physical connectivity costs as without these general shared 
costs the Exchange would not be able to operate in the manner that it 
does and provide physical connectivity. 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, 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 also included in the 
Exchange's general shared expenses.\113\ The Exchange notes that the 
51.3%

[[Page 29763]]

allocation of general shared expenses for physical 10Gb ULL 
connectivity is higher than that allocated to general shared expenses 
for Limited Service MEI Ports based on its allocation methodology that 
weighted costs attributable to each Core Service based on an 
understanding of each area. While physical connectivity has several 
areas where certain tangible costs are heavily weighted towards 
providing such service (e.g., Data Centers, as described above), 
Limited Service MEI Ports do not require as many broad or indirect 
resources as other Core Services. The total monthly cost for 10Gb ULL 
connectivity of $946,799 was divided by the number of physical 10Gb ULL 
connections the Exchange maintained at the time that proposed pricing 
was determined (102), to arrive at a cost of approximately $9,282 per 
month, per physical 10Gb ULL connection.
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    \113\ The Exchange notes that MEMX allocated a precise amount of 
10% of the overall cost for directors to providing physical 
connectivity. The Exchange does not calculate is expenses at that 
granular a level. Instead, director costs are included as part of 
the overall general allocation.
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Costs Related to Offering Limited Service MEI Ports
    The following chart details the individual line-item costs 
considered by the Exchange to be related to offering Limited Service 
MEO Ports 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 5.9% of its overall Human Resources 
cost to offering Limited Service MEI Ports).

----------------------------------------------------------------------------------------------------------------
                                                                    Annual cost    Monthly cost
                          Cost drivers                                 \114\           \115\      Percent of all
----------------------------------------------------------------------------------------------------------------
Human Resources.................................................        $737,784         $61,482             5.9
Connectivity (external fees, cabling, switches, etc.)...........           3,713             309             3.2
Internet Services...............................................          14,102           1,175             3.2
Data Center.....................................................          55,686           4,641             4.6
Hardware and Software Maintenance and Licenses..................          41,951           3,496             3.2
Depreciation....................................................         112,694           9,391             3.7
Allocated Shared Expenses.......................................         813,136          67,761            10.3
                                                                 -----------------------------------------------
    Total.......................................................       1,779,066         148,255             6.7
----------------------------------------------------------------------------------------------------------------

    The Exchange notes that some of its cost allocation percentages for 
certain categories of expense differ when compared to the same 
categories of expense described by the Exchange's affiliates in their 
similar proposed fee changes for connectivity and ports. This is 
because the Exchange's cost allocation methodology utilizes the actual 
projected costs of the Exchange (which are specific to the Exchange, 
and are independent of the costs projected and utilized by the 
Exchange's affiliates) to determine its actual costs. The Exchange 
provides additional explanation below (including the reason for the 
deviation) where the Exchange considers such deviation in allocations 
to be non de minimis.
---------------------------------------------------------------------------

    \114\ See supra note 110 (describing rounding of Annual Costs).
    \115\ See supra note 111 (describing rounding of Monthly Costs 
based on Annual Costs).
---------------------------------------------------------------------------

Human Resources
    With respect to Limited Service MEI Ports, the Exchange calculated 
Human Resources cost by taking an allocation of employee time for 
employees whose functions include providing Limited Service MEI Ports 
and maintaining performance thereof (including a broader range of 
employees such as technical operations personnel, market operations 
personnel, and software engineering personnel) as well as a limited 
subset of personnel with ancillary functions related to maintaining 
such connectivity (such as sales, membership, and finance personnel). 
Just as described above for 10Gb ULL connectivity, the estimates of 
Human Resources cost were again determined by consulting with 
department leaders, determining which employees are involved in tasks 
related to providing Limited Service MEI Ports and maintaining 
performance thereof, 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 Limited Service MEI 
Ports and maintaining performance thereof. The Exchange notes that 
senior level executives were only allocated Human Resources costs to 
the extent the Exchange believed they are involved in overseeing tasks 
related to providing Limited Service MEI Ports and maintaining 
performance thereof. This includes personnel from the following 
Exchange departments that are predominately involved in providing 1Gb 
and 10Gb ULL connectivity: Business Systems Development, Trading 
Systems Development, Systems Operations and Network Monitoring, Network 
and Data Center Operations, Listings, Trading Operations, and Project 
Management. The Human Resources cost was again calculated using a 
blended rate of compensation reflecting salary, equity and bonus 
compensation, benefits, payroll taxes, and 401(k) matching 
contributions.
Connectivity and Internet Services
    The Connectivity cost includes external fees paid to connect to 
other exchanges, cabling and switches, as described above. For purposes 
of Limited Service MEI Ports, the Exchange also includes a portion of 
its costs related to External Market Data, as described below.
Data Center
    Data Center costs includes an allocation of the costs the Exchange 
incurs to provide physical connectivity in the third-party data centers 
where it 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).
External Market Data
    External Market Data includes fees paid to third parties, including 
other exchanges, to receive and consume market data from other markets. 
The Exchange included External Market Data fees to the provision of 
Limited Service MEI Ports as such market data is necessary to offer 
certain services related to such sessions, such as validating orders on 
entry against the national best bid and national best offer and 
checking for other conditions (e.g., whether a symbol is halted). This 
allocation was included as part of the Internet Services cost described 
above.\116\ Thus, as market data from other Exchanges is consumed at 
the Limited Service MEI Port level in order to validate orders before 
additional processing occurs with respect to such orders, the Exchange 
believes it is

[[Page 29764]]

reasonable to allocate a small amount of such costs to Limited Service 
MEI Ports.
---------------------------------------------------------------------------

    \116\ The Exchange notes that MEMX separately allocated 7.5% of 
its external market data costs to providing physical connectivity.
---------------------------------------------------------------------------

Hardware and Software Maintenance and Licenses
    Hardware and Software Licenses includes hardware and software 
licenses used to monitor the health of the order entry services 
provided by the Exchange, as described above.
Monthly Depreciation
    All physical assets and software, which also includes assets used 
for testing and monitoring of order entry 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 is owned by the 
Exchange and some of which is leased by the Exchange in order to allow 
efficient periodic technology refreshes. The Exchange allocated 3.7% of 
all depreciation costs to providing Limited Service MEI Ports. In 
contrast to physical connectivity, described above, the Exchange did 
allocate depreciation costs for depreciated software necessary to 
operate the Exchange to Limited Service MEI Ports because such software 
is related to the provision of such connectivity. The Exchange also 
notes that this allocation differs from its affiliated markets due to a 
number of factors, such as the age of physical assets and software 
(e.g., older physical assets and software were previously depreciated 
and removed from the allocation), or certain system enhancements that 
required new physical assets and software, thus providing a higher 
contribution to the depreciated cost.
Allocated Shared Expenses
    Finally, a limited portion of general shared expenses was allocated 
to overall Limited Service MEI Ports costs as without these general 
shared costs the Exchange would not be able to operate in the manner 
that it does and provide Limited Service MEI Ports. 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, professional fees for legal, tax and accounting 
services (including external and internal audit expenses), and 
telecommunications costs. The Exchange again 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 amounting to less than 11% of the overall cost for 
directors was allocated to providing Limited Service MEI Ports. The 
Exchange notes that the 10.3% allocation of general shared expenses for 
Limited Service MEI Ports is lower than that allocated to general 
shared expenses for physical connectivity based on its allocation 
methodology that weighted costs attributable to each Core Service based 
on an understanding of each area. While Limited Service MEI Ports have 
several areas where certain tangible costs are heavily weighted towards 
providing such service (e.g., Data Centers, as described above), 10Gb 
ULL connectivity requires a broader level of support from Exchange 
personnel in different areas, which in turn leads to a broader general 
level of cost to the Exchange. The total monthly cost of $148,255 was 
divided by the number of chargeable Limited Service MEI Ports 
(excluding the two free Limited Service MEI Ports per matching engine 
that each Member receives) the Exchange maintained at the time that 
proposed pricing was determined (706), to arrive at a cost of 
approximately $210 per month, per charged Limited Service MEI Port.
    Lastly, the Exchange notes that this allocation is greater than its 
affiliate, MIAX Pearl Options, by more than a de minimis amount as MIAX 
Emerald allocated 10.3% of its Allocated Shared Expense towards Limited 
Service MEI Ports, while MIAX Pearl Options allocated 3.6% to its Full 
Service MEO Ports (Bulk and Single) for the same category of expense. 
The allocation percentages set forth above differ because they 
correspond with the number of applicable ports utilized on each 
exchange. For March 2023, MIAX Market Makers utilized 1,782 Limited 
Service MEI ports and MIAX Emerald Market Makers utilized 1,028 Limited 
Service MEI Ports. When compared to Full Service Port (Bulk and Single) 
usage, for March 2023, MIAX Pearl Options Members utilized only 432 
Full Service MEO Ports (Bulk and Single), far fewer than number of 
Limited Service MEI Ports utilized by Market Makers on MIAX Emerald, 
thus resulting in a smaller cost allocation. There is increased cost 
associated with supporting a higher number of ports (requiring more 
hardware and other technical infrastructure), thus the Exchange 
allocates a higher percentage of expense than MIAX Pearl Options which 
has a lower port count.
Cost Analysis--Additional Discussion
    In conducting its Cost Analysis, the Exchange did not allocate any 
of its expenses in full to any core services (including physical 
connectivity or Limited Service MEI Ports) and did not double-count any 
expenses. Instead, as described above, the Exchange allocated 
applicable cost drivers across its core services and used the same Cost 
Analysis to form the basis of this proposal and the filings the 
Exchange submitted proposing fees for proprietary data feeds offered by 
the Exchange. For instance, in calculating the Human Resources expenses 
to be allocated to physical connections based upon the above described 
methodology, 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 (42.4%) given their focus on functions 
necessary to provide physical connections. The salaries of those same 
personnel were allocated only 8.0% to Limited Service MEI Ports and the 
remaining 49.6% was allocated to 1Gb connectivity, other port services, 
transaction services, membership services and market data. The Exchange 
did not allocate any other Human Resources expense for providing 
physical connections to any other employee group, outside of a smaller 
allocation of 19.8% for 10Gb ULL connectivity or 19.9% for the entire 
network, of the cost associated with certain specified personnel who 
work closely with and support network infrastructure personnel. In 
contrast, the Exchange allocated much smaller percentages of costs (5% 
or less) across a wider range of personnel groups in order to allocate 
Human Resources costs to providing Limited Service MEI Ports. This is 
because a much wider range of personnel are involved in functions 
necessary to offer, monitor and maintain Limited Service MEI Ports but 
the tasks necessary to do so are not a primary or full-time function.
    In total, the Exchange allocated 28.1% of its personnel costs to 
providing physical connections and 5.9% of its personnel costs to 
providing Limited Service MEI Ports, for a total allocation of 34% 
Human Resources expense to provide these specific connectivity 
services. In turn, the Exchange allocated the remaining 66% of its 
Human Resources expense to membership services, transaction services, 
other port services and market data. 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

[[Page 29765]]

core services, including physical connections and Limited Service MEI 
Ports, 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 
network. Without this equipment, the Exchange would not be able to 
operate the network and provide connectivity services to its Members 
and non-Members and their customers. However, the Exchange did not 
allocate all of the depreciation and amortization expense toward the 
cost of providing connectivity services, but instead allocated 
approximately 67.5% of the Exchange's overall depreciation and 
amortization expense to connectivity services (63.8% attributed to 10Gb 
ULL physical connections and 3.7% to Limited Service MEI Ports). The 
Exchange allocated the remaining depreciation and amortization expense 
(approximately 32.5%) toward the cost of providing transaction 
services, membership services, other port services and market data.
    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. The Exchange does not yet know whether such 
expectations will be realized. For instance, in order to generate the 
revenue expected from connectivity, the Exchange will have to be 
successful in retaining existing clients that wish to maintain physical 
connectivity and/or Limited Service MEI Ports or in obtaining new 
clients that will purchase such services. 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.
    The Exchange notes that the Cost Analysis is based on the 
Exchange's 2023 fiscal year of operations and projections. It is 
possible however that such costs will either decrease or increase. To 
the extent the Exchange sees growth in use of connectivity services it 
will receive additional revenue to offset future cost increases.
    However, if use of connectivity services 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 
our 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 our 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.
Projected Revenue
    The proposed fees 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 the 
connectivity services. Much of the cost relates to monitoring and 
analysis of data and performance of the network via the subscriber's 
connection(s). The above cost, namely those associated with hardware, 
software, and human capital, enable the Exchange to measure network 
performance with nanosecond granularity. These same costs are also 
associated with time and money spent seeking to continuously improve 
the network performance, improving the subscriber's experience, based 
on monitoring and analysis activity. 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 amending fees for connectivity services. 
Subscribers, particularly those of 10Gb ULL connectivity, expect the 
Exchange to provide this level of support to connectivity so they 
continue to receive the performance they expect. This differentiates 
the Exchange from its competitors. As detailed above, the Exchange has 
five 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 five primary sources of 
revenue.
    The Exchange's Cost Analysis estimates the annual cost to provide 
10Gb ULL connectivity services at $11,361,586. Based on current 10Gb 
ULL connectivity services usage, the Exchange would generate annual 
revenue of approximately $16,524,000. This represents a modest profit 
of 31% when compared to the cost of providing 10Gb ULL connectivity 
services which will decrease over time.\117\ The Exchange's Cost 
Analysis estimates the annual cost to provide Limited Service MEI Port 
services at $1,779,066. Based on current Limited Service MEI Port 
services usage, the Exchange would generate annual revenue of 
approximately $2,809,200. This represents an estimated profit margin of 
37% when compared to the cost of providing Limited Service MEI Port 
services, which will decrease over time.\118\ Even if the Exchange 
earns those amounts or incrementally more or less, the Exchange 
believes the proposed fees are fair and reasonable because they will 
not result in pricing that deviates from that of other exchanges or 
supra-competitive profit, when comparing the total expense of the 
Exchange associated with providing 10Gb ULL connectivity and Limited 
Service MEI Port services versus the total projected revenue of the 
Exchange associated with network 10Gb ULL connectivity and Limited 
Service MEI Port services.
---------------------------------------------------------------------------

    \117\ Assuming the U.S. inflation rate continues at its current 
rate, the Exchange believes that the projected profit margins in 
this proposal will decrease; however, the Exchange cannot predict 
with any certainty whether the U.S. inflation rate will continue at 
its current rate or its impact on the Exchange's future profits or 
losses. See, e.g., https://www.usinflationcalculator.com/inflation/current-inflation-rates/ (last visited April 18, 2023).
    \118\ Id.
---------------------------------------------------------------------------

* * * * *
    The Exchange has operated at a cumulative net annual loss since it

[[Page 29766]]

launched operations in 2019.\119\ The Exchange has operated at a net 
loss due to a number of factors, one of which is choosing to forgo 
revenue by offering certain products, such as connectivity, at lower 
rates than other options exchanges to attract order flow and encourage 
market participants to experience the high determinism, low latency, 
and resiliency of the Exchange's trading systems. The Exchange should 
not now be penalized for seeking to raise its fees in light of 
necessary technology changes and its increased costs after offering 
such products as discounted prices. Therefore, the Exchange believes 
the proposed fees are reasonable because they are based on both 
relative costs to the Exchange to provide dedicated 10Gb ULL 
connectivity and Limited Service MEI Ports, the extent to which the 
product drives the Exchange's overall costs and the relative value of 
the product, as well as the Exchange's objective to make access to its 
Systems broadly available to market participants. The Exchange also 
believes the proposed fees are reasonable because they are designed to 
generate annual revenue to recoup the Exchange's costs of providing 
dedicated 10Gb ULL connectivity and Limited Service MEI Ports.
---------------------------------------------------------------------------

    \119\ The Exchange has incurred a cumulative loss of $9 million 
since its inception in 2019. See Exchange's Form 1/A, Application 
for Registration or Exemption from Registration as a National 
Securities Exchange, filed June 29, 2022, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001164.pdf.
---------------------------------------------------------------------------

    The Exchange notes that its revenue estimate is based on 
projections and will only be realized to the extent customer activity 
actually produces the revenue estimated. As a competitor in the hyper-
competitive exchange environment, and an exchange focused on driving 
competition, the Exchange does not yet know whether such projections 
will be realized. For instance, in order to generate the revenue 
expected from 10Gb ULL connectivity and Limited Service MEI Ports, the 
Exchange will have to be successful in retaining existing clients that 
wish to utilize 10Gb ULL connectivity and Limited Service MEI Ports 
and/or obtaining new clients that will purchase such access. To the 
extent the Exchange is successful in encouraging new clients to utilize 
10Gb ULL connectivity and Limited Service MEI Ports, the Exchange does 
not believe it should be penalized for such success. To the extent the 
Exchange has mispriced and experiences a net loss in clients, the 
Exchange could experience a net reduction in revenue. While the 
Exchange believes in transparency around costs and potential revenue, 
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.
    The Exchange is owned by a holding company that is the parent 
company of four exchange markets and, therefore, the Exchange and its 
affiliated markets must allocate shared costs across all of those 
markets accordingly, pursuant to the above-described allocation 
methodology. In contrast, the Investors Exchange LLC (``IEX'') and 
MEMX, which are currently each operating only one exchange, in their 
recent non-transaction fee filings can allocate the entire amount of 
that same cost to a single exchange. This can result in lower profit 
margins for the non-transaction fees proposed by IEX and MEMX because 
the single allocated cost does not experience the efficiencies and 
synergies associated with shared costs across multiple platforms. The 
Exchange and its affiliated markets must share a single cost, which 
results in cost efficiencies that cause a broader gap between the 
allocated cost amount and projected revenue, even though the fee levels 
being proposed are lower or similar to competing markets (as described 
above). To the extent that the application of a cost-based standard 
results in Commission Staff making determinations as to the 
appropriateness of certain profit margins, the Commission Staff must 
consider whether the proposed fee level is comparable to, or on parity 
with, the same fee charged by competing exchanges and how different 
cost allocation methodologies (such as across multiple markets) may 
result in different profit margins for comparable fee levels. If it is 
the case that the Commission Staff is making determinations as to 
appropriate profit margins, the Exchange believes that Staff should be 
clear to all market participants as to what they determine is an 
appropriate profit margin and should apply such determinations 
consistently and, in the case of certain legacy exchanges, 
retroactively, if such standards are to avoid having a discriminatory 
effect.
    Further, the proposal reflects the Exchange's efforts to control 
its costs, which the Exchange does on an ongoing basis as a matter of 
good business practice. A potential profit margin should not be judged 
alone based on its size, but is also indicative of costs management and 
whether the ultimate fee reflects the value of the services provided. 
For example, a profit margin on one exchange should not be deemed 
excessive where that exchange has been successful in controlling its 
costs, but not excessive where on another exchange where that exchange 
is charging comparable fees but has a lower profit margin due to higher 
costs. Doing so could have the perverse effect of not incentivizing 
cost control where higher costs alone could be used to justify fees 
increases.
The Proposed Pricing Is Not Unfairly Discriminatory and Provides for 
the Equitable Allocation of Fees, Dues, and Other Charges
    The Exchange believes that the proposed fees are reasonable, fair, 
equitable, and not unfairly discriminatory because they are designed to 
align fees with services provided and will apply equally to all 
subscribers.
10Gb ULL Connectivity
    The Exchange believes that the proposed fees are equitably 
allocated among users of the network connectivity and port 
alternatives, as the users of 10Gb ULL connections consume 
substantially more bandwidth and network resources than users of 1Gb 
ULL connection. Specifically, the Exchange notes that 10Gb ULL 
connection users account for more than 99% of message traffic over the 
network, driving other costs that are linked to capacity utilization, 
as described above, while the users of the 1Gb ULL connections account 
for less than 1% of message traffic over the network. In the Exchange's 
experience, users of the 1Gb connections do not have the same business 
needs for the high-performance network as 10Gb ULL users.
    The Exchange's high-performance network and supporting 
infrastructure (including employee support), provides unparalleled 
system throughput with the network ability to support access to several 
distinct options markets. To achieve a consistent, premium network 
performance, the Exchange must build out and maintain a network that 
has the capacity to handle the message rate requirements of its most 
heavy network consumers. These billions of messages per day consume the 
Exchange's resources and significantly contribute to the overall 
network connectivity expense for storage and network transport 
capabilities. The Exchange must also purchase additional storage 
capacity on an ongoing basis to ensure it has sufficient capacity to 
store these messages to satisfy its record keeping requirements under 
the Exchange Act.\120\ Thus, as the number of messages

[[Page 29767]]

an entity increases, certain other costs incurred by the Exchange that 
are correlated to, though not directly affected by, connection costs 
(e.g., storage costs, surveillance costs, service expenses) also 
increase. Given this difference in network utilization rate, the 
Exchange believes that it is reasonable, equitable, and not unfairly 
discriminatory that the 10Gb ULL users pay for the vast majority of the 
shared network resources from which all market participants' benefit.
---------------------------------------------------------------------------

    \120\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

Limited Service MEI Ports
    The Exchange believes that the proposed fees are equitably 
allocated among users of the network connectivity alternatives, as the 
users of the Limited Service MEI Ports consume the most bandwidth and 
resources of the network. Specifically, like above for the 10Gb ULL 
connectivity, the Exchange notes that the Market Makers who take the 
maximum amount of Limited Service MEI Ports account for approximately 
greater than 99% of message traffic over the network, while Market 
Makers with fewer Limited Service MEI Ports account for approximately 
less than 1% of message traffic over the network. In the Exchange's 
experience, Market Makers who only utilize the two free Limited Service 
MEI Ports do not have a business need for the high performance network 
solutions required by Market Makers who take the maximum amount of 
Limited Service MEI Ports. The Exchange's high performance network 
solutions and supporting infrastructure (including employee support), 
provides unparalleled system throughput and the capacity to handle 
approximately 18 million quote messages per second. Based on November 
2022 trading results, on an average day, the Exchange handles over 
approximately 6.9 billion quotes, and more than 146 billion quotes over 
the entire month. Of that total, Market Makers with the maximum amount 
of Limited Service MEI Ports generate over 4 billion quotes, and Market 
Makers who utilize the two free Limited Service MEI Ports generate 
approximately 1.6 billion quotes. Also for November 2022, Market Makers 
who utilized 7 to 9 Limited Service MEI ports submitted an average of 
1,264,703,600 quotes per day. To achieve a consistent, premium network 
performance, the Exchange must build out and maintain a network that 
has the capacity to handle the message rate requirements of its most 
heavy network consumers. These billions of messages per day consume the 
Exchange's resources and significantly contribute to the overall 
network connectivity expense for storage and network transport 
capabilities. The Exchange must also purchase additional storage 
capacity on an ongoing basis to ensure it has sufficient capacity to 
store these messages as part of it surveillance program and to satisfy 
its record keeping requirements under the Exchange Act.\121\ Thus, as 
the number of connections a Market Maker has increases, certain other 
costs incurred by the Exchange that are correlated to, though not 
directly affected by, connection costs (e.g., storage costs, 
surveillance costs, service expenses) also increase. The Exchange 
sought to design the proposed tiered-pricing structure to set the 
amount of the fees to relate to the number of connections a firm 
purchases. The more connections purchased by a Market Maker likely 
results in greater expenditure of Exchange resources and increased cost 
to the Exchange. With this in mind, the Exchange proposes no fee or 
lower fees for those Market Makers who receive fewer Limited Service 
MEI Ports since those Market Makers generally tend to send the least 
amount of orders and messages over those connections. Given this 
difference in network utilization rate, the Exchange believes that it 
is reasonable, equitable, and not unfairly discriminatory that Market 
Makers who take the most Limited Service MEI Ports pay for the vast 
majority of the shared network resources from which all Member and non-
Member users benefit, but is designed and maintained from a capacity 
standpoint to specifically handle the message rate and performance 
requirements of those Market Makers.
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    \121\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
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    To achieve a consistent, premium network performance, the Exchange 
must build out and maintain a network that has the capacity to handle 
the message rate requirements of its most heavy network consumers. 
Billions of messages per day consume the Exchange's resources and 
significantly contribute to the overall network connectivity expense 
for storage and network transport capabilities. The Exchange must also 
purchase additional storage capacity on an ongoing basis to ensure it 
has sufficient capacity to store these messages as part of it 
surveillance program and to satisfy its record keeping requirements 
under the Exchange Act.\122\ Thus, as the number of connections a 
Market Maker has increases, the related pull on Exchange resources also 
increases. The Exchange sought to design the proposed tiered-pricing 
structure to set the amount of the fees to relate to the number of 
connections a firm purchases. The more connections purchased by a 
Market Maker likely results in greater expenditure of Exchange 
resources and increased cost to the Exchange.
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    \122\ 17 CFR 240.17a-1 (recordkeeping rule for national 
securities exchanges, national securities associations, registered 
clearing agencies and the Municipal Securities Rulemaking Board).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes the proposed fees will not result in any 
burden on intra-market competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because the proposed fees 
will allow the Exchange to recoup some of its costs in providing 10Gb 
ULL connectivity and Limited Service MEI Ports at below market rates to 
market participants since the Exchange launched operations. As 
described above, the Exchange operated at a cumulative net annual loss 
since its launch in 2019 \123\ due to providing a low-cost alternative 
to attract order flow and encourage market participants to experience 
the high determinism and resiliency of the Exchange's trading Systems. 
To do so, the Exchange chose to waive the fees for some non-transaction 
related services and Exchange products or provide them at a very lower 
fee, which was not profitable to the Exchange. This resulted in the 
Exchange forgoing revenue it could have generated from assessing any 
fees or higher fees. The Exchange could have sought to charge higher 
fees at the outset, but that could have served to discourage 
participation on the Exchange. Instead, the Exchange chose to provide a 
low-cost exchange alternative to the options industry, which resulted 
in lower initial revenues. Examples of this are 10Gb ULL connectivity 
and Limited Service MEI Ports, for which the Exchange only now seeks to 
adopt fees at a level similar to or lower than those of other options 
exchanges.
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    \123\ See supra note 119.
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    Further, the Exchange does not believe that the proposed fee 
increase

[[Page 29768]]

for the 10Gb ULL connection change would place certain market 
participants at the Exchange at a relative disadvantage compared to 
other market participants or affect the ability of such market 
participants to compete. As is the case with the current proposed flat 
fee, the proposed fee would apply uniformly to all market participants 
regardless of the number of connections they choose to purchase. The 
proposed fee does not favor certain categories of market participants 
in a manner that would impose an undue burden on competition.
    The Exchange does not believe that the proposed rule change would 
place certain market participants at the Exchange at a relative 
disadvantage compared to other market participants or affect the 
ability of such market participants to compete. In particular, Exchange 
personnel has been informally discussing potential fees for 
connectivity services with a diverse group of market participants that 
are connected to the Exchange (including large and small firms, firms 
with large connectivity service footprints and small connectivity 
service footprints, as well as extranets and service bureaus) for 
several months leading up to that time. The Exchange does not believe 
the proposed fees for connectivity services would negatively impact the 
ability of Members, non-Members (extranets or service bureaus), third-
parties that purchase the Exchange's connectivity and resell it, and 
customers of those resellers to compete with other market participants 
or that they are placed at a disadvantage.
    The Exchange does anticipate, however, that some market 
participants may reduce or discontinue use of connectivity services 
provided directly by the Exchange in response to the proposed fees. In 
fact, as mentioned above, one MIAX Pearl Market Maker terminated their 
MIAX Pearl membership on January 1, 2023 as a direct result of the 
similar proposed fee changes by MIAX Pearl.\124\ The Exchange does not 
believe that the proposed fees for connectivity services place certain 
market participants at a relative disadvantage to other market 
participants because the proposed connectivity pricing is associated 
with relative usage of the Exchange by each market participant and does 
not impose a barrier to entry to smaller participants. The Exchange 
believes its proposed pricing is reasonable and, when coupled with the 
availability of third-party providers that also offer connectivity 
solutions, that participation on the Exchange is affordable for all 
market participants, including smaller trading firms. As described 
above, the connectivity services purchased by market participants 
typically increase based on their additional message traffic and/or the 
complexity of their operations. The market participants that utilize 
more connectivity services typically utilize the most bandwidth, and 
those are the participants that consume the most resources from the 
network. Accordingly, the proposed fees for connectivity services do 
not favor certain categories of market participants in a manner that 
would impose a burden on competition; rather, the allocation of the 
proposed connectivity fees reflects the network resources consumed by 
the various size of market participants and the costs to the Exchange 
of providing such connectivity services.
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    \124\ The Exchange acknowledges that IEX included in its 
proposal to adopt market data fees after offering market data for 
free an analysis of what its projected revenue would be if all of 
its existing customers continued to subscribe versus what its 
projected revenue would be if a limited number of customers 
subscribed due to the new fees. See Securities Exchange Act Release 
No. 94630 (April 7, 2022), 87 FR 21945 (April 13, 2022) (SR-IEX-
2022-02). MEMX did not include a similar analysis in either of its 
recent non-transaction fee proposals. See, e.g., supra note 52. The 
Exchange does not believe a similar analysis would be useful here 
because it is amending existing fees, not proposing to charge a new 
fee where existing subscribers may terminate connections because 
they are no longer enjoying the service at no cost.
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Inter-Market Competition
    The Exchange also does not believe that the proposed rule change 
will result in any burden on inter-market competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. As 
discussed above, options market participants are not forced to connect 
to all options exchanges. There is no reason to believe that our 
proposed price increase will harm another exchange's ability to 
compete. There are other options markets of which market participants 
may connect to trade options at higher rates than the Exchange's. There 
is also a range of alternative strategies, including routing to the 
exchange through another participant or market center or accessing the 
Exchange indirectly. Market participants are free to choose which 
exchange or reseller to use to satisfy their business needs. 
Accordingly, the Exchange does not believe its proposed fee changes 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
* * * * *
    In conclusion, as discussed thoroughly above, the Exchange 
regrettably believes that the application of the Revised Review Process 
and Staff Guidance has adversely affected inter-market competition 
among legacy and non-legacy exchanges by impeding the ability of non-
legacy exchanges to adopt or increase fees for their market data and 
access services (including connectivity and port products and services) 
that are on parity or commensurate with fee levels previously 
established by legacy exchanges. Since the adoption of the Revised 
Review Process and Staff Guidance, and even more so recently, it has 
become extraordinarily difficult to adopt or increase fees to generate 
revenue necessary to invest in systems, provide innovative trading 
products and solutions, and improve competitive standing to the benefit 
of non-legacy exchanges' market participants. Although the Staff 
Guidance served an important policy goal of improving disclosures and 
requiring exchanges to justify that their market data and access fee 
proposals are fair and reasonable, it has also negatively impacted non-
legacy exchanges in particular in their efforts to adopt or increase 
fees that would enable them to more fairly compete with legacy 
exchanges, despite providing enhanced disclosures and rationale under 
both competitive and cost basis approaches provided for by the Revised 
Review Process and Staff Guidance to support their proposed fee 
changes.

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

    The Exchange received one comment letter on the Initial Proposal 
and one comment letter on the Second Proposal from the same 
commenter.\125\ In their letters, the sole commenter seeks to 
incorporate comments submitted on previous Exchange proposals to which 
the Exchange has previously responded. To the extent the sole commenter 
has attempted to raise new issues in its letters, the Exchange believes 
those issues are not germane to this proposal in particular, but rather 
raise larger issues with the current environment surrounding exchange 
non-transaction fee proposals that should be addressed by the 
Commission through rule making, or Congress, more holistically and not 
through an individual exchange fee filing. Among other things, the 
commenter is requesting additional data

[[Page 29769]]

and information that is both opaque and a moving target and would 
constitute a level of disclosure materially over and above that 
provided by any competitor exchanges.
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    \125\ See letter from Brian Sopinsky, General Counsel, 
Susquehanna International Group, LLP (``SIG''), to Vanessa 
Countryman, Secretary, Commission, dated February 7, 2023 and letter 
from Gerald D. O'Connell, SIG, to Vanessa Countryman, Secretary, 
Commission, dated March 21, 2023.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A)(ii) of the Act,\126\ and Rule 19b-4(f)(2) \127\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \126\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \127\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-EMERALD-2023-12 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-EMERALD-2023-12. 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 (https://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. Do 
not include personal identifiable information in submissions; you 
should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to File Number SR-EMERALD-2023-12 and 
should be submitted on or before May 30, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\128\
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    \128\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-09685 Filed 5-5-23; 8:45 am]
BILLING CODE 8011-01-P


