[Federal Register Volume 88, Number 121 (Monday, June 26, 2023)]
[Notices]
[Pages 41442-41452]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-13453]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97767; File No. SR-EMERALD-2023-13]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Increase Fees for the ToM Market Data Product and Establish Fees for 
the cToM Market Data Product

June 20, 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 June 7, 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 the fees for two market data 
products by (i) amending the fees for MIAX Emerald Top of Market 
(``ToM''); and (ii) establishing fees for MIAX Emerald Complex Top of 
Market (``cToM'').
    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 its fees for two market data 
products by (i) amending the fees for ToM; and (ii) establishing fees 
for cToM. The proposed fees will be immediately effective. The Exchange 
initially filed the proposal on December 28, 2022 (SR-EMERALD-2022-37) 
(the ``Initial Proposal'').\3\ On February 23, 2023, the Exchange 
withdrew the Initial Proposal and replaced it with a revised proposal 
(SR-EMERALD-2023-04) (the ``Second Proposal'').\4\ On April 11, 2023, 
the Exchange withdrew the Second Proposal and replaced it with further 
revised proposal (SR-EMERALD-2023-10) (the ``Third Proposal'').\5\ The 
Exchange recently withdrew the Third Proposal and replaced it with this 
current proposal (SR-EMERALD-2023-13).\6\
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    \3\ See Securities Exchange Act Release No. 96625 (January 10, 
2023), 88 FR 2688 (January 17, 2023) (SR-EMERALD-2022-37).
    \4\ See Securities Exchange Act Release No. 97078 (March 8, 
2023), 88 FR 15813 (March 14, 2023) (SR-EMERALD-2023-04).
    \5\ See Securities Exchange Act Release No. 97326 (April 19, 
2023), 88 FR 25043 (April 25, 2023) (SR-EMERALD-2023-10).
    \6\ The Exchange met with Commission Staff to discuss the Third 
Proposal during which the Commission Staff provided feedback and 
requested additional information, including, most recently, 
information about total costs related to certain third party 
vendors. Such vendor cost information is subject to confidentiality 
restrictions. The Exchange has provided this information to 
Commission Staff under separate cover with a request for 
confidentiality. While the Exchange will continue to be responsive 
to Commission Staff's information requests, the Exchange believes 
that the Commission should, at this point, issue substantially more 
detailed guidance for exchanges to follow in the process of pursuing 
a cost-based approach to fee filings, and that, for the purposes of 
fair competition, detailed disclosures by exchanges, such as those 
that the Exchange is providing now, should be consistent across all 
exchanges, including for those that have resisted a cost-based 
approach to fee filings, in the interests of fair and even 
disclosure and fair competition.
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    The Exchange previously filed several proposals to adopt fees for 
cToM.\7\ The

[[Page 41443]]

Exchange notes that these prior proposals included an analysis of the 
costs underlying the compilation and dissemination of the proposed cToM 
fees. The Exchange previously included a cost analysis in the Initial, 
Second and Third Proposals. 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 Miami 
International Securities Exchange, LLC (``MIAX,'' together with MIAX 
Pearl, 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 markets. Although the 
baseline cost analysis used to justify the proposed fees was made in 
the Initial, Second and Third Proposals, the fees themselves have not 
changed since the Initial Proposal and the Exchange still proposes fees 
that are intended to cover the Exchange's cost of providing ToM and 
cToM, with a reasonable mark-up over those costs. The proposed fees are 
intended to cover the Exchange's cost of compiling and disseminating 
ToM and cToM with a reasonable mark-up over those costs, accounting for 
ongoing increases in expenses.\8\ Before setting forth the additional 
details regarding the proposal as well as the updated Cost Analysis 
conducted by the Exchange, immediately below is a description of the 
proposed fees.
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    \7\ See Securities Exchange Act Release Nos. 92358 (July 9, 
2021), 86 FR 37361 (July 15, 2021) (SR-EMERALD-2021-21); SR-EMERALD-
2021-32 (withdrawn without being noticed by the Commission); 93427 
(October 26, 2021), 86 FR 60310 (November 1, 2021) (SR-EMERALD-2021-
34); 93811 (December 17, 2021), 86 FR 73051 (December 23, 2021) (SR-
EMERALD-2021-44); 94263 (February 15, 2022), 87 FR 9766 (February 
22, 2022) (SR-EMERALD-2022-06); 94715 (April 14, 2022), 87 FR 23674 
(April 20, 2022) (SR-EMERALD-2022-14); 94892 (May 11, 2022), 87 FR 
29963 (May 17, 2022) (SR-EMERALD-2022-18).
    \8\ 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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Proposed Market Data Pricing
    The Exchange offers ToM and cToM to subscribers. The Exchange notes 
that there is no requirement that any Member \9\ or market participant 
subscribe to ToM or cToM or any other data feed offered by the 
Exchange. Instead, a Member may choose to maintain subscriptions to ToM 
or cToM based on their business model. The proposed fees will not apply 
differently based upon the size or type of firm, but rather based upon 
the subscriptions a firm has to ToM or cToM and their use thereof, 
which are based upon factors deemed relevant by each firm. The proposed 
pricing for ToM and cToM is set forth below.
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    \9\ 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.
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ToM
    ToM is an Exchange-only market data feed that contains top of book 
quotations based on options orders \10\ and quotes \11\ entered into 
the System \12\ and resting on the Exchange's Simple Order Book \13\ as 
well as administrative messages.\14\ The Exchange currently charges 
Internal Distributors \15\ $1,250 per month and External Distributors 
$1,750 per month for ToM. The Exchange does not currently charge, nor 
does it now propose to charge any additional fees based on a 
subscriber's use of the ToM and cToM data feeds, e.g., displayed versus 
non-displayed use, redistribution fees, or any individual per user 
fees. As discussed more fully below, the Exchange recently calculated 
its annual aggregate costs for producing ToM to subscribers to be 
$317,753, or $26,479 per month (rounded to the nearest dollar when 
dividing the annual cost by 12 months). The Exchange proposes to amend 
Section 6)a) of the Fee Schedule to now charge Internal Distributors 
$2,000 per month and External Distributors $3,000 per month for ToM in 
an effort to cover the Exchange's increasing costs with compiling and 
producing ToM to market participants as evidenced by the Exchange's 
Cost Analysis detailed below.
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    \10\ The term ``order'' means a firm commitment to buy or sell 
option contracts. See Exchange Rule 100.
    \11\ The term ``quote'' or ``quotation'' means a bid or offer 
entered by a Market Maker that is firm and may update the Market 
Maker's previous quote, if any. The Rules of the Exchange provide 
for the use of different types of quotes, including Standard quotes 
and eQuotes, as more fully described in Rule 517. A Market Maker 
may, at times, choose to have multiple types of quotes active in an 
individual option. See Exchange Rule 100.
    \12\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \13\ The term ``Simple Order Book'' means ``the Exchange's 
regular electronic book of orders and quotes.'' See Exchange Rule 
518(a)(15).
    \14\ See Fee Schedule, Section 6)a).
    \15\ A ``Distributor'' of MIAX data is any entity that receives 
a feed or file of data either directly from MIAX or indirectly 
through another entity and then distributes it either internally 
(within that entity) or externally (outside that entity). All 
Distributors are required to execute a MIAX Distributor Agreement. 
See Fee Schedule, Section 6)a).
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cToM
    The Exchange previously adopted rules governing the trading of 
Complex Orders \16\ on the MIAX Emerald System in 2018,\17\ ahead of 
the Exchange's planned launch, which took place on March 1, 2019. 
Shortly thereafter, the Exchange adopted the market data product, cToM, 
and expressly waived fees for cToM to incentivize market participants 
to subscribe.\18\ cToM was provided free of charge for four years and 
the Exchange absorbed all costs associated with compiling and 
disseminating cToM during that entire time. As discussed more fully 
below, the Exchange recently calculated its annual aggregate costs for 
producing cToM to subscribers to be $347,543, or $28,962 per month 
(rounded to the nearest dollar when dividing the annual cost by 12 
months). The Exchange now proposes to amend Section 6)a) of the Fee 
Schedule to establish fees for cToM in order to recoup its ongoing 
costs going forward.
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    \16\ See Exchange Rule 518(a)(5) for the definition of Complex 
Orders.
    \17\ See Securities Exchange Act Release Nos. 84891 (December 
20, 2018), 83 FR 67421 (December 28, 2018) (In the Matter of the 
Application of MIAX EMERALD, LLC for Registration as a National 
Securities Exchange; Findings, Opinion, and Order of the 
Commission); and 85345 (March 18, 2019), 84 FR 10848 (March 22, 
2019) (SR-EMERALD-2019-13) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change To Amend Exchange Rule 518, 
Complex Orders).
    \18\ See Securities Exchange Act Release No. 85207 (February 27, 
2019), 84 FR 7963 (March 5, 2019) (SR-EMERALD-2019-09) (providing a 
complete description of the cToM data feed).
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    In summary, cToM provides subscribers with the same information as 
ToM as it relates to the Strategy Book,\19\ i.e., the Exchange's best 
bid and offer for a complex strategy, with aggregate size, based on 
displayable orders in the complex strategy on the Exchange. However, 
cToM provides subscribers with the following additional information 
that is not included in ToM: (i) the identification of the complex 
strategies currently trading on the Exchange; (ii) complex strategy 
last sale information; and (iii) the status of securities underlying 
the complex strategy (e.g., halted, open, or resumed). cToM is 
therefore a distinct market data product from ToM in that it includes 
additional information that is not available to subscribers that 
receive only ToM. ToM subscribers are not required to subscribe to 
cToM, and

[[Page 41444]]

cToM subscribers are not required to subscribe to ToM.
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    \19\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
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cToM Proposed Fees
    The Exchange proposes to amend Section 6)a) of the Fee Schedule to 
charge Internal Distributors $2,000 per month and External Distributors 
$3,000 per month for the cToM data feed. The proposed fees are 
identical to the fees that the Exchange proposes to charge for ToM. The 
Exchange does not propose to adopt redistribution fees for the cToM 
data feed. However, the recipient of cToM data would be required to 
become a data subscriber and would be subject to the applicable data 
subscriber fees. The Exchange also does not propose to charge any 
additional fees based on a subscriber's use of the cToM data feed, 
e.g., displayed versus non-displayed use, and does not propose to 
impose any individual per user fees.
    As it does today for ToM, the Exchange proposes to assess cToM fees 
to Internal and External Distributors in each month the Distributor is 
credentialed to use cToM in the production environment. Also, as the 
Exchange does today for ToM, market data fees for cToM will be reduced 
for new Distributors for the first month during which they subscribe to 
cToM, based on the number of trading days that have been held during 
the month prior to the date on which that subscriber has been 
credentialed to use cToM in the production environment. New cToM 
Distributors will be assessed a pro-rata percentage of the fees listed 
in the table in Section 6)a) of the Fee Schedule, which is the 
percentage of the number of trading days remaining in the affected 
calendar month as of the date on which they have been credentialed to 
use cToM in the production environment, divided by the total number of 
trading days in the affected calendar month.
    The Exchange also proposes to amend the paragraph below the table 
of fees for ToM and cToM in Section 6)a) of the Fee Schedule to make a 
minor, non-substantive correction by deleting the phrase ``(as 
applicable)'' in the first sentence following the table of fees for ToM 
and cToM. The purpose of this proposed change is to remove unnecessary 
text from the Fee Schedule.
cToM Content Is Available From Alternative Sources
    cToM is not the exclusive source for Complex Order information from 
the Exchange. It is a business decision of market participants whether 
to subscribe to cToM or not. Market participants that choose not to 
subscribe to cToM can derive much, if not all, of the same information 
from other Exchange sources, including, for example, the MIAX Emerald 
Order Feed (``MOR'').\20\ The following cToM information is included in 
MOR: the Exchange's best bid and offer for a complex strategy, with 
aggregate size, based on displayable orders in the complex strategy on 
the Exchange; the identification of the complex strategies currently 
trading on the Exchange; and the status of securities underlying the 
complex strategy (e.g., halted, open, or resumed). In addition to MOR, 
complex strategy last sale information can be derived from ToM. 
Specifically, market participants may deduce that last sale information 
for multiple trades in related options series with the same timestamps 
disseminated via ToM are likely part of a Complex Order transaction and 
last sale.
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    \20\ See MIAX website, Market Data & Offerings, available at 
https://www.miaxglobal.com/company/data/data-products-services/market-data (last visited June 7, 2023). In general, MOR provides 
real-time ultra-low latency updates on the following information: 
new Simple Orders added to the MIAX Emerald Order Book; updates to 
Simple Orders resting on the MIAX Emerald Order Book; new Complex 
Orders added to the Strategy Book (i.e., the book of Complex 
Orders); updates to Complex Orders resting on the Strategy Book; 
MIAX Emerald listed series updates; MIAX Emerald Complex Strategy 
definitions; the state of the MIAX Emerald System; and MIAX 
Emerald's underlying trading state.
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Additional Discussion--cToM Background
    In the six years since the Exchange adopted Complex Order 
functionality, the Exchange has grown its monthly complex market share 
from 0% to 3.21% of the total electronic complex non-index volume 
executed on exchanges offering electronic complex functionality for the 
month of April 2023.\21\ During that same period, the Exchange has had 
a steady increase in the number of cToM subscribers. Until the Exchange 
initially filed to adopt cToM fees in July of 2021, the Exchange did 
not charge fees for cToM data provided by the Exchange.
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    \21\ The Exchange notes that it receives complex market data for 
all U.S. options exchanges that offer complex functionality from 
direct feeds from The Options Price Reporting Authority (``OPRA'').
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    The objective of this approach was to eliminate any fee-based 
barriers for Members when the Exchange launched with Complex Order 
functionality in 2019, which the Exchange believes has been helpful in 
its ability to attract order flow as a new exchange. As discussed more 
fully below, the Exchange recently calculated its annual aggregate 
costs for providing cToM at approximately $347,543. In order to 
establish fees that are designed to recover the aggregate costs of 
providing cToM plus a reasonable mark-up, the Exchange is proposing to 
modify its Fee Schedule, as described above. In addition to the Cost 
Analysis, described below, the Exchange believes that its proposed 
approach to market data fees is reasonable based on a comparison to 
competitors.
Additional Discussion--Comparison With Other Exchanges
ToM
    The proposed fees for ToM are comparable to the fees currently in 
place for the options exchanges, particularly Nasdaq ISE, LLC 
(``ISE'').\22\ In April 2023, the Exchange had 3.24% market share of 
equity options volume; for that same month, ISE had 5.41% market share 
of equity options volume.\23\ The Exchange's proposed fees for ToM are 
equal to, and for Internal Distributors, lower than, the rates data 
recipients pay for comparable data feeds from ISE. The Exchange notes 
that other competitors maintain fees applicable to market data that are 
considerably higher than those proposed by the Exchange, including NYSE 
Arca, Inc. (``NYSE Arca'').\24\ However, the Exchange has focused its 
comparison on ISE because it is the closest market in terms of market 
share and offers market data at prices lower than several other 
incumbent exchanges. The fees for the Nasdaq ISE Top Quote Feed, which 
like ToM, includes top of book, trades, and security status messages, 
consists of an internal distributor access fee of $3,000 per month (50% 
higher than the Exchange's proposed rate), and an external distributor 
access fee of $3,000 per month (equal to the Exchange's proposed 
rate).\25\ ISE's overall charge to receive the Nasdaq ISE Top Quote 
Feed

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may be even higher than the Exchange's proposed rates because ISE 
charges additional per controlled device fees that can cause the 
distribution fee to reach up to $5,000 per month.\26\ The Exchange's 
proposed rates do not include additional fees.
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    \22\ See ISE Options 7 Pricing Schedule, Section 10, H., 
available at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207 (assessing Professional internal and external 
distributors $3,000 per month, plus $20 per month per controlled 
device for ISE's Top Quote Feed).
    \23\ See the ``Market Share'' section of the Exchange's website, 
available at https://www.miaxglobal.com/ (last visited June 7, 
2023).
    \24\ Fees for the NYSE Arca Options Top Feed, which is the 
comparable product to ToM, are $3,000 per month for access (internal 
use) and an additional $2,000 per month for redistribution (external 
distribution), compared to the Exchange's proposed fees of $2,000 
and $3,000 for Internal and External Distributors, respectively. In 
addition, for its NYSE Arca Options Top Feed, NYSE Arca charges for 
three different categories of non-display usage, and user fees, both 
of which the Exchange does not propose to charge, causing the 
overall cost of NYSE Arca Options Top Feed to far exceed the 
Exchange's proposed rates. See NYSE Acra Options Proprietary Market 
Data Fees, available at: https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf.
    \25\ See supra note 22.
    \26\ Id.
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cToM
    The proposed fees for cToM are comparable to the fees currently in 
place for competing options exchanges, particularly NYSE American, LLC 
(``NYSE American'').\27\ As noted above, for the month of April 2023, 
the Exchange had 3.24% of the total equity options market share and 
3.21% of the total electronic complex non-index volume executed on 
exchanges offering electronic complex functionality. For that same 
month, NYSE American had 7.08% of the total equity options market share 
and 6.92% of the total electronic complex non-index volume.\28\ The 
Exchange proposes fees for cToM that are comparable to the rates data 
recipients pay for comparable data feeds from NYSE American. The 
Exchange has focused its comparison on NYSE American because it is the 
closest market in terms of market share. The fees for the NYSE American 
Options Complex, which, like cToM, includes top of book, trades, and 
security status messages for complex orders, consists of an internal 
distributor access fee of $1,500 per month (slightly lower than the 
Exchange's proposed rate), and an external distributor access fee of 
$1,000 per month (resulting in a total external distribution fee of 
$2,500 per month).\29\ However, NYSE American's overall charge to 
receive NYSE American Options Complex data may be even higher than the 
Exchange's proposed rates because NYSE American charges additional non-
displayed usage fees (each are $1,000 per month and a subscriber may 
pay multiple non-displayed usage fees), per user fees ($20 per month 
for professional users and $1.00 per month for non-professional users), 
and multiple data feed fees ($200 per month), all of which the Exchange 
does not propose to charge. These additional charges by NYSE American 
can cause the total cost to receive NYSE American Complex data to far 
exceed the rates that the Exchange proposes to charge.
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    \27\ See NYSE American Options Proprietary Market Data Fees, 
available at https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Market_Data_Fee_Schedule.pdf.
    \28\ See supra note 23.
    \29\ Id.
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Additional Discussion--Cost Analysis
    In general, 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 increase meets the Exchange Act requirements 
that fees be reasonable, equitably allocated, not unfairly 
discriminatory, and not create an undue burden on competition among 
members and markets. In particular, the Exchange believes that each 
exchange should take extra care to be able to demonstrate that these 
fees are based on its costs and reasonable business needs.
    Accordingly, in proposing to charge fees for market data, the 
Exchange 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--to 
ensure the fees 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 does not believe it 
needs to otherwise address questions about market competition in the 
context of this filing because the proposed fees are so clearly 
consistent with the Act based on its Cost Analysis. The Exchange also 
believes that this level of diligence and transparency is called for by 
the requirements of Section 19(b)(1) under the Act,\30\ and Rule 19b-4 
thereunder,\31\ with respect to the types of information self-
regulatory organizations (``SROs'') should provide when filing fee 
changes, and Section 6(b) of the Act,\32\ which requires, among other 
things, that exchange fees be reasonable and equitably allocated,\33\ 
not designed to permit unfair discrimination,\34\ and that they not 
impose a burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.\35\ This rule change proposal 
addresses those requirements, and the analysis and data in this section 
are designed to clearly and comprehensively show how they are met.\36\
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    \30\ 15 U.S.C. 78s(b)(1).
    \31\ 17 CFR 240.19b-4.
    \32\ 15 U.S.C. 78f(b).
    \33\ 15 U.S.C. 78f(b)(4).
    \34\ 15 U.S.C. 78f(b)(5).
    \35\ 15 U.S.C. 78f(b)(8).
    \36\ In 2019, Commission staff published guidance suggesting the 
types of information that SROs may use to demonstrate that their fee 
filings comply with the standards of the Exchange Act (``Fee 
Guidance''). While the Exchange understands that the Fee Guidance 
does not create new legal obligations on SROs, the Fee Guidance is 
consistent with the Exchange's view about the type and level of 
transparency that exchanges should meet to demonstrate compliance 
with their existing obligations when they seek to charge new fees. 
See Staff Guidance on SRO Rule Filings Relating to Fees (May 21, 
2019) available at https://www.sec.gov/tm/staff-guidancesro-rule-filings-fees.
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    As noted above, the Exchange has conducted and recently updated a 
study of its aggregate costs to produce the ToM and cToM data feeds--
the Cost Analysis.\37\ 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--
transactions, market data, membership services, physical connectivity, 
and ports (which provide order entry, cancellation and modification 
functionality, risk functionality, 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 (collectively, ``cost 
drivers'').
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    \37\ The Exchange notes that its Cost Analysis is based on that 
conducted by MEMX, LLC (``MEMX''). See Securities Exchange Act 
Release Nos. 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). The Exchange notes that the 
percentage allocations and cost levels are based on the Exchange's 
2023 estimated budget and may differ from those provided by MEMX for 
a number of reasons, including the Exchange's ability to allocate 
costs among multiple exchanges while MEMX allocates cost to a single 
exchange.
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    As an initial step, the Exchange determined the total cost for the 
Exchange and the affiliated markets for each cost driver as part of its 
2023 budget review process. The 2023 budget review is a company-wide 
process that occurs over the course of many months, includes meetings 
among senior management, department heads, and the Finance Team. Each 
department head is required to send a ``bottoms up'' budget to the 
Finance Team allocating costs at the profit and loss account and vendor 
levels for each Exchange and 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, simple only or simplex and complex markets, auction 
functionality, etc.), which may impact message traffic, individual 
system architectures that impact platform

[[Page 41446]]

size,\38\ 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. All these factors result in different 
allocation percentages among the Exchange and its affiliated markets, 
i.e., the different percentages of the overall cost driver allocated to 
the Exchange and its affiliated markets will cause the dollar amount of 
the overall cost allocated among the Exchange and its affiliated 
markets to also differ. Because the Exchange's parent company currently 
owns and operates four separate and distinct marketplaces, the Exchange 
must determine the actual costs associated with its actual market--as 
opposed to the Exchange's parent company simply summarily concluding 
that all costs drivers are the same at each individual marketplace, and 
merely dividing total costs by four (evenly for each marketplace). 
Rather, the Exchange's parent company determines actual cost for each 
marketplace, which results in different allocations and amounts across 
exchanges for the same cost drivers, due to the unique factors of each 
marketplace as described above. This allocation methodology ensures 
that no portion of any cost would be allocated twice or double-counted 
between the Exchange and its affiliated markets. The Finance Team then 
consolidates the budget and sends it to senior management, including 
the Chief Financial Officer and Chief Executive Officer, for review and 
approval. Next, the budget is presented to the Board of Directors and 
the Finance and Audit Committees for each exchange for approval. The 
above steps encompass the first step of the cost allocation process.
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    \38\ 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.
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    The next step involves determining what portion of the cost 
allocated to the Exchange pursuant to the above methodology is to be 
allocated to each core service, e.g., connectivity and ports, market 
data, and transaction services. The Exchange and its affiliated markets 
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. This is the final 
step in the cost allocation process and is applied to each of the cost 
drivers set forth below. For instance, fixed costs that are not driven 
by client activity (e.g., message rates), such as data center costs, 
were allocated more heavily to the provision of physical connectivity 
(61.9% of total expense amount allocated to 10Gb connectivity), with 
smaller allocations to additional Limited Service MEI Ports (4.6%), and 
the remainder to the provision of membership services, transaction 
execution and market data services (33.5%)). 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 
step of the allocation methodology process 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, access, membership, 
regulatory, and market data fees. Accordingly, the Exchange generally 
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 Cost Analysis, which was again 
recently updated, the Exchange analyzed nearly every expense item in 
the Exchange's general expense ledger to determine whether each such 
expense relates to the provision of ToM and cToM data feeds, and, if 
such expense did so relate, what portion (or percentage) of such 
expense actually supports the provision of ToM and cToM data feeds, and 
thus bears a relationship that is, ``in nature and closeness,'' 
directly related to ToM and cToM data feeds. Based on its analysis, the 
Exchange calculated its aggregate annual costs for providing the ToM 
and cToM data feeds to be $665,296. This results in a monthly cost for 
providing ToM and cToM data feeds of $55,441 (rounded to the nearest 
dollar when dividing the aggregate annual cost by 12 months). In order 
to cover operating costs and earn a reasonable profit on its market 
data, the Exchange has determined it necessary to charge fees for its 
proprietary data products, and, as such, the Exchange is proposing to 
modify its Fee Schedule, as set forth above. With the proposed fee 
changes, the Exchange anticipates annual revenue for ToM and cToM to be 
$804,000 (or $67,000 per month combined).
Costs Related To Offering ToM and cToM Data Feeds
    The following chart details the individual line-item (annual) costs 
considered by the Exchange to be related to offering the ToM and cToM 
data feeds to its Members and other customers, 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 2.8% of its overall

[[Page 41447]]

Human Resources cost to offering ToM and cToM data feeds).

------------------------------------------------------------------------
                                             Allocated      % of total
              Cost drivers                     costs           cost
------------------------------------------------------------------------
Human Resources.........................        $354,553             2.8
Network Infrastructure (fiber                      9,428             1.7
 connectivity)..........................
Data Center.............................          20,630             1.7
Hardware and Software Maintenance &               22,202             1.7
 Licenses...............................
Depreciation............................          21,167             0.7
Allocated Shared Expenses...............         237,316             3.0
                                         -------------------------------
    Total...............................         665,296             2.5
------------------------------------------------------------------------

Human Resources
    For personnel costs (Human Resources), the Exchange calculated an 
allocation of employee time for employees whose functions include 
directly providing services necessary to offer the ToM and cToM data 
feeds, including performance thereof, as well as personnel with 
ancillary functions related to establishing and providing such services 
(such as information security and finance personnel). The Exchange 
notes that it and its affiliated markets have approximately 184 
employees (excluding employees at non-options exchange subsidiaries of 
Miami International Holdings, Inc. (``MIH''), the holding company of 
the Exchange and its affiliates, MIAX Pearl and MIAX), and each 
department leader has direct knowledge of the time 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 the ToM and cToM data feeds, 
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 the ToM and cToM data feeds. The Exchange 
notes that senior level executives were allocated Human Resources costs 
to the extent the Exchange believed they are involved in overseeing 
tasks related to providing the ToM and cToM data feeds. The Exchange's 
cost allocation for employees who perform work in support of generating 
and disseminating the ToM and cToM data feeds on behalf of the 
Exchange's options trading platform arrived at a full time equivalent 
(``FTE'') of 1.2 FTEs.\39\ This includes personnel from the following 
Exchange departments that are predominately involved in producing 
Exchange market data: 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 calculated using a blended 
rate of compensation reflecting salary, equity and bonus compensation, 
benefits, payroll taxes, and 401(k) matching contributions.
---------------------------------------------------------------------------

    \39\ The Exchange notes that overall cost percentages allocated 
for employees in this and other areas may differ due to differing 
levels of compensation for individual employees assigned to similar 
projects at different exchanges, which is driven by additional 
factors such as overall performance and seniority. So, for example, 
as is the case here, the same number of FTEs for similar 
responsibilities would not result in the same cost percentage.
---------------------------------------------------------------------------

Network Infrastructure
    The Network Infrastructure cost includes cabling and switches 
required to generate and disseminate the ToM and cToM data feeds. The 
Network Infrastructure cost was narrowly estimated by focusing on the 
servers used at the Exchange's primary and back-up data centers 
specifically for the ToM and cToM data feeds. Further, as certain 
servers are only partially utilized to generate and disseminate the ToM 
and cToM data feeds, only the percentage of such servers devoted to 
generating and disseminating the ToM and cToM data feeds was included 
(i.e., the capacity of such servers allocated to the ToM and cToM data 
feeds).\40\
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    \40\ The Exchange understands that the Investors Exchange, Inc. 
(``IEX'') and MEMX both allocated a percentage of their servers to 
the production and dissemination of market data to support proposed 
market data fees. See Securities Exchange Act Release No. 94630 
(April 7, 2022), 87 FR 21945, at page 21949 (April 13, 2022) (SR-
IEX-2022-02). See also supra note 37. The Exchange does not have 
insight into either MEMX's or IEX's technology infrastructure or 
what their determinations were based on. However, the Exchange 
reviewed its own technology infrastructure and believes based on its 
design, it is more appropriate for the Exchange to allocate a 
portion of its network infrastructure cost to market data based on a 
percentage of overall cost, not on a per server basis.
---------------------------------------------------------------------------

    The Exchange notes that while the percentage it and its affiliate, 
MIAX, allocated to network infrastructure are nearly identical, the 
Exchange's dollar amount is higher than MIAX by approximately $8,000 (a 
relatively small amount). It is important to note that, while both 
exchanges operate on state-of-the-art technology, the Exchange and MIAX 
do not have an identical network architecture and, as a result, do not 
have identical needs (and costs) for all other components, including, 
cabling and switches. In 2020, MIAX Emerald made significant 
enhancements to its network environment to ensure a best-in-class, 
transparent and highly deterministic trading system while maintaining 
industry leading latency and throughput capabilities. This highly 
deterministic system on MIAX Emerald requires different cabling and 
switches to support lower latency and to ensure that MIAX Emerald order 
book updates sent via the MIAX Emerald ToM and cToM data feeds (and to 
OPRA) are disseminated as quickly as possible to all Members and non-
Members. MIAX Emerald's different switches and cabling, and the ongoing 
maintenance and monitoring of those cables and switches, results in a 
greater allocated dollar amount to its network infrastructure than to 
MIAX.

[[Page 41448]]

Data Center
    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 where the Exchange houses servers, switches and related 
equipment. Data Center costs include an allocation of the costs the 
Exchange incurs to provide the ToM and cToM data feeds in the third-
party data centers where the Exchange maintains its equipment, as well 
as related costs. As the Data Center costs are primarily for space, 
power, and cooling of servers, the Exchange allocated 1.7% to the 
applicable Data Center costs for the ToM and cToM data feeds. The 
Exchange believes it is reasonable to apply the same proportionate 
percentage of Data Center costs to that of Network Infrastructure.
Hardware and Software Maintenance and Licenses
    Hardware and Software Maintenance and Licenses includes those 
licenses used to operate and monitor physical assets necessary to offer 
the ToM and cToM data feeds. Because the hardware and software license 
fees are correlated to the servers used by the Exchange, the Exchange 
again applied an allocation of 1.7% of its costs for Hardware and 
Software Maintenance and Licenses to the ToM and cToM data feeds.\41\
---------------------------------------------------------------------------

    \41\ 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
    The vast majority of the software the Exchange uses for its 
operations to generate and disseminate the ToM and cToM data feeds has 
been developed in-house over an extended period. This software 
development also requires quality assurance and thorough testing to 
ensure the software works as intended. Hardware used to generate and 
disseminate the ToM and cToM data feeds, which includes servers and 
other physical equipment the Exchange purchased. Accordingly, the 
Exchange included depreciation costs related to depreciated hardware 
and software used to generate and disseminate the ToM and cToM data 
feeds. The Exchange also included in the Depreciation costs certain 
budgeted improvements that the Exchange intends to capitalize and 
depreciate with respect to the ToM and cToM data feeds in the near-
term. As with the other allocated costs in the Exchange's updated Cost 
Analysis, the Depreciation cost was therefore narrowly tailored to 
depreciation related to the ToM and cToM data feeds.
    The Exchange 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. For example, 
the Exchange notes that percentages it and its affiliate, MIAX, 
allocated to the depreciation of software and hardware used to generate 
and disseminate their respective ToM and cToM data feeds are nearly 
identical. However, the Exchange's dollar amount is lower than that of 
MIAX by approximately $13,000 (albeit a relatively small amount). This 
is due to two primary factors. First, MIAX has undergone a technology 
refresh since the time MIAX Emerald launched in February 2019, leading 
to MIAX having more hardware and software that is subject to 
depreciation. Second, MIAX maintains 24 matching engines while MIAX 
Emerald maintains only 12 matching engines. This also results in less 
of the Exchange's hardware and software being subject to depreciation 
than MIAX's hardware and software due to the greater amount of 
equipment and software necessary to support the greater number of 
matching engines on MIAX.
Allocated Shared Expenses
    Finally, certain general shared expenses were allocated to the ToM 
and cToM data feeds. However, contrary to its prior cost analysis, 
rather than taking the whole amount of general shared expenses and 
applying an allocated percentage, the Exchange has narrowly selected 
specific general shared expenses relevant to the cToM data feed. The 
costs included in general shared expenses allocated to the ToM and cToM 
data feeds include 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 cost of paying individuals to serve on 
the Exchange's Board of Directors or any committee was not allocated to 
providing ToM and cToM data feeds.
Cost Analysis--Additional Discussion
    In conducting its Cost Analysis, the Exchange did not allocate any 
of its expenses in full to any core service and did not double-count 
any expenses. Instead, as described above, the Exchange identified and 
allocated applicable cost drivers across its core services and used the 
same approach to analyzing costs to form the basis of separate 
proposals to amend fees for connectivity and port services \42\ and 
this filing proposing fees for ToM and cToM. Thus, 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. The proposed fees for ToM 
and cToM data feeds are designed to permit the Exchange to cover the 
costs allocated to providing cToM data with a mark-up that the Exchange 
believes is modest (approximately 17%, which could decrease over time 
\43\), which the Exchange believes is fair and reasonable after taking 
into account the costs related to creating, generating, and 
disseminating the ToM and cToM data feeds and the fact that the 
Exchange will need to fund future expenditures (increased costs, 
improvements, etc.). The Exchange also notes that this profit margin 
differs slightly from the profit margin set forth in a similar fee 
filing by its affiliate, MIAX. This is not atypical among exchanges and 
is due to a number of factors that differ between these two exchanges, 
including a different number of market data subscribers, different 
costs as described in the cost allocation methodology above, and a 
different number of matching engines, i.e., MIAX maintains 24 matching 
engines while MIAX Emerald maintains only 12 matching engines.
---------------------------------------------------------------------------

    \42\ See MIAX Exchange Group Alert, ``MIAX Options, Pearl 
Options and Emerald Options Exchanges--January 1, 2023 Non-
Transaction Fee Changes,'' issued December 9, 2022, available at 
https://www.miaxglobal.com/alert/2022/12/09/miax-options-pearl-options-and-emerald-options-exchanges-january-1-2023-non.
    \43\ The Exchange believes that its profit margins could 
decrease if U.S. inflation continues at its current rate. See, e.g., 
https://www.usinflationcalculator.com/inflation/current-inflation-rates/ (last visited June 7, 2023).
---------------------------------------------------------------------------

    Further, the Exchange and MIAX propose to charge the same rates for 
their respective ToM and cToM data feeds, which are comparable to, or 
lower than, similar fees for similar products charged by competing 
exchanges. For example, for Internal Distributors of ToM and cToM, the 
Exchange proposes a lower fee than the fee charged by ISE for ISE's Top 
Quote Feed ($2,000 for the

[[Page 41449]]

Exchange vs. $3,000 for ISE).\44\ NYSE Arca charges even higher fees 
for the NYSE Arca Options Top Feed than the Exchange's proposed fees 
($2,000 for the Exchange vs. $3,000 per month plus an additional $2,000 
for redistribution on NYSE Arca).\45\ Accordingly, the Exchange 
believes that comparable and competitive pricing are key factors in 
determining whether a proposed fee meets the requirements of the Act, 
regardless of whether that same fee across the Exchange's affiliated 
markets leads to slightly different profit margins due to factors 
outside of the Exchange's control (i.e., more subscribers to ToM and/or 
cToM on MIAX or MIAX Emerald and vice versa).
---------------------------------------------------------------------------

    \44\ See supra note 22.
    \45\ See supra note 24.
---------------------------------------------------------------------------

    The Exchange also reiterates that prior to July of 2021, the month 
in which it first proposed to adopt fees for cToM, the Exchange did not 
previously charge any fees for cToM and its allocation of costs to cToM 
was part of a holistic allocation that also allocated costs to other 
core services without double-counting any expenses. 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 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 that result 
from sharing costs across multiple platforms.\46\ The Exchange and its 
affiliated markets often share a single cost, which results in cost 
efficiencies that can cause a broader gap between the allocated cost 
amount and projected revenue, even though the fee levels being proposed 
are lower or competitive with 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 should consider whether 
the proposed fee level is comparable to, or competitive 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 Commission Staff is making 
determinations as to appropriate profit margins, the Exchange believes 
that Commission should be clear to all market participants as to what 
they have determined 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 are used to 
justify fees increases.
---------------------------------------------------------------------------

    \46\ 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 37. 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.
---------------------------------------------------------------------------

    Accordingly, while the Exchange is supportive of transparency 
around costs and potential margins (applied across all exchanges), as 
well as periodic review of revenues and applicable costs (as discussed 
below), the Exchange does not believe that these estimates should form 
the sole basis of whether or not a proposed fee is reasonable or can be 
adopted. Instead, the Exchange believes that the information should be 
used solely to confirm that an Exchange is not earning--or seeking to 
earn--supra-competitive profits, the standard set forth in the Fee 
Guidance. The Exchange believes the Cost Analysis and related 
projections in this filing demonstrate this fact.
    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 ToM and cToM data feeds 
it will receive additional revenue to offset future cost increases. 
However, if use of ToM and cToM data feeds is static or decreases, the 
Exchange might not realize the revenue that it anticipates or needs in 
order to cover applicable costs. Accordingly, the Exchange is 
committing to conduct a one-year review after implementation of these 
fees. The Exchange expects that it may propose to adjust fees at that 
time, to increase fees in the event that revenues fail to cover costs 
and a reasonable mark-up of such costs.
    Similarly, the Exchange expects that it would propose to decrease 
fees in the event that revenue materially exceeds current projections. 
In addition, the Exchange will periodically conduct a review to inform 
its decision making on whether a fee change is appropriate (e.g., to 
monitor for costs increasing/decreasing or subscribers increasing/
decreasing, etc. in ways that suggest the then-current fees are 
becoming dislocated from the prior cost-based analysis) and expects 
that it would propose to increase fees in the event that revenues fail 
to cover its costs and a reasonable mark-up, or decrease fees in the 
event that revenue or the mark-up materially exceeds current 
projections. In the event that the Exchange determines to propose a fee 
change, the results of a timely review, including an updated cost 
estimate, will be included in the rule filing proposing the fee change. 
More generally, the Exchange believes that it is appropriate for an 
exchange to refresh and update information about its relevant costs and 
revenues in seeking any future changes to fees, and the Exchange 
commits to do so.
Implementation
    The proposed fee changes are immediately effective.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) \47\ of the Act in general, and 
furthers the objectives of Section 6(b)(4) \48\ of the Act, in 
particular, in that it is designed to provide for the equitable 
allocation of reasonable dues, fees and other charges among its Members 
and other persons using its facilities. Additionally, the Exchange 
believes that the proposed fees are consistent with the objectives of

[[Page 41450]]

Section 6(b)(5) \49\ of the Act in that they are designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to a free and open market and 
national market system, and, in general, to protect investors and the 
public interest, and, particularly, are not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78f.
    \48\ 15 U.S.C. 78f(b)(4).
    \49\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange notes prior to addressing the specific reasons the 
Exchange believes the proposed fees and fee structure are reasonable, 
equitably allocated and not unreasonably discriminatory, that the 
proposed fees are consistent with the fee amounts charged by competing 
U.S. securities exchanges. For this reason, the Exchange believes that 
the proposed fees are consistent with the Act generally, and Section 
6(b)(5) \50\ of the Act in particular.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As noted above, in the four years since the Exchange launched 
operations with Complex Order functionality, the Exchange has grown its 
monthly complex market share from 0% to 3.21% of the total electronic 
complex non-index volume executed on U.S. options exchanges offering 
complex functionality for the month of April 2023.\51\ One of the 
primary objectives of the Exchange is to provide competition and to 
reduce fixed costs imposed upon the industry. Consistent with this 
objective, the Exchange believes that this proposal reflects a simple, 
competitive, reasonable, and equitable pricing structure.
---------------------------------------------------------------------------

    \51\ See supra note 21.
---------------------------------------------------------------------------

Reasonableness
    Overall. With regard to reasonableness, the Exchange understands 
that the Commission has traditionally taken a market-based approach to 
examine whether the SRO making the fee proposal was subject to 
significant competitive forces in setting the terms of the proposal. 
The Exchange understands that in general the analysis considers whether 
the SRO has demonstrated in its filing that (i) there are reasonable 
substitutes for the product or service; (ii) ``platform'' competition 
constrains the ability to set the fee; and/or (iii) revenue and cost 
analysis shows the fee would not result in the SRO taking supra-
competitive profits. If the SRO demonstrates that the fee is subject to 
significant competitive forces, the Exchange understands that in 
general the analysis will next consider whether there is any 
substantial countervailing basis to suggest the fee's terms fail to 
meet one or more standards under the Exchange Act. The Exchange further 
understands that if the filing fails to demonstrate that the fee is 
constrained by competitive forces, the SRO must provide a substantial 
basis, other than competition, to show that it is consistent with the 
Exchange Act, which may include production of relevant revenue and cost 
data pertaining to the product or service.
    The Exchange has not determined its proposed overall market data 
fees based on assumptions about market competition, instead relying 
upon a cost-plus model to determine a reasonable fee structure that is 
informed by the Exchange's understanding of different uses of the 
products by different types of participants. In this context, the 
Exchange believes the proposed fees overall are fair and reasonable as 
a form of cost recovery plus the possibility of a reasonable return for 
the Exchange's aggregate costs of offering the ToM and cToM data feeds. 
The Exchange believes the proposed fees are reasonable because they are 
designed to generate annual revenue to recoup some or all of Exchange's 
annual costs of providing ToM and cToM data with a reasonable mark-up. 
As discussed in the Purpose section, the Exchange estimates this fee 
filing will result in annual revenue of approximately $804,000, 
representing a potential mark-up of just 17% over the cost of providing 
ToM and cToM data. Accordingly, the Exchange believes that this fee 
methodology is reasonable because it allows the Exchange to recoup all 
of its expenses for providing the ToM and cToM data products (with any 
additional revenue representing no more than what the Exchange believes 
to be a reasonable rate of return). The Exchange also believes that the 
proposed fees are reasonable because they are generally less than the 
fees charged by competing options exchanges for comparable market data 
products, notwithstanding that the competing exchanges may have 
different system architectures that may result in different cost 
structures for the provision of market data.
    The Exchange believes the proposed fees for the ToM and cToM data 
feeds are reasonable when compared to fees for comparable products, 
compared to which the Exchange's proposed fees are generally lower, as 
well as other comparable data feeds priced significantly higher than 
the Exchange's proposed fees for the ToM and cToM data feeds.\52\
---------------------------------------------------------------------------

    \52\ See supra notes 22, 24, and 27, and accompanying text.
---------------------------------------------------------------------------

    Internal Distribution Fees. The Exchange believes that it is 
reasonable to charge fees to access the ToM and cToM data feeds for 
Internal Distribution because of the value of such data to subscribers 
in their profit-generating activities. The Exchange also believes that 
the proposed monthly Internal Distribution fee for cToM is reasonable 
as it is similar to the amount charged by at least one other exchange 
of comparable size for comparable data products, and lower than the 
fees charged by other exchange for comparable data products.\53\
---------------------------------------------------------------------------

    \53\ Id.
---------------------------------------------------------------------------

    External Distribution Fees. The Exchange believes that it is 
reasonable to charge External Distribution fees for the ToM and cToM 
data feeds because vendors receive value from redistributing the data 
in their business products provided to their customers. The Exchange 
believes that charging External Distribution fees is reasonable because 
the vendors that would be charged such fees profit by re-transmitting 
the Exchange's market data to their customers. These fees would be 
charged only once per month to each vendor account that redistributes 
any ToM and cToM data feeds, regardless of the number of customers to 
which that vendor redistributes the data.
    For all of the foregoing reasons, the Exchange believes that the 
proposed fees for the ToM and cToM data feeds are reasonable.
Equitable Allocation
    Overall. The Exchange believes that its proposed fees are 
reasonable, fair, and equitable, and not unfairly discriminatory 
because they are designed to align fees with services provided. The 
Exchange believes the proposed fees for the ToM and cToM data feeds are 
allocated fairly and equitably among the various categories of users of 
the feeds, and any differences among categories of users are justified 
and appropriate.
    The Exchange believes that the proposed fees are equitably 
allocated because they will apply uniformly to all data recipients that 
choose to subscribe to the ToM and cToM data feeds. Any subscriber or 
vendor that chooses to subscribe to the ToM and cToM data feeds is 
subject to the same Fee Schedule, regardless of what type of business 
they operate, and the decision to subscribe to one or more ToM and cToM 
data feeds is based on objective

[[Page 41451]]

differences in usage of ToM and cToM data feeds among different 
Members, which are still ultimately in the control of any particular 
Member. The Exchange believes the proposed pricing of the ToM and cToM 
data feeds is equitably allocated because it is based, in part, upon 
the amount of information contained in each data feed and the value of 
that information to market participants.
    Internal Distribution Fees. The Exchange believes the proposed 
monthly fees for Internal Distribution of the ToM and cToM data feeds 
are equitably allocated because they would be charged on an equal basis 
to all data recipients that receive the ToM and cToM data feeds for 
internal distribution, regardless of what type of business they 
operate.
    External Distribution Fees. The Exchange believes the proposed 
monthly fees for External Distribution of the ToM and cToM data feeds 
are equitably allocated because they would be charged on an equal basis 
to all data recipients that receive the ToM and cToM data feeds that 
choose to redistribute the feeds externally, regardless of what 
business they operate. The Exchange also believes that the proposed 
monthly fees for External Distribution are equitably allocated when 
compared to lower proposed fees for Internal Distribution because data 
recipients that are externally distributing ToM and cToM data feeds are 
able to monetize such distribution and spread such costs amongst 
multiple third party data recipients, whereas the Internal Distribution 
fee is applicable to use by a single data recipient (and its 
affiliates).
    The Exchange believes that it is reasonable, equitable and not 
unfairly discriminatory to assess Internal Distributors fees that are 
less than the fees assessed for External Distributors for subscriptions 
to the ToM and cToM data feeds because Internal Distributors have 
limited, restricted usage rights to the market data, as compared to 
External Distributors, which have more expansive usage rights. All 
Members and non-Members that decide to receive any market data feed of 
the Exchange (or its affiliates, MIAX Pearl and MIAX), must first 
execute, among other things, the MIAX Exchange Group Exchange Data 
Agreement (the ``Exchange Data Agreement'').\54\ Pursuant to the 
Exchange Data Agreement, Internal Distributors are restricted to the 
``internal use'' of any market data they receive. This means that 
Internal Distributors may only distribute the Exchange's market data to 
the recipient's officers and employees and its affiliates.\55\ External 
Distributors may distribute the Exchange's market data to persons who 
are not officers, employees or affiliates of the External 
Distributor,\56\ and may charge their own fees for the redistribution 
of such market data. External Distributors may monetize their receipt 
of the ToM and cToM data feeds by charging their customers fees for 
receipt of the Exchange's cToM data. Internal Distributors do not have 
the same ability to monetize the Exchange's ToM and cToM data feeds. 
Accordingly, the Exchange believes it is fair, reasonable and not 
unfairly discriminatory to assess External Distributors a higher fee 
for the Exchange's ToM and cToM data feeds as External Distributors 
have greater usage rights to commercialize such market data and can 
adjust their own fee structures if necessary.
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    \54\ See Exchange Data Agreement, available at https://www.miaxglobal.com/markets/us-options/all-options/market-data-vendor-agreements.
    \55\ See id.
    \56\ See id.
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    The Exchange also utilizes more resources to support External 
Distributors versus Internal Distributors, as External Distributors 
have reporting and monitoring obligations that Internal Distributors do 
not have, thus requiring additional time and effort of Exchange staff. 
For example, External Distributors have monthly reporting requirements 
under the Exchange's Market Data Policies.\57\ Exchange staff must 
then, in turn, process and review information reported by External 
Distributors to ensure the External Distributors are redistributing 
cToM data in compliance with the Exchange's Market Data Agreement and 
Policies.
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    \57\ See Section 6 of the Exchange's Market Data Policies, 
available at https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Exchange_Group_Market_Data_Policies_07202021.pdf.
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    The Exchange believes the proposed cToM fees are equitable and not 
unfairly discriminatory because the fee level results in a reasonable 
and equitable allocation of fees amongst subscribers for similar 
services, depending on whether the subscriber is an Internal or 
External Distributor. Moreover, the decision as to whether or not to 
purchase market data is entirely optional to all market participants. 
Potential purchasers are not required to purchase the market data, and 
the Exchange is not required to make the market data available. 
Purchasers may request the data at any time or may decline to purchase 
such data. The allocation of fees among users is fair and reasonable 
because, if market participants decide not to subscribe to the data 
feed, firms can discontinue their use of the cToM data.
    For all of the foregoing reasons, the Exchange believes that the 
proposed fees for the ToM and cToM data feeds are equitably allocated.
The Proposed Fees Are Not Unfairly Discriminatory
    The Exchange believes the proposed fees for the ToM and cToM data 
feeds are not unfairly discriminatory because any differences in the 
application of the fees are based on meaningful distinctions between 
customers, and those meaningful distinctions are not unfairly 
discriminatory between customers.
    Overall. The Exchange believes that the proposed fees are not 
unfairly discriminatory because they would apply to all data recipients 
that choose to subscribe to the same ToM and cToM data feeds. Any 
vendor or subscriber that chooses to subscribe to the ToM and cToM data 
feeds is subject to the same Fee Schedule, regardless of what type of 
business they operate. In sum, each vendor or subscriber has the 
ability to choose the best business solution for itself. The Exchange 
does not believe it is unfairly discriminatory to base pricing upon the 
amount of information contained in each data feed and the value of that 
information to market participants.
    Internal Distribution Fees. The Exchange believes the proposed 
monthly fees for Internal Distribution of the ToM and cToM data feeds 
are not unfairly discriminatory because they would be charged on an 
equal basis to all data recipients that receive the same ToM and cToM 
data feeds for internal distribution, regardless of what type of 
business they operate.
    External Distribution Fees. The Exchange believes the proposed 
monthly fees for redistributing the ToM and cToM data feeds are not 
unfairly discriminatory because they would be charged on an equal basis 
to all data recipients that receive the same ToM and cToM data feeds 
that choose to redistribute the feed(s) externally. The Exchange also 
believes that having higher monthly fees for External Distribution than 
Internal Distribution is not unfairly discriminatory because data 
recipients that are externally distributing ToM and cToM data feeds are 
able to monetize such distribution and spread such costs amongst 
multiple third party data recipients, whereas the Internal Distribution 
fee is applicable to use by a single data recipient (and its 
affiliates).
    For all of the foregoing reasons, the Exchange believes that the 
proposed

[[Page 41452]]

fees for the Exchange Data Feeds are not unfairly discriminatory.

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

    In accordance with Section 6(b)(8) of the Act,\58\ the Exchange 
does not believe that the proposed rule change would impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act.
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    \58\ 15 U.S.C. 78f(b)(8).
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Intra-Market Competition
    The Exchange does not believe that the proposed fees place certain 
market participants at a relative disadvantage to other market 
participants because, as noted above, the proposed fees are associated 
with usage of the data feed by each market participant based on whether 
the market participant internally or externally distributes the 
Exchange data, which are still ultimately in the control of any 
particular Member, and such fees do not impose a barrier to entry to 
smaller participants. Accordingly, the proposed fees do not favor 
certain categories of market participants in a manner that would impose 
a burden on competition; rather, the allocation of the proposed fees 
reflects the types of data consumed by various market participants and 
their usage thereof.
Inter-Market Competition
    The Exchange does not believe the proposed fees place an undue 
burden on competition on other SROs that is not necessary or 
appropriate. In particular, market participants are not forced to 
subscribe to either data feed, as described above. Additionally, other 
exchanges have similar market data fees with comparable rates in place 
for their participants.\59\ The proposed fees are based on actual costs 
and are designed to enable the Exchange to recoup its applicable costs 
with the possibility of a reasonable profit on its investment as 
described in the Purpose and Statutory Basis sections. Competing 
exchanges are free to adopt comparable fee structures subject to the 
Commission's rule filing process. Allowing the Exchange, or any new 
market entrant, to waive fees (as the Exchange did for cToM) for a 
period of time to allow it to become established encourages market 
entry and thereby ultimately promotes competition.
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    \59\ See supra notes 22, 24, and 27, and accompanying text.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. 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,\60\ and Rule 19b-4(f)(2) \61\ 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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    \60\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \61\ 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-2023-13 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-2023-13. 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 
a.m. and 3 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-2023-13 and should 
be submitted on or before July 17, 2023.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\62\
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    \62\ 17 CFR 200.30-3(a)(12).

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-13453 Filed 6-23-23; 8:45 am]
BILLING CODE 8011-01-P


