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

As Enacted ( Federal Register)

Cited authorities 4

Cited in

Published date	17 November 2021
Citation	86 FR 64235
Record Number	2021-25020
Section	Notices
Court	Securities And Exchange Commission

64235

Federal Register / Vol. 86, No. 219 / Wednesday, November 17, 2021 / Notices

15 U.S.C. 78s(b)(1).

17 CFR 240.19b–4.

‘‘MEO Interface’’ or ‘‘MEO’’ means a binary

order interface for certain order types as set forth

in Rule 516 into the MIAX Pearl System. See the

Definitions Section of the Fee Schedule and

Exchange Rule 100.

‘‘Member’’ means an individual or organization

that is registered with the Exchange pursuant to

Chapter II of Exchange Rules for purposes of trading

on the Exchange as an ‘‘Electronic Exchange

Member’’ or ‘‘Market Maker.’’ Members are deemed

‘‘members’’ under the Exchange Act. See the

Definitions Section of the Fee Schedule and

Exchange Rule 100.

‘‘Full Service MEO Port—Bulk’’ means an MEO

port that supports all MEO input message types and

binary bulk order entry. See the Definitions Section

of the Fee Schedule.

‘‘Full Service MEO Port—Single’’ means an

MEO port that supports all MEO input message

types and binary order entry on a single order-by-

order basis, but not bulk orders. See the Definitions

Section of the Fee Schedule.

‘‘Limited Service MEO Port’’ means an MEO

port that supports all MEO input message types, but

does not support bulk order entry and only

supports limited order types, as specified by the

Exchange via Regulatory Circular. See the

Definitions Section of the Fee Schedule.

A ‘‘Matching Engine’’ is a part of the MIAX Pearl

electronic system that processes options orders and

trades on a symbol-by-symbol basis. Some Matching

Engines will process option classes with multiple

root symbols, and other Matching Engines may be

dedicated to one single option root symbol. A

particular root symbol may only be assigned to a

single designated Matching Engine. A particular

root symbol may not be assigned to multiple

Matching Engines. See the Definitions Section of

the Fee Schedule.

•The applicant was married to the

deceased employee or annuitant within

one year from the date the Supreme

Court issued Windsor on June 26, 2013;

•The applicant was married to the

deceased employee or annuitant within

one year after the Supreme Court issued

Obergefell on June 26, 2015, in

circumstances where the couple resided

in a jurisdiction that prohibited same-

sex marriage at any time after Windsor

—OPM will deem the 9-month marriage

requirement satisfied for purposes of

determining entitlement to survivor

annuity benefits and/or a BEDB.

Additionally, if an affected applicant

(as indicated above) was married to the

deceased annuitant after retirement, and

is additionally unable to show that the

annuitant elected a survivor annuity

benefit on the applicant’s behalf within

2 years of marriage, as required by 5

U.S.C. 8341(b)(3), 8339(j)(5)(C) and

(k)(2), 8416(b)–(c), and 8442(a)(2), the

applicant may submit evidence to OPM

showing that the annuitant intended to

elect a survivor annuity for the

applicant, and that but for the

provisions under DOMA and/or state

laws prohibiting same-sex marriage, the

annuitant would have timely elected a

survivor annuity on the applicant’s

behalf. OPM will consider any

documentary evidence for this purpose,

either in its own files or submitted by

the applicant, that shows that the

annuitant attempted to elect a survivor

annuity for the applicant through

correspondence with OPM.

Determinations regarding an affected

applicant’s corresponding entitlement to

Federal Employees Health Benefits

(FEHB) will be governed by the

provisions under chapter 89 of title 5,

United States Code; part 890 of title 5,

Code of Federal Regulations; and the

guidance OPM published in its Federal

Annuitant Federal Health Benefit

Waiver Criteria, 80 FR 74,817 (Nov. 30,

2015).

How To Apply for Benefits: If you are

an affected same-sex spouse of a

deceased federal employee or annuitant,

you may submit an application for death

benefits to OPM, Standard Form (SF)

2800 for CSRS and SF 3104 for FERS (or

you may resubmit an application if

OPM previously denied you survivor

annuity benefits or a BEDB because you

could not establish you had met the 9-

month marriage requirement). You may

download these application forms from

OPM’s website at http://www.opm.gov/

forms/standard-forms/, and may submit

your applications to this address: Office

of Personnel Management, Attention:

DOMA–9MMR, P.O. Box 45, Boyers, PA

16017–0045. If, in the alternative, you

would prefer OPM mail you an

application for benefits or if you have

questions regarding submitting your

application, you may write OPM using

the address provided above, or you may

call OPM’s Retirement Information

Office at 1–888–767–6738 or may send

an email to retire@opm.gov.

Office of Personnel Management.

Alexys Stanley,

Regulatory Affairs Analyst.

[FR Doc. 2021–24792 Filed 11–16–21; 8:45 am]

BILLING CODE 6325–38–P

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–93556; File No. SR–

PEARL–2021–53]

Self-Regulatory Organizations; MIAX

PEARL, LLC; Notice of Filing and

Immediate Effectiveness of a Proposed

Rule Change To Amend the MIAX Pearl

Options Fee Schedule To Increase the

Monthly Fees for MIAX Express

Network Full Service Ports

November 10, 2021.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),

and Rule 19b–4 thereunder,

notice is hereby given that on November

1, 2021, MIAX PEARL, LLC (‘‘MIAX

Pearl’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) a proposed rule change

as described in Items I, II, and III below,

which Items have been prepared by the

Exchange. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange is filing a proposal to

amend the MIAX Pearl Options Fee

Schedule (the ‘‘Fee Schedule’’) to

amend the fees for the Exchange’s MIAX

Express Network Full Service (‘‘MEO’’)

Ports.

The text of the proposed rule change

is available on the Exchange’s website at

http://www.miaxoptions.com/rule-

filings/pearl at MIAX Pearl’s principal

office, and at the Commission’s Public

Reference Room.

Regulatory Organization’s Statement of

the Purpose of, and Statutory Basis for,

the Proposed Rule Change

In its filing with the Commission, the

Exchange included statements

concerning the purpose of and basis for

the proposed rule change and discussed

any comments it received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below. The

Exchange has prepared summaries, set

forth in sections A, B, and C below, of

the most significant aspects of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The Exchange proposes to amend the

Fee Schedule to increase the fees for its

Full Service MEO Ports, Bulk and Single

(the ‘‘Proposed Access Fees’’), which

allow Members

to submit electronic

orders in all products to the Exchange.

The Exchange currently offers different

types of MEO Ports depending on the

services required by the Member,

including a Full Service MEO Port—

Bulk,

a Full Service MEO Port—

Single,

and a Limited Service MEO

Port.

For one monthly price, a Member

may be allocated two (2) Full-Service

MEO Ports of either type per matching

engine

and may request Limited

Service MEO Ports for which MIAX

Pearl will assess Members Limited

Service MEO Port fees per matching

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See Cboe Exchange, Inc. Fee Schedule, Logical

Connectivity Fees ($750 per port per month for the

first 5 BOE/FIX Logical Ports and $800 per port per

month for each port over 5; $1,500 per port per

month for the first 5 BOE Bulk Logical Ports, $2,500

per port per month for ports 6–30, and $3,000 per

port per month for each port over 30); Cboe BXZ

Exchange, Inc. (‘‘BZX’’) Options Fee Schedule,

Options Logical Port Fees, Logical Ports ($750 per

port per month), Ports with Bulk Quoting

Capabilities ($1,500 per port per month for the first

and second ports, $2,500 per port per month for

three or more); Cboe EDGX Exchange, Inc.

(‘‘EDGX’’) Options Fee Schedule, Options Logical

Port Fees, Logical Ports ($500 per port per month),

Ports with Bulk Quoting Capabilities ($600 per port

per month). See also Nasdaq Stock Market LLC,

Options 7, Pricing Schedule, Section 3 ($1,500 per

port per month for the first 5 SQF ports; $1,000 per

port per month for SQF ports 15–20; and $500 per

port per month for all SQF ports over 21).

See Securities Exchange Act Release No. 82867

(March 13, 2018), 83 FR 12044 (March 19, 2018)

(SR–PEARL–2018–07).

‘‘Affiliate’’ means (i) an affiliate of a Member

of at least 75% common ownership between the

firms as reflected on each firm’s Form BD, Schedule

A, or (ii) the Appointed Market Maker of an

Appointed EEM (or, conversely, the Appointed

EEM of an Appointed Market Maker). An

‘‘Appointed Market Maker’’ is a MIAX Pearl Market

Maker (who does not otherwise have a corporate

affiliation based upon common ownership with an

EEM) that has been appointed by an EEM and an

‘‘Appointed EEM’’ is an EEM (who does not

otherwise have a corporate affiliation based upon

common ownership with a MIAX Pearl Market

Maker) that has been appointed by a MIAX Pearl

Market Maker, pursuant to the following process. A

MIAX Pearl Market Maker appoints an EEM and an

EEM appoints a MIAX Pearl Market Maker, for the

purposes of the Fee Schedule, by each completing

and sending an executed Volume Aggregation

Request Form by email to membership@

miaxoptions.com no later than 2 business days

prior to the first business day of the month in which

the designation is to become effective. Transmittal

of a validly completed and executed form to the

Exchange along with the Exchange’s

acknowledgement of the effective designation to

each of the Market Maker and EEM will be viewed

as acceptance of the appointment. The Exchange

will only recognize one designation per Member. A

Member may make a designation not more than

once every 12 months (from the date of its most

recent designation), which designation shall remain

in effect unless or until the Exchange receives

written notice submitted 2 business days prior to

the first business day of the month from either

Member indicating that the appointment has been

terminated. Designations will become operative on

the first business day of the effective month and

may not be terminated prior to the end of the

month. Execution data and reports will be provided

to both parties. See the Definitions Section of the

Fee Schedule.

‘‘Excluded Contracts’’ means any contracts

routed to an away market for execution. See the

Definitions Section of the Fee Schedule.

‘‘TCV’’ means total consolidated volume

calculated as the total national volume in those

classes listed on MIAX Pearl for the month for

which the fees apply, excluding consolidated

volume executed during the period of time in

which the Exchange experiences an Exchange

System Disruption (solely in the option classes of

the affected Matching Engine). See the Definitions

Section of the Fee Schedule.

engine based on a sliding scale for the

number of Limited Service MEO Ports

utilized each month. The two (2) Full-

Service MEO Ports that may be allocated

per matching engine to a Member may

consist of: (a) Two (2) Full Service MEO

Ports—Bulk; (b) two (2) Full Service

MEO Ports—Single; or (c) one (1) Full

Service MEO Port—Bulk and one (1)

Full Service MEO Port—Single.

Unlike other options exchanges that

provide similar port functionality and

charge fees on a per port basis,

the

Exchange offers Full Service MEO Ports

as a package and provides Members

with the option to receive up to two Full

Service MEO Ports (described above)

per matching engine to which that

Member connects. The Exchange

currently has twelve (12) matching

engines, which means Members may

receive up to twenty-four (24) Full

Service MEO Ports for a single monthly

fee, that can vary based on certain

volume percentages, as described below.

For illustrative purposes and as

described in more detail below, the

Exchange currently assesses a fee of

$5,000 per month for Members that

reach the highest Full Service MEO

Port—Bulk Tier, regardless of the

number of Full Service MEO Ports

allocated to the Member. For example,

assuming a Member connects to all

twelve (12) matching engines during a

month, with two Full Service MEO

Ports per matching engine, this results

in a cost of $208.33 per Full Service

MEO Port ($5,000 divided by 24) for the

month. This fee has been unchanged

since the Exchange adopted Full Service

MEO Port fees in 2018.

The Exchange

now proposes to increase Full Service

MEO Port fees as further described

below, with the highest monthly fee of

$10,000 for the Full Service MEO Port—

Bulk. Members will continue to receive

two (2) Full Service MEO Ports to each

matching engine to which they connect

for the single flat monthly fee.

Assuming a Member connects to all

twelve (12) matching engines during the

month, with two Full Service MEO

Ports per matching engine, this would

result in a cost of $416.67 per Full

Service MEO Port ($10,000 divided by

24).

The Exchange assesses Members Full

Service MEO Port Fees, either for a Full

Service MEO Port—Bulk and/or for a

Full Service MEO Port—Single, based

upon the monthly total volume

executed by a Member and its

Affiliates

on the Exchange across all

origin types, not including Excluded

Contracts,

as compared to the Total

Consolidated Volume (‘‘TCV’’),

in all

MIAX Pearl-listed options. The

Exchange adopted a tier-based fee

structure based upon the volume-based

tiers detailed in the definition of ‘‘Non-

Transaction Fees Volume-Based Tiers’’

described in the Definitions section of

the Fee Schedule. The Exchange

assesses these and other monthly Port

fees on Members in each month the

market participant is credentialed to use

a Port in the production environment.

Current Full Service MEO Port—Bulk

Fees. Currently, the Exchange assesses

Members monthly Full Service MEO

Port—Bulk fees as follows:

(i) If its volume falls within the

parameters of Tier 1 of the Non-

Transaction Fees Volume-Based Tiers,

or volume up to 0.30%, $3,000;

(ii) if its volume falls within the

parameters of Tier 2 of the Non-

Transaction Fees Volume-Based Tiers,

or volume above 0.30% up to 0.60%,

$4,500; and

(iii) if its volume falls with the

parameters of Tier 3 of the Non-

Transaction Fees Volume-Based Tiers,

or volume above 0.60%, $5,000.

Proposed Full Service MEO Port—

Bulk Fees. The Exchange now proposes

to assess Members monthly Full Service

MEO Port—Bulk fees as follows:

(i) If its volume falls within the

parameters of Tier 1 of the Non-

Transaction Fees Volume-Based Tiers,

or volume up to 0.30%, $5,000;

(ii) if its volume falls within the

parameters of Tier 2 of the Non-

Transaction Fees Volume-Based Tiers,

or volume above 0.30% up to 0.60%,

$7,500; and

(iii) if its volume falls with the

parameters of Tier 3 of the Non-

Transaction Fees Volume-Based Tiers,

or volume above 0.60%, $10,000.

Current Full Service MEO Port—

Single Fees. Currently, the Exchange

assesses Members monthly Full Service

MEO Port—Single fees as follows:

(i) If its volume falls within the

parameters of Tier 1 of the Non-

Transaction Fees Volume-Based Tiers,

or volume up to 0.30%, $2,000;

(ii) if its volume falls within the

parameters of Tier 2 of the Non-

Transaction Fees Volume-Based Tiers,

or volume above 0.30% up to 0.60%,

$3,375; and

(iii) if its volume falls with the

parameters of Tier 3 of the Non-

Transaction Fees Volume-Based Tiers,

or volume above 0.60%, $3,750.

Proposed Full Service MEO Port—

Single Fees. The Exchange now

proposes to assess Members monthly

Full Service MEO Port—Single fees as

follows:

(i) If its volume falls within the

parameters of Tier 1 of the Non-

Transaction Fees Volume-Based Tiers,

or volume up to 0.30%, $2,500;

(ii) if its volume falls within the

parameters of Tier 2 of the Non-

Transaction Fees Volume-Based Tiers,

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The term ‘‘Market Maker’’ means a Member

registered with the Exchange for the purpose of

making markets in options contracts traded on the

Exchange and that is vested with the rights and

responsibilities specified in Chapter VI of Exchange

Rules. See the Definitions Section of the Fee

Schedule and Exchange Rule 100.

See supra note 10.

See MIAX Fee Schedule, Section 5 (d)(ii);

MIAX Emerald Fee Schedule, Section 5 (d)(ii).

See supra note 9.

See id.

See NYSE American Options Fee Schedule,

Section V.A., Port Fees; NYSE Arca Options Fee

Schedule, Port Fees.

See NYSE Technology FAQ and Best Practices:

Options, Section 5.1 (How many matching engines

are used by each exchange?) (September 2020)

(providing a link to an Excel file detailing the

number of matching engines per options exchange).

See Nasdaq Stock Market, Nasdaq Options 7

Pricing Schedule, Section 3, Nasdaq Options

Market—Ports and Other Services.

See Nasdaq Specialized Quote Interface (SQF)

Specification, Version 6.5b (updated February 13,

2020), Section 2, Architecture, available at https://

www.nasdaq.com/docs/2020/02/18/Specialized-

Quote-Interface-SQI-6.5b.pdf (the ‘‘NASDAQ SQF

Interface Specification’’).

See id.

15 U.S.C. 78f(b).

15 U.S.C. 78f(b)(4) and (5).

or volume above 0.30% up to 0.60%,

$3,500; and

(iii) if its volume falls with the

parameters of Tier 3 of the Non-

Transaction Fees Volume-Based Tiers,

or volume above 0.60%, $4,500.

The Exchange offers various types of

ports with differing prices because each

port accomplishes different tasks, are

suited to different types of Members,

and consume varying capacity amounts

of the network. For instance, MEO ports

allow for a higher throughput and can

handle much higher quote/order rates

than FIX ports. Members that are Market

Makers

or high frequency trading

firms utilize these ports (typically

coupled with 10Gb ULL connectivity)

because they transact in significantly

higher amounts of messages being sent

to and from the Exchange, versus FIX

port users, who are traditionally

customers sending only orders to the

Exchange (typically coupled with 1Gb

connectivity). The different types of

ports cater to the different types of

Exchange Memberships and different

capabilities of the various Exchange

Members. Certain Members need ports

and connections that can handle using

far more of the network’s capacity for

message throughput, risk protections,

and the amount of information that the

System has to assess. Those Members

may account for the vast majority of

network capacity utilization and volume

executed on the Exchange, as discussed

throughout.

The Exchange now proposes to

increase its monthly Full Service MEO

Port fees since it has not done so since

the fees were adopted in 2018,

which

are designed to recover a portion of the

costs associated with directly accessing

the Exchange. The Exchange notes that

its affiliates, Miami International

Securities Exchange, LLC (‘‘MIAX’’) and

MIAX Emerald, LLC (‘‘MIAX Emerald’’),

charge fees for their high throughput,

low latency MEI Ports in a similar

fashion as the Exchange charges for its

MEO Ports—generally, the more active

user the Member (i.e., the greater

number/greater national ADV of classes

assigned to quote on MIAX and MIAX

Emerald), the higher the MEI Port fee.

This concept is not new or novel. The

Exchange also notes that the proposed

increased fees for the Exchange’s Full

Service MEO Ports are in line with, or

cheaper than, the similar port fees or

similar membership fees charged by

other options exchanges.

The Exchange has historically

undercharged for Full Service MEO

Ports as compared to other options

exchanges

because the Exchange

provides Full Service MEO Ports as a

package for a single monthly fee. As

described above, this package includes

two Full Service MEO Ports for each of

the Exchange’s twelve (12) matching

engines. The Exchange understands

other options exchanges charge fees on

a per port basis. For example, NYSE

American, LLC (‘‘NYSE American’’) and

NYSE Arca, Inc. (‘‘NYSE Arca’’) both

charge $450 per port for order/quote

entry ports 1–40 and $150 per port for

ports 41 and greater,

all on a per

matching engine basis, with NYSE

American and NYSE Arca having 17

match engines and 19 match engines,

respectively.

Similarly, The Nasdaq

Stock Market LLC (‘‘NASDAQ’’) charges

$1,500 per port for Specialized Quote

Interface (‘‘SQF’’) ports 1–5, $1,000 per

SQF port for ports 6–20, and $500 per

SQF port for ports 21 and greater,

all

on a per matching engine basis, with

NASDAQ having multiple matching

engines.

The NASDAQ SQF Interface

Specification also provides that

NASDAQ’s affiliates, Nasdaq PHLX LLC

(‘‘Nasdaq Phlx’’) and Nasdaq BX, Inc.

(‘‘Nasdaq BX’’), have trading

infrastructures that may consist of

multiple matching engines with each

matching engine trading only a range of

option underlyings.

Further, the

NASDAQ SQF Interface Specification

provides that the SQF infrastructure is

such that the firms connect to one or

more servers residing directly on the

matching engine infrastructure.

Since

there may be multiple matching

engines, firms will need to connect to

each engine’s infrastructure in order to

establish the ability to quote the

symbols handled by that engine.

The

proposed monthly fee increases for Full

Service MEO Ports would bring the

Exchange’s fees more in line with that

of other options exchanges, while

maintaining a competitive fee structure

for Full Service MEO Ports.

Implementation

The proposed fees will become

effective on November 1, 2021.

2. Statutory Basis

The Exchange believes that its

proposal to amend its Fee Schedule is

consistent with Section 6(b) of the Act

in general, and furthers the objectives of

Section 6(b)(4) of the Act

particular, in that it is an equitable

allocation of reasonable dues, fees and

other charges among its members and

issuers and other persons using its

facilities. The Exchange also believes

the proposal furthers the objectives of

Section 6(b)(5) of the Act in that it is

designed to promote just and equitable

principles of trade, to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system, and, in

general to protect investors and the

public interest and is not designed to

permit unfair discrimination between

customers, issuers, brokers and dealers.

The Exchange believes that

exchanges, in setting fees of all types,

should meet very high standards of

transparency to demonstrate why each

new fee or fee increase meets the

requirements of the Act that fees are

reasonable, equitably allocated, not

unfairly discriminatory, and not create

an undue burden on competition among

market participants. The Exchange

believes this high standard is especially

important when an exchange imposes

various access fees for market

participants to access an exchange’s

marketplace. The Exchange deems the

Full Service MEO Port fees to be access

fees. It records these fees as part of its

‘‘Access Fees’’ revenue in its financial

statements. The Exchange believes that

it is important to demonstrate that these

fees are based on its costs and

reasonable business needs. The

Exchange believes the Proposed Access

Fees will allow the Exchange to offset

expense the Exchange has and will

incur, and that the Exchange is

providing sufficient transparency (as

described below) into how the Exchange

determined to charge such fees.

Accordingly, the Exchange is providing

an analysis of its revenues, costs, and

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See Securities Exchange Act Release No. 91460

(April 2, 2021), 86 FR 18349 (April 8, 2021) (SR–

EMERALD–2021–11) (Notice of Filing and

Immediate Effectiveness of a Proposed Rule Change

To Amend Its Fee Schedule To Adopt Port Fees,

Increase Certain Network Connectivity Fees, and

Increase the Number of Additional Limited Service

MIAX Emerald Express Interface Ports Available to

Market Makers) (adopting tiered MEI Port fee

structure ranging from $5,000 to $20,500 per

month).

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).

See Staff Guidance on SRO Rule Filings

Relating to Fees (May 21, 2019), at https://

www.sec.gov/tm/staff-guidance-sro-rule-filings-fees

(the ‘‘Guidance’’).

See ‘‘The market at a glance,’’ available at

https://www.miaxoptions.com/ (last visited October

27, 2021).

See id.

See supra note 19.

See supra note 20.

See supra note 21.

See supra note 22.

profitability associated with the

Proposed Access Fees. This analysis

includes information regarding its

methodology for determining the costs

and revenues associated with the

Proposed Access Fees.

In order to determine the Exchange’s

costs to provide the access services

associated with the Proposed Access

Fees, the Exchange conducted an

extensive cost review in which the

Exchange analyzed nearly every

expense item in the Exchange’s general

expense ledger to determine whether

each such expense relates to the

Proposed Access Fees, and, if such

expense did so relate, what portion (or

percentage) of such expense actually

supports the access services. The sum of

all such portions of expenses represents

the total cost of the Exchange to provide

the access services associated with the

Proposed Access Fees. For the

avoidance of doubt, no expense amount

was allocated twice. The Exchange is

also providing detailed information

regarding the Exchange’s cost allocation

methodology—namely, information that

explains the Exchange’s rationale for

determining that it was reasonable to

allocate certain expenses described in

this filing towards the cost to the

Exchange to provide the access services

associated with the Proposed Access

Fees.

In order to determine the Exchange’s

projected revenues associated with the

Proposed Access Fees, the Exchange

analyzed the number of Members

currently utilizing Full Service MEO

Ports, and, utilizing a recent monthly

billing cycle representative of 2021

monthly revenue, extrapolated

annualized revenue on a going-forward

basis. The Exchange does not believe it

is appropriate to factor into its analysis

future revenue growth or decline into its

projections for purposes of these

calculations, given the uncertainty of

such projections due to the continually

changing access needs of market

participants, discounts that can be

achieved due to lower trading volume

and vice versa, market participant

consolidation, etc. Additionally, the

Exchange similarly does not factor into

its analysis future cost growth or

decline. The Exchange is presenting its

revenue and expense associated with

the Proposed Access Fees in this filing

in a manner that is consistent with how

the Exchange presents its revenue and

expense in its Audited Unconsolidated

Financial Statements. The Exchange’s

most recent Audited Unconsolidated

Financial Statement is for 2020.

However, since the revenue and

expense associated with the Proposed

Access Fees were not in place in 2020

or for the majority of 2021 (other than

July and August 2021), the Exchange

believes its 2020 Audited

Unconsolidated Financial Statement is

not representative of its current total

annualized revenue and costs associated

with the Proposed Access Fees.

Accordingly, the Exchange believes it is

more appropriate to analyze the

Proposed Access Fees utilizing its 2021

revenue and costs, as described herein,

which utilize the same presentation

methodology as set forth in the

Exchange’s previously-issued Audited

Unconsolidated Financial Statements.

Based on this analysis, the Exchange

believes that the Proposed Access Fees

are fair and reasonable because they will

not result in excessive pricing or supra-

competitive profit when comparing the

Exchange’s total annual expense

associated with providing the services

associated with the Proposed Access

Fees versus the total projected annual

revenue the Exchange will collect for

providing those services. The Exchange

notes that this is the same justification

process utilized by the Exchange’s

affiliate, MIAX Emerald, in a filing

recently noticed by the Commission

when MIAX Emerald adopted MEI Port

fees.

* * * * *

On March 29, 2019, the Commission

issued its Order Disapproving Proposed

Rule Changes to Amend the Fee

Schedule on the BOX Market LLC

Options Facility to Establish BOX

Connectivity Fees for Participants and

Non-Participants Who Connect to the

BOX Network (the ‘‘BOX Order’’).

May 21, 2019, the Commission issued

the Staff Guidance on SRO Rule Filings

Relating to Fees.

Accordingly, the

Exchange believes that the Proposed

Access Fees are consistent with the Act

because they (i) are reasonable,

equitably allocated, not unfairly

discriminatory, and not an undue

burden on competition; (ii) comply with

the BOX Order and the Guidance; (iii)

are supported by evidence (including

comprehensive revenue and cost data

and analysis) that they are fair and

reasonable because they will not result

in excessive pricing or supra-

competitive profit; and (iv) utilize a

cost-based justification framework that

is substantially similar to a framework

previously used by the Exchange and its

affiliates, MIAX and MIAX Emerald, to

establish or increase other non-

transaction fees. Accordingly, the

Exchange believes that the Commission

should find that the Proposed Access

Fees are consistent with the Act.

* * * * *

Over the course of 2021, the

Exchange’s market share has fluctuated

between approximately 3–6% of the

U.S. equity options industry.

The

Exchange is not aware of any evidence

that a market share of approximately 3–

6% provides the Exchange with anti-

competitive pricing power. If the

Exchange were to attempt to establish

unreasonable pricing, then no market

participant would join or connect, and

existing market participants would

disconnect.

The Exchange believes the proposed

fees are equitable and reasonable

because the proposed highest tiered fee

is less than or equal to similar fees

charged for access on other options

exchanges with comparable market

shares, some of which charge on a per

port basis, unlike the Exchange. For

example, NYSE American (equity

options market share of 7.73% as of

October 27, 2021 for the month of

October)

charges $450 per port for

order/quote entry ports 1–40 and $150

per port for ports 41 and greater,

all

on a per matching engine basis, with

NYSE American having 17 match

engines.

Similarly, NASDAQ (equity

options market share of 8.12% as of

October 27, 2021 for the month of

October)

charges $1,500 per port for

SQF ports 1–5, $1,000 per SQF port for

ports 6–20, and $500 per SQF port for

ports 21 and greater,

all on a per

matching engine basis, with NASDAQ

having multiple matching engines.

The NASDAQ SQF Interface

Specification provides that PHLX/NOM/

BX Options trading infrastructures may

consist of multiple matching engines

with each matching engine trading only

a range of option underlyings. Further,

the SQF infrastructure is such that the

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See id.

See supra note 28.

The Exchange has not yet finalized its 2021

year end results.

The percentage allocations used in this

proposed rule change may differ from past filings

from the Exchange or its affiliates due to, among

other things, changes in expenses charged by third-

parties, adjustments to internal resource allocations,

and different system architecture of the Exchange

as compared to its affiliates.

For example, the Exchange previously noted

that all third-party expense described in its prior fee

filing was contained in the information technology

and communication costs line item under the

section titled ‘‘Operating Expenses Incurred

Directly or Allocated From Parent,’’ in the

Exchange’s 2019 Form 1 Amendment containing its

financial statements for 2018. See Securities

Exchange Act Release No. 87876 (December 31,

2019), 85 FR 757 (January 7, 2020) (SR–PEARL–

2019–36). Accordingly, the third-party expense

described in this filing is attributed to the same line

item for the Exchange’s 2021 Form 1 Amendment,

which will be filed in 2022.

firms connect to one or more servers

residing directly on the matching engine

infrastructure. Since there may be

multiple matching engines, firms will

need to connect to each engine’s

infrastructure in order to establish the

ability to quote the symbols handled by

that engine.

In the each of the above cases, the

Exchange’s highest tiered port fee, as

proposed, is similar to or less than the

port fees of competing options

exchanges with like market share.

Further, as described in more detail

below, many competing exchanges

generate higher overall operating profit

margins and higher ‘‘access fees’’ than

the Exchange, inclusive of the projected

revenues associated with the proposed

fees. The Exchange believes that it

provides a premium network experience

to its Members and non-Members via a

highly deterministic system, enhanced

network monitoring and customer

reporting, and a superior network

infrastructure than markets with higher

market shares and more expensive

access fees. Each of the port fee rates in

place at competing options exchanges

were filed with the Commission for

immediate effectiveness and remain in

place today.

Separately, the Exchange is not aware

of any reason why market participants

could not simply drop their access to an

exchange (or not initially access an

exchange) if an exchange were to

establish prices for its non-transaction

fees that, in the determination of such

market participant, did not make

business or economic sense for such

market participant to access such

exchange. No options market participant

is required by rule, regulation, or

competitive forces to be a Member of the

Exchange. As evidence of the fact that

market participants can and do drop

their access to exchanges based on non-

transaction fee pricing, R2G Services

LLC (‘‘R2G’’) filed a comment letter after

BOX’s proposed rule changes to

increase its connectivity fees (SR–BOX–

2018–24, SR–BOX–2018–37, and SR–

BOX–2019–04). The R2G Letter stated,

‘‘[w]hen BOX instituted a $10,000/

month price increase for connectivity;

we had no choice but to terminate

connectivity into them as well as

terminate our market data relationship.

The cost benefit analysis just didn’t

make any sense for us at those new

levels.’’ Similarly, the Exchange’s

affiliate, MIAX Emerald, noted in a

recent filing that once MIAX Emerald

issued a notice that it was instituting

MEI Port fees, among other non-

transaction fees, one Member dropped

its access to the Exchange as a result of

those fees.

Accordingly, these

examples show that if a market

participant believes, based on its

business model, that an exchange

charges too high of a fee for connectivity

and/or other non-transaction fees for its

relevant marketplace, market

participants can choose to drop their

access to such exchange.

The Exchange’s high performance

network solutions and supporting

infrastructure (including employee

support), provides unparalleled system

throughput and the capacity to handle

approximately 10.7 million order

messages per second. On an average

day, the Exchange handles over

approximately 2.7 billion total

messages. However, in order to achieve

a consistent, premium network

performance, the Exchange must build

out and maintain a network that has the

capacity to handle the message rate

requirements of its most heavy network

consumers. These billions of messages

per day consume the Exchange’s

resources and significantly contribute to

the overall expense for storage and

network transport capabilities.

In order to provide more detail and to

quantify the Exchange’s costs associated

with providing access to the Exchange

in general, the Exchange notes that there

are material costs associated with

providing the infrastructure and

headcount to fully-support access to the

Exchange. The Exchange incurs

technology expense related to

establishing and maintaining

Information Security services, enhanced

network monitoring and customer

reporting, as well as Regulation SCI

mandated processes, associated with its

network technology. While some of the

expense is fixed, much of the expense

is not fixed, and thus increases as the

services associated with the Proposed

Access Fees increase. For example, new

Members to the Exchange may require

the purchase of additional hardware to

support those Members as well as

enhanced monitoring and reporting of

customer performance that the

Exchange and its affiliates provide.

Further, as the total number Members

increases, the Exchange and its affiliates

may need to increase their data center

footprint and consume more power,

resulting in increased costs charged by

their third-party data center provider.

Accordingly, the cost to the Exchange

and its affiliates to provide access to its

Members is not fixed. The Exchange

believes the Proposed Access Fees are

reasonable in order to offset a portion of

the costs to the Exchange associated

with providing access to its network

infrastructure.

The Exchange only has four primary

sources of revenue: Transaction fees,

access fees (which includes the

Proposed Access Fees), regulatory fees,

and market data fees. Accordingly, the

Exchange must cover all of its expenses

from these four primary sources of

revenue.

The Exchange believes that the

Proposed Access Fees are fair and

reasonable because they will not result

in excessive pricing or supra-

competitive profit, when comparing the

total annual expense that the Exchange

projects to incur in connection with

providing these access services versus

the total annual revenue that the

Exchange projects to collect in

connection with services associated

with the Proposed Access Fees. For

2021,

the total annual expense for

providing the access services associated

with the Proposed Access Fees for the

Exchange is projected to be

approximately $897,084. The $897,084

in projected total annual expense is

comprised of the following, all of which

are directly related to the access services

associated with the Proposed Access

Fees: (1) Third-party expense, relating to

fees paid by the Exchange to third-

parties for certain products and services;

and (2) internal expense, relating to the

internal costs of the Exchange to

provide the services associated with the

Proposed Access Fees.

As noted

above, the Exchange believes it is more

appropriate to analyze the Proposed

Access Fees utilizing its 2021 revenue

and costs, which utilize the same

presentation methodology as set forth in

the Exchange’s previously-issued

Audited Unconsolidated Financial

Statements.

The $897,084 in projected

total annual expense is directly related

to the access services associated with

the Proposed Access Fees, and not any

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In fact, on October 20, 2021, ICE Data Services

announced a 3.5% price increase effective January

1, 2022 for most services. The price increase by ICE

Data Services includes their SFTI network, which

is relied on by a majority of market participants,

including the Exchange. See email from ICE Data

Services to the Exchange, dated October 20, 2021.

This fee increase by ICE data services, while not

subject to Commission review, has material impact

on cost to exchanges and other market participants

that provide downstream access to other market

participants. The Exchange notes that on October

22, 2019, the Exchange was notified by ICE Data

Services that it was raising its fees charged to the

Exchange by approximately 11% for the SFTI

network, without having to show that such fee

change complies with the Act by being reasonable,

equitably allocated, and not unfairly

discriminatory. It is unfathomable to the Exchange

that, given the critical nature of the infrastructure

services provided by SFTI, that its fees are not

required to be rule-filed with the Commission

pursuant to Section 19(b)(1) of the Act and Rule

19b–4 thereunder. See 15 U.S.C. 78s(b)(1) and 17

CFR 240.19b–4, respectively.

As noted above, the percentage allocations used

in this proposed rule change may differ from past

filings from the Exchange or its affiliates due to,

among other things, changes in expenses charged by

third-parties, adjustments to internal resource

allocations, and different system architecture of the

Exchange as compared to its affiliates. Again, as

part its ongoing assessment of costs and expenses,

the Exchange recently conducted a periodic

thorough review of its expenses and resource

allocations which, in turn, resulted in a revised

percentage allocations in this filing.

Id.

other product or service offered by the

Exchange. It does not include general

costs of operating matching systems and

other trading technology, and no

expense amount was allocated twice.

As discussed, the Exchange

conducted an extensive cost review in

which the Exchange analyzed nearly

every expense item in the Exchange’s

general expense ledger (this includes

over 150 separate and distinct expense

items) to determine whether each such

expense relates to the access services

associated with the Proposed Access

Fees, and, if such expense did so relate,

what portion (or percentage) of such

expense actually supports those

services, and thus bears a relationship

that is, ‘‘in nature and closeness,’’

directly related to those services. The

sum of all such portions of expenses

represents the total cost of the Exchange

to provide access services associated

with the Proposed Access Fees.

For 2021, total third-party expense,

relating to fees paid by the Exchange to

third-parties for certain products and

services for the Exchange to be able to

provide the access services associated

with the Proposed Access Fees, is

projected to be $40,166. This includes,

but is not limited to, a portion of the

fees paid to: (1) Equinix, for data center

services, for the primary, secondary, and

disaster recovery locations of the

Exchange’s trading system

infrastructure; (2) Zayo Group Holdings,

Inc. (‘‘Zayo’’) for network services (fiber

and bandwidth products and services)

linking the Exchange’s office locations

in Princeton, New Jersey and Miami,

Florida, to all data center locations; (3)

Secure Financial Transaction

Infrastructure (‘‘SFTI’’),

which

supports connectivity and feeds for the

entire U.S. options industry; (4) various

other services providers (including

Thompson Reuters, NYSE, Nasdaq, and

Internap), which provide content,

connectivity services, and infrastructure

services for critical components of

options connectivity and network

services; and (5) various other hardware

and software providers (including Dell

and Cisco, which support the

production environment in which

Members connect to the network to

trade, receive market data, etc.).

For clarity, only a portion of all fees

paid to such third-parties is included in

the third-party expense herein, and no

expense amount is allocated twice.

Accordingly, the Exchange does not

allocate its entire information

technology and communication costs to

the access services associated with the

Proposed Access Fees. Further, the

Exchange notes that, with respect to the

MIAX Pearl expenses included herein,

those expenses only cover the MIAX

Pearl options market; expenses

associated with the MIAX Pearl equities

market are accounted for separately and

are not included within the scope of this

filing. As noted above, the percentage

allocations used in this proposed rule

change may differ from past filings from

the Exchange or its affiliates due to,

among other things, changes in

expenses charged by third-parties,

adjustments to internal resource

allocations, and different system

architecture of the Exchange as

compared to its affiliates. Further, as

part its ongoing assessment of costs and

expenses, the Exchange recently

conducted a periodic thorough review

of its expenses and resource allocations

which, in turn, resulted in a revised

percentage allocations in this filing.

The Exchange believes it is reasonable

to allocate such third-party expense

described above towards the total cost to

the Exchange to provide the access

services associated with the Proposed

Access Fees. In particular, the Exchange

believes it is reasonable to allocate the

identified portion of the Equinix

expense because Equinix operates the

data centers (primary, secondary, and

disaster recovery) that host the

Exchange’s network infrastructure. This

includes, among other things, the

necessary storage space, which

continues to expand and increase in

cost, power to operate the network

infrastructure, and cooling apparatuses

to ensure the Exchange’s network

infrastructure maintains stability.

Without these services from Equinix,

the Exchange would not be able to

operate and support the network and

provide the access services associated

with the Proposed Access Fees to its

Members and their customers. The

Exchange did not allocate all of the

Equinix expense toward the cost of

providing the access services associated

with the Proposed Access Fees, only

that portion which the Exchange

identified as being specifically mapped

to providing the access services

associated with the Proposed Access

Fees, approximately 1.80% of the total

applicable Equinix expense. The

Exchange believes this allocation is

reasonable because it represents the

Exchange’s actual cost to provide the

access services associated with the

Proposed Access Fees, and not any

other service, as supported by its cost

review.

The Exchange believes it is reasonable

to allocate the identified portion of the

Zayo expense because Zayo provides

the internet, fiber and bandwidth

connections with respect to the

network, linking the Exchange with its

affiliates, MIAX and MIAX Emerald, as

well as the data center and disaster

recovery locations. As such, all of the

trade data, including the billions of

messages each day per exchange, flow

through Zayo’s infrastructure over the

Exchange’s network. Without these

services from Zayo, the Exchange would

not be able to operate and support the

network and provide the access services

associated with the Proposed Access

Fees. The Exchange did not allocate all

of the Zayo expense toward the cost of

providing the access services associated

with the Proposed Access Fees, only the

portion which the Exchange identified

as being specifically mapped to

providing the Proposed Access Fees,

approximately 0.90% of the total

applicable Zayo expense. The Exchange

believes this allocation is reasonable

because it represents the Exchange’s

actual cost to provide the access

services associated with the Proposed

Access Fees, and not any other service,

as supported by its cost review.

The Exchange believes it is reasonable

to allocate the identified portions of the

SFTI expense and various other service

providers’ (including Thompson

Reuters, NYSE, Nasdaq, and Internap)

expense because those entities provide

connectivity and feeds for the entire

U.S. options industry, as well as the

content, connectivity services, and

infrastructure services for critical

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Id.

The Exchange notes that the total depreciation

expense is different from the total for the

Exchange’s filing relating to Trading Permits

because the Exchange factors in the depreciation of

its own internally developed software when

assessing costs for Full Service MEO Ports, resulting

in a higher depreciation expense number in this

filing.

components of the network. Without

these services from SFTI and various

other service providers, the Exchange

would not be able to operate and

support the network and provide access

to its Members and their customers. The

Exchange did not allocate all of the SFTI

and other service providers’ expense

toward the cost of providing the access

services associated with the Proposed

Access Fees, only the portions which

the Exchange identified as being

specifically mapped to providing the

access services associated with the

Proposed Access Fees, approximately

0.90% of the total applicable SFTI and

other service providers’ expense. The

Exchange believes this allocation is

reasonable because it represents the

Exchange’s actual cost to provide the

access services associated with the

Proposed Access Fees.

The Exchange believes it is reasonable

to allocate the identified portion of the

other hardware and software provider

expense because this includes costs for

dedicated hardware licenses for

switches and servers, as well as

dedicated software licenses for security

monitoring and reporting across the

network. Without this hardware and

software, the Exchange would not be

able to operate and support the network

and provide access to its Members and

their customers. The Exchange did not

allocate all of the hardware and software

provider expense toward the cost of

providing the access services associated

with the Proposed Access Fees, only the

portions which the Exchange identified

as being specifically mapped to

providing the access services associated

with the Proposed Access Fees,

approximately 0.90% of the total

applicable hardware and software

provider expense. The Exchange

believes this allocation is reasonable

because it represents the Exchange’s

actual cost to provide the access

services associated with the Proposed

Access Fees.

For 2021, total projected internal

expense, relating to the internal costs of

the Exchange to provide the access

services associated with the Proposed

Access Fees, is projected to be $856,918.

This includes, but is not limited to,

costs associated with: (1) Employee

compensation and benefits for full-time

employees that support the access

services associated with the Proposed

Access Fees, including staff in network

operations, trading operations,

development, system operations,

business, as well as staff in general

corporate departments (such as legal,

regulatory, and finance) that support

those employees and functions; (2)

depreciation and amortization of

hardware and software used to provide

the access services associated with the

Proposed Access Fees, including

equipment, servers, cabling, purchased

software and internally developed

software used in the production

environment to support the network for

trading; and (3) occupancy costs for

leased office space for staff that provide

the access services associated with the

Proposed Access Fees. The breakdown

of these costs is more fully-described

below. For clarity, only a portion of all

such internal expenses are included in

the internal expense herein, and no

expense amount is allocated twice.

Accordingly, the Exchange does not

allocate its entire costs contained in

those items to the access services

associated with the Proposed Access

Fees.

The Exchange believes it is reasonable

to allocate such internal expense

described above towards the total cost to

the Exchange to provide the access

services associated with the Proposed

Access Fees. In particular, the

Exchange’s employee compensation and

benefits expense relating to providing

the access services associated with the

Proposed Access Fees is projected to be

$783,513, which is only a portion of the

$9,163,894 total projected expense for

employee compensation and benefits.

The Exchange believes it is reasonable

to allocate the identified portion of such

expense because this includes the time

spent by employees of several

departments, including Technology,

Back Office, Systems Operations,

Networking, Business Strategy

Development (who create the business

requirement documents that the

Technology staff use to develop network

features and enhancements), Trade

Operations, Finance (who provide

billing and accounting services relating

to the network), and Legal (who provide

legal services relating to the network,

such as rule filings and various license

agreements and other contracts). As part

of the extensive cost review conducted

by the Exchange, the Exchange reviewed

the amount of time spent by each

employee on matters relating to the

provision of access services associated

with the Proposed Access Fees. Without

these employees, the Exchange would

not be able to provide the access

services associated with the Proposed

Access Fees to its Members and their

customers. The Exchange did not

allocate all of the employee

compensation and benefits expense

toward the cost of the access services

associated with the Proposed Access

Fees, only the portions which the

Exchange identified as being

specifically mapped to providing the

access services associated with the

Proposed Access Fees, approximately

8.55% of the total applicable employee

compensation and benefits expense. The

Exchange believes this allocation is

reasonable because it represents the

Exchange’s actual cost to provide the

access services associated with the

Proposed Access Fees, and not any

other service, as supported by its cost

review.

The Exchange’s depreciation and

amortization expense relating to

providing the access services associated

with the Proposed Access Fees is

projected to be $64,456, which is only

a portion of the $2,864,716

total

projected expense for depreciation and

amortization. The Exchange believes it

is reasonable to allocate the identified

portion of such expense because such

expense includes the actual cost of the

computer equipment, such as dedicated

servers, computers, laptops, monitors,

information security appliances and

storage, and network switching

infrastructure equipment, including

switches and taps that were purchased

to operate and support the network and

provide the access services associated

with the Proposed Access Fees. Without

this equipment, the Exchange would not

be able to operate the network and

provide the access services associated

with the Proposed Access Fees to its

Members and their customers. The

Exchange did not allocate all of the

depreciation and amortization expense

toward the cost of providing the access

services associated with the Proposed

Access Fees, only the portion which the

Exchange identified as being

specifically mapped to providing the

access services associated with the

Proposed Access Fees, approximately

2.25% of the total applicable

depreciation and amortization expense,

as these access services would not be

possible without relying on such. The

Exchange believes this allocation is

reasonable because it represents the

Exchange’s actual cost to provide the

access services associated with the

Proposed Access Fees, and not any

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Id.

See supra note 30.

See id.

other service, as supported by its cost

review.

The Exchange’s occupancy expense

relating to providing the access services

associated with the Proposed Access

Fees is projected to be $8,949, which is

only a portion of the $497,180 total

projected expense for occupancy. The

Exchange believes it is reasonable to

allocate the identified portion of such

expense because such expense

represents the portion of the Exchange’s

cost to rent and maintain a physical

location for the Exchange’s staff who

operate and support the network,

including providing the access services

associated with the Proposed Access

Fees. This amount consists primarily of

rent for the Exchange’s Princeton, New

Jersey office, as well as various related

costs, such as physical security,

property management fees, property

taxes, and utilities. The Exchange

operates its Network Operations Center

(‘‘NOC’’) and Security Operations

Center (‘‘SOC’’) from its Princeton, New

Jersey office location. A centralized

office space is required to house the

staff that operates and supports the

network. The Exchange currently has

approximately 150 employees.

Approximately two-thirds of the

Exchange’s staff are in the Technology

department, and the majority of those

staff have some role in the operation

and performance of the access services

associated with the Proposed Access

Fees. Without this office space, the

Exchange would not be able to operate

and support the network and provide

the access services associated with the

Proposed Access Fees to its Members

and their customers. Accordingly, the

Exchange believes it is reasonable to

allocate the identified portion of its

occupancy expense because such

amount represents the Exchange’s actual

cost to house the equipment and

personnel who operate and support the

Exchange’s network infrastructure and

the access services associated with the

Proposed Access Fees. The Exchange

did not allocate all of the occupancy

expense toward the cost of providing

the access services associated with the

Proposed Access Fees, only the portion

which the Exchange identified as being

specifically mapped to operating and

supporting the network, approximately

1.80% of the total applicable occupancy

expense. The Exchange believes this

allocation is reasonable because it

represents the Exchange’s cost to

provide the access services associated

with the Proposed Access Fees, and not

any other service, as supported by its

cost review.

The Exchange notes that a material

portion of its total overall expense is

allocated to the provision of access

services (including connectivity, ports,

and trading permits). The Exchange

believes this is reasonable and in line,

as the Exchange operates a technology-

based business that differentiates itself

from its competitors based on its trading

systems that rely on access to a high

performance network, resulting in

significant technology expense. Over

two-thirds of Exchange staff are

technology-related employees. The

majority of the Exchange’s expense is

technology-based. As described above,

the Exchange has only four primary

sources of fees in to recover its costs,

thus the Exchange believes it is

reasonable to allocate a material portion

of its total overall expense towards

access fees.

Accordingly, based on the facts and

circumstances presented, the Exchange

believes that its provision of the access

services associated with the Proposed

Access Fees will not result in excessive

pricing or supra-competitive profit. To

illustrate, on a going-forward, fully-

annualized basis, the Exchange projects

that its annualized revenue for

providing the access services associated

with the Proposed Access Fees would

be approximately $1,476,000 per

annum, based on a recent billing cycle.

The Exchange projects that its

annualized expense for providing the

access services associated with the

Proposed Access Fees would be

approximately $897,084 per annum.

Accordingly, on a fully-annualized

basis, the Exchange believes its total

projected revenue for the providing the

access services associated with the

Proposed Access Fees will not result in

excessive pricing or supra-competitive

profit, as the Exchange will make only

a 39% profit margin on the Proposed

Access Fees ($1,476,000 in revenue

minus $897,084 in expense = $578,916

profit per annum). The Exchange notes

that the fees charged to each Member for

Full Service MEO Ports can vary from

month to month depending on the type

used and the Non-Transaction Fees

Volume-Based Tier that the Member

achieves for that month. As such, the

revenue projection is not a static

number, with monthly Full Service

MEO Port fees likely to fluctuate month

to month.

For the avoidance of doubt, none of

the expenses included herein relating to

the access services associated with the

Proposed Access Fees relate to the

provision of any other services offered

by the Exchange. Stated differently, no

expense amount of the Exchange is

allocated twice. The Exchange notes

that, with respect to the MIAX Pearl

expenses included herein, those

expenses only cover the MIAX Pearl

options market; expenses associated

with the MIAX Pearl equities market

and the Exchange’s affiliate exchanges,

MIAX and MIAX Emerald, are

accounted for separately and are not

included within the scope of this filing.

Stated differently, no expense amount of

the Exchange is also allocated to MIAX

Pearl Equities, MIAX or MIAX Emerald.

The Exchange believes it is

reasonable, equitable and not unfairly

discriminatory to allocate the respective

percentages of each expense category

described above towards the total cost to

the Exchange of operating and

supporting the network, including

providing the access services associated

with the Proposed Access Fees because

the Exchange performed a line-by-line

item analysis of nearly every expense of

the Exchange, and has determined the

expenses that directly relate to

providing access to the Exchange.

Further, the Exchange notes that,

without the specific third-party and

internal items listed above, the

Exchange would not be able to provide

the access services associated with the

Proposed Access Fees to its Members

and their customers. Each of these

expense items, including physical

hardware, software, employee

compensation and benefits, occupancy

costs, and the depreciation and

amortization of equipment, have been

identified through a line-by-line item

analysis to be integral to providing

access services. The Proposed Access

Fees are intended to recover the

Exchange’s costs of providing access to

Exchange Systems. Accordingly, the

Exchange believes that the Proposed

Access Fees are fair and reasonable

because they do not result in excessive

pricing or supra-competitive profit,

when comparing the actual costs to the

Exchange versus the projected annual

revenue from the Proposed Access Fees.

The Exchange believes the proposed

changes are reasonable, equitably

allocated and not unfairly

discriminatory, and do not result in a

‘‘supra-competitive’’

profit. Of note,

the Guidance defines ‘‘supra-

competitive profit’’ as profits that

exceed the profits that can be obtained

in a competitive market.

With the

proposed changes, the Exchange

anticipates that its profit margin will be

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See supra notes 9, 19, and 21.

As described in MIAX Pearl’s Audited

Financial Statements, fees for ‘‘access services’’ are

assessed to exchange members for the opportunity

to trade and use other related functions of the

exchanges. See Form 1 Amendment, at https://

www.sec.gov/Archives/edgar/vprr/2100/

21000460.pdf.

According to Cboe, access and capacity fees

represent fees assessed for the opportunity to trade,

including fees for trading-related functionality. See

Form 1 Amendment, at https://www.sec.gov/

Archives/edgar/vprr/2100/21000465.pdf.

See id.

According to Nasdaq Phlx, ‘‘Trade Management

Services’’ includes ‘‘a wide variety of alternatives

for connectivity to and accessing [the PHLX]

markets for a fee. These participants are charged

monthly fees for connectivity and support in

accordance with [Nasdaq Phlx’s] published fee

schedules.’’ See Form 1 Amendment, at https://

www.sec.gov/Archives/edgar/vprr/2001/

20012246.pdf.

See Form 1 Amendment, at https://

www.sec.gov/Archives/edgar/vprr/2100/

21000475.pdf.

See Nasdaq Phlx Form 1, Exhibit D, filed June

30, 2020 available at https://sec.report/Document/

9999999997-20-003902/.

See https://www.theocc.com/Market-Data/

Market-Data-Reports/Volume-and-Open-Interest/

Volume-by-Exchange.

See Nasdaq ISE LLC Options 7 Pricing

Schedule, Section 8.A. Access Services, at https://

listingcenter.nasdaq.com/rulebook/ise/rules/

ISE%20Options%207.

See Nasdaq ISE Form 1, filed June 29, 2020

available at Form 1—ISE—Final (1).pdf (sec.gov).

See supra note 31.

See Nasdaq Phlx Options 7 Pricing Schedule,

Section 8.A. Permit and Registration Fees, at

https://listingcenter.nasdaq.com/rulebook/phlx/

rules/Phlx%20Options%207.

See Securities Exchange Act Release No. 92365

(July 9, 2021), 86 FR 37347 (SR–PEARL–2021–33)

(‘‘Initial Proposed Fee Change’’).

See letter from Richard J. McDonald,

Susquehanna International Group, LLP (‘‘SIG’’) to

Vanessa Countryman, Secretary, Commission, dated

September 7, 2021 (‘‘SIG Letter’’).

See id.

approximately 39%, inclusive of the

Proposed Access Fees. In order to

achieve a consistent, premium network

performance, the Exchange must build

out and continue to maintain a network

that has the capacity to handle the

message rate requirements of not only

firms that consume minimal Exchange

connectivity resources, but also those

firms that most heavily consume

Exchange resources, network

consumers, and Members that use the

Full Service MEO ports, which generate

billions of messages per day across the

Exchange. Such profit margin should

enable the Exchange to continue to

invest in its network and systems,

maintain its current infrastructure,

support future enhancements to

network access, and continue to offer

enhanced customer reporting and

monitoring services.

While the proposed fees are similar to

or less than that of other options

exchanges,

as discussed above, the

incremental increase in revenue

generated from the 39% profit margin

for access via Full Service MEO Ports

will allow the Exchange to further

invest in its system architecture and

matching engine functionality to the

benefit of all market participants. The

revenue generated under the proposed

rule change would also provide the

Exchange with the resources necessary

to further innovate and enhance its

systems and seek additional

improvements or functionality to offer

market participants generally. The

Exchange believes that these

investments, in turn, will benefit all

investors by encouraging other

exchanges to further invest, innovate,

and improve their own systems in

response.

Based on the 2020 Audited Financial

Statements of competing options

exchanges (since the 2021 Audited

Financial Statements will likely not

become publicly available until early

July 2022, after the Exchange has

submitted this filing), the Exchange’s

revenue that is derived from its access

fees is in line with the revenue that is

derived from access fees of competing

exchanges. For example, the total

revenue from ‘‘access fees’’

for 2020

for MIAX Pearl was $11,422,000. MIAX

Pearl projects that the total revenue

from ‘‘access fees’’ for 2021 will be

$20,001,243, inclusive of the Proposed

Access Fees described herein.

The Exchange’s projected revenue

from access fees is still less than, or

similar to, the access fee revenues

generated by access fees charged by

other U.S. options exchanges. For

example, the Cboe Exchange, Inc.

(‘‘Cboe’’) reported $70,893,000 in

‘‘access and capacity fee’’

revenue for

2020. Cboe C2 Exchange, Inc. (‘‘C2’’)

reported $19,016,000 in ‘‘access and

capacity fee’’ revenue for 2020.

Cboe

BZX Exchange, Inc. (‘‘BZX’’) reported

$38,387,000 in ‘‘access and capacity

fee’’ revenue for 2020.

Cboe EDGX

Exchange, Inc. (‘‘EDGX’’) reported

$26,126,000 in ‘‘access and capacity

fee’’ revenue for 2020.

PHLX reported

$20,817,000 in ‘‘Trade Management

Services’’ revenue for 2019.

The

Exchange notes it is unable to compare

‘‘access fee’’ revenues with Nasdaq Phlx

(or other affiliated NASDAQ exchanges)

because after 2019, the ‘‘Trade

Management Services’’ line item was

bundled into a much larger line item in

Nasdaq Phlx’s Form 1, simply titled

‘‘Market services.’’

The Exchange also believes that,

based on the 2020 Audited Financial

Statements of competing options

exchanges, the Exchange’s overall

operating margin is in line with or less

than the operating margins of competing

options exchanges, including the

revenue and expense associated with

the Proposed Access Fees. For example,

the 2020 operating margin for MIAX

Pearl was ¥18%. Based on competing

exchanges’ Form 1 Amendments,

Nasdaq ISE, LLC’s (‘‘Nasdaq ISE’’)

operating profit margin for 2020 was

approximately 85%; Nasdaq Phlx’s

operating profit margin for 2020 was

approximately 49%; NASDAQ’s

operating profit margin for 2020 was

approximately 62%; NYSE Arca’s

operating profit margin for 2020 was

approximately 55%; NYSE American’s

operating profit margin for 2020 was

approximately 59%; Cboe’s operating

profit margin for 2020 was

approximately 74%; and BZX’s

operating profit margin for 2020 was

approximately 52%. Nasdaq ISE’s

operating profit margin, for all of 2019,

was 83%.

Nasdaq ISE’s equity options

market share for all of 2019 was

8.99%

while its access fees are as

follows: $500 per month for Electronic

Access Members; $5,000 per month for

Primary Market Makers; and $2,500 per

month for Competitive Market

Makers.

Nasdaq Phlx’s operating

profit margin, for all of 2019, was

67%.

Nasdaq Phlx’s equity options

market share for all of 2019 was

15.85%

while its permit fees are as

follows: $4,000 per month for Floor

Brokers; $6,000 per month for Floor

Lead Market Makers and Floor Market

Makers; and $4,000 per month for

Remote Lead Market Makers and

Remote Market Makers.

In the Exchange’s Initial Proposed Fee

Change,

the Exchange compared

projected profit margins to the 2019

operating profit margin of Nasdaq ISE

and Nasdaq Phlx, which were 83% and

67% respectively. The SIG Letter

contained the opinion that using the

overall operating profit margins of

Nasdaq ISE and Nasdaq Phlx was an

‘‘apple to oranges’’ comparison because

2019 was a ‘‘record setting year.’’

The

SIG letter’s argument assumes that

because 2019 was a record setting year

for options volumes, that each options

exchange generated above average

profits without provided any evidence

to support this assumption. The

Exchange sought to provide additional

data to support a 39% profit margin

based on the best, most recent data

available. The Exchange did not provide

this data to do an ‘‘apple-to-apples’’

comparison, but rather to provide

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See supra notes 19 and 21.

See supra note 10.

See Exchange Rule 210. The Sponsored User is

subject to the fees, if any, of the Sponsoring

Member. The Exchange notes that the Sponsoring

Member is not required to publicize, let alone

justify or file with the Commission its fees, and as

such could charge the Sponsored User any fees it

deems appropriate, even if such fees would

otherwise be considered supra-competitive, or

otherwise potentially unreasonable or

uncompetitive.

See Securities Exchange Act Release No. 90333

(November 4, 2020), 85 FR 71666 (November 10,

2020) (SR–CBOE–2020–105) (the ‘‘Cboe Fee

Filing’’). The Cboe Fee Filing cited to the October

2020 Active Broker Dealer Report, provided by the

Commission’s Office of Managing Executive, on

October 8, 2020.

Id.

insight into the profit margins of other

exchanges to put the projected profit

margin, inclusive of the proposed fees,

into perspective. While the Exchange

provided a detailed analysis and

disclosure of its projected profit margins

in this proposed fee change and the

Initial Proposed Fee Change, other

exchanges are generally not required to

disclose profit margins on a more

granular, per-product/non-transaction

fee basis within their annual Form 1

filings. The Exchange, therefore, used

the best, most recent data available to

generate percentages of other exchange’s

profit margins.

The Exchange further believes its

proposed fees are reasonable, equitably

allocated and not unfairly

discriminatory because the Exchange,

and its affiliates, are still recouping the

initial expenditures from building out

their systems while the legacy

exchanges have already paid for and

built their systems.

The Exchange believes that the

proposed fees are reasonable, equitably

allocated and not unfairly

discriminatory because, for the flat fee,

the Exchange provides each Member

two (2) Full Service MEO Ports for each

matching engine to which that Member

is connected. Unlike other options

exchanges that provide similar port

functionality and charge fees on a per

port basis,

the Exchange offers Full

Service MEO Ports as a package and

provides Members with the option to

receive up to two Full Service MEO

Ports per matching engine to which it

connects. The Exchange currently has

twelve (12) matching engines, which

means Members may receive up to

twenty-four (24) Full Service MEO Ports

for a single monthly fee, that can vary

based on certain volume percentages.

The Exchange currently assesses

Members a fee of $5,000 per month in

the highest Full Service MEO Port—

Bulk Tier, regardless of the number of

Full Service MEO Ports allocated to the

Member. Assuming a Member connects

to all twelve (12) matching engines

during a month, with two Full Service

MEO Ports per matching engine, this

results in a cost of $208.33 per Full

Service MEO Port—Bulk ($5,000

divided by 24) for the month. This fee

has been unchanged since the Exchange

adopted Full Service MEO Port fees in

2018.

The Exchange now proposes to

increase the Full Service MEO Port fees,

with the highest Tier fee for a Full

Service MEO Port—Bulk of $10,000 per

month. Members will continue to

receive two (2) Full Service MEO Ports

to each matching engine to which they

are connected for the single flat monthly

fee. Assuming a Member connects to all

twelve (12) matching engines during the

month, and achieves the highest Tier for

that month, with two Full Service MEO

Ports—Bulk per matching engine, this

would result in a cost of $416.67 per

Full Service MEO Port ($10,000 divided

by 24).

Finally, the Exchange notes that it

operates in a highly competitive market

in which market participants can

readily favor competing venues if they

deem fee levels at a particular venue to

be excessive. In such an environment,

the Exchange must continually adjust its

fees for services and products, in

addition to order flow, to remain

competitive with other exchanges. The

Exchange believes that the proposed

changes reflect this competitive

environment.

There is also no regulatory

requirement that any market participant

connect to any one options exchange,

that any market participant connect at a

particular connection speed or act in a

particular capacity on the Exchange, or

trade any particular product offered on

an exchange. Moreover, membership is

not a requirement to participate on the

Exchange. A market participant may

submit orders to the Exchange via a

Sponsored User.

Indeed, the Exchange

is unaware of any one options exchange

whose membership includes every

registered broker-dealer. Based on a

recent analysis conducted by the Cboe

Exchange, Inc. (‘‘Cboe’’), as of October

21, 2020, only three (3) of the broker-

dealers, out of approximately 250

broker-dealers, were members of at least

one exchange that lists options for

trading and were members of all 16

options exchanges.

Additionally, the

Cboe Fee Filing found that several

broker-dealers were members of only a

single exchange that lists options for

trading and that the number of members

at each exchange that trades options

varies greatly.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change would place

certain market participants at the

Exchange at a relative disadvantage

compared to other market participants

or affect the ability of such market

participants to compete.

Intra-Market Competition

The Exchange believes that the

Proposed Access Fees do not place

certain market participants at a relative

disadvantage to other market

participants because the Proposed

Access Fees do not favor certain

categories of market participants in a

manner that would impose a burden on

competition; rather, the allocation of the

Proposed Access Fees reflects the

network resources consumed by the

various size of market participants—

lowest bandwidth consuming members

pay the least, and highest bandwidth

consuming members pays the most,

particularly since higher bandwidth

consumption translates to higher costs

to the Exchange.

Inter-Market Competition

The Exchange believes the Proposed

Access Fees do not place an undue

burden on competition on other options

exchanges that is not necessary or

appropriate. In particular, options

market participants are not forced to

connect to (and purchase MEO Ports

from) all options exchanges. The

Exchange also notes that it has far less

Members as compared to the much

greater number of members at other

options exchanges. Not only does MIAX

Pearl have less than half the number of

members as certain other options

exchanges, but there are also a number

of the Exchange’s Members that do not

connect directly to MIAX Pearl. There

are a number of large users of the MEO

Interface and broker-dealers that are

members of other options exchange but

not Members of MIAX Pearl. The

Exchange is also unaware of any

assertion that its existing fee levels or

the Proposed Access Fees would

somehow unduly impair its competition

with other options exchanges. To the

contrary, if the fees charged are deemed

too high by market participants, they

can simply disconnect.

The Exchange operates in a highly

competitive market in which market

participants can readily favor one of the

15 competing options venues if they

deem fee levels at a particular venue to

be excessive. Based on publicly-

available information, and excluding

index-based options, no single exchange

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See supra note 31.

See supra note 68.

See supra note 69.

See Securities Exchange Act Release No. 93347

(October 15, 2021), 86 FR 58341 (October 21, 2021)

(SR–PEARL–2021–33) (Notice of Withdrawal of a

Proposed Rule Change to Amend the MIAX Pearl

Options Fee Schedule to Increase the Monthly Fees

for MIAX Express Network Full Service Ports).

17 CFR 201.700(b)(3).

The Exchange has incurred a cumulative loss

of $86 million since its inception in 2017 to 2020,

the last year for which the Exchange’s Form 1 data

is available. See Exchange’s Form 1/A, Application

for Registration or Exemption from Registration as

a National Securities Exchange, filed July 29, 2021,

available at https://sec.report/Document/

9999999997-21-004367/.

See Securities Exchange Act Release Nos.

91858 (May 12, 2021), 86 FR 26967 (May 18, 2021)

(SR–PEARL–2021–23) (Notice of Filing and

Immediate Effectiveness of a Proposed Rule Change

to Amend the MIAX Pearl Fee Schedule to Remove

the Cap on the Number of Additional Limited

Service Ports Available to Market Makers); 91460

(April 2, 2021), 86 FR 18349 (April 8, 2021) (SR–

EMERALD–2021–11) (Notice of Filing and

Immediate Effectiveness of a Proposed Rule Change

To Amend Its Fee Schedule To Adopt Port Fees,

Increase Certain Network Connectivity Fees, and

Increase the Number of Additional Limited Service

MIAX Emerald Express Interface Ports Available to

Market Makers); and 91857 (May 12, 2021), 86 FR

26973 (May 18, 2021) (SR–MIAX–2021–19) (Notice

of Filing and Immediate Effectiveness of a Proposed

Rule Change To Amend Its Fee Schedule To

Remove the Cap on the Number of Additional

Limited Service Ports Available to Market Makers).

See, e.g., Securities Exchange Act Release No.

90196 (October 15, 2020), 85 FR 67064 (October 21,

2020) (SR–EMERALD–2020–11) (Notice of Filing

and Immediate Effectiveness of a Proposed Rule

Change To Amend Its Fee Schedule To Adopt One-

Time Membership Application Fees and Monthly

Trading Permit Fees). See Securities Exchange Act

Release Nos. 90601 (December 8, 2020), 85 FR

80864 (December 14, 2020) (SR–EMERALD–2020–

18) (re-filing with more detail added in response to

Commission Staff’s feedback and after withdrawing

SR–EMERALD–2020–11); and 91033 (February 1,

2021), 86 FR 8455 (February 5, 2021) (SR–

EMERALD–2021–03) (re-filing with more detail

added in response to Commission Staff’s feedback

and after withdrawing SR–EMERALD–2020–18).

The Exchange initially filed a proposal to remove

the cap on the number of additional Limited

Service MEO Ports available to Members on April

9, 2021. See SR–PEARL–2021–17 (the ‘‘First

Proposed Rule Change’’). On April 22, 2021, the

Exchange withdrew the First Proposed Rule Change

and refiled that proposal (without increasing the

actual fee amounts) to provide further clarification

regarding the Exchange’s revenues, costs, and

profitability any time more Limited Service MEO

Ports become available, in general, (including

information regarding the Exchange’s methodology

for determining the costs and revenues for

additional Limited Service MEO Ports). See SR–

PEARL–2021–20 (the ‘‘Second Proposed Rule

Change’’). On May 3, 2021, the Exchange withdrew

the Second Proposed Rule Change and refiled that

proposal to further clarify its cost methodology. See

SR–PEARL–2021–22 (the ‘‘Third Proposed Rule

Change’’). On May 10, 2021, the Exchange

withdrew the Third Proposed Rule Change and

refiled SR–PEARL–2021–23. See Securities

Exchange Act Release No. 91858 (May 12, 2021), 86

FR 26967 (May 18, 2021) (SR–PEARL–2021–23).

See letter from Tyler Gellasch, Executive

Director, Healthy Markets Association, to Hon. Gary

Gensler, Chair, Commission, dated October 29,

2021.

Id. (providing examples where non-transaction

fee filings by other exchanges have been permitted

to remain effective and not suspended by the

Commission despite less disclosure and

justification).

has more than approximately 16%

market share. Therefore, no exchange

possesses significant pricing power in

the execution of multiply-listed equity

and ETF options order flow. Over the

course of 2021, the Exchange’s market

share has fluctuated between

approximately 3–6% of the U.S. equity

options industry.

The Exchange is not

aware of any evidence that a market

share of approximately 3–6% provides

the Exchange with anti-competitive

pricing power. If the Exchange were to

attempt to establish unreasonable

pricing, then no market participant

would join or connect, and existing

market participants would disconnect.

The Exchange believes that the ever-

shifting market share among exchanges

from month to month demonstrates that

market participants can discontinue or

reduce use of certain categories of

products, or shift order flow, in

response to fee changes. In such an

environment, the Exchange must

continually adjust its fees and fee

waivers to remain competitive with

other exchanges and to attract order

flow to the Exchange.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants, or Others

The Exchange initially filed this

proposed fee change on July 1, 2021 and

that proposal was published in the

Federal Register on July 15, 2021.

The

Commission received one comment

letter on the Initial Proposed Fee

Change.

The Exchange withdrew

Initial Proposed Fee Change on October

12, 2021.

The Exchange now responds

to the SIG Letter in this filing.

The SIG letter cites Rule 700(b)(3) of

the Commission’s Rules of Fair Practice

which places ‘‘the burden to

demonstrate that a proposed rule change

is consistent with the Act on the self-

regulatory organization that proposed

the rule change’’ and states that a ‘‘mere

assertion that the proposed rule change

is consistent with those requirements

. . . is not sufficient.’’

The SIG

Letter’s assertion that the Exchange has

not met this burden is without merit,

especially considering the

overwhelming amounts of revenue and

cost information the Exchange included

in the Initial Proposed Fee Change and

this filing.

Until recently, the Exchange has

operated at a net annual loss since it

launched operations in 2017.

stated above, the Exchange believes that

exchanges in setting fees of all types

should meet very high standards of

transparency to demonstrate why each

new fee or fee increase meets the

requirements of the Act that fees be

reasonable, equitably allocated, not

unfairly discriminatory, and not create

an undue burden on competition among

market participants. The Exchange

believes this high standard is especially

important when an exchange imposes

various access fees for market

participants to access an exchange’s

marketplace. The Exchange believes it

has achieved this standard in this filing

and also in the Initial Proposed Fee

Change. Similar justifications for the

proposed fee change included in the

Initial Proposed Fee Change, but also in

this filing, were previously included in

similar fee changes filed by the

Exchange and its affiliates, MIAX

Emerald and MIAX, and SIG did not

submit a comment letter on those

filings.

Those filings were not

suspended by the Commission and

continue to remain in effect. The

justification included in each of the

prior filings was the result of numerous

withdrawals and re-filings of the

proposals to address comments received

from Commission Staff over many

months. The Exchange and its affiliates

have worked diligently with

Commission Staff on ensuring the

justification included in past fee filings

fully supported an assertion that those

proposed fee changes were consistent

with the Act.

The Exchange leveraged

its past work with Commission Staff to

ensure the justification provided herein

and in the Initial Proposed Fee Change

included the same level of detail (or

more) as the prior fee changes that

survived Commission scrutiny. The

Exchange’s detailed disclosures in fee

filings have also been applauded by one

industry group which noted, ‘‘[the

Exchange’s] filings contain significantly

greater information about who is

impacted and how than other filings

that have been permitted to take effect

without suspension.’’

That same

commenter also noted their ‘‘worry that

the Commission’s process for reviewing

and evaluating exchange filings may be

inconsistently applied.’’

Therefore, a finding by the

Commission that the Exchange has not

met its burden to show that the

proposed fee change is consistent with

the Act would be different than the

Commission’s treatment of similar past

filings, would create further ambiguity

regarding the standards exchange fee

changes should satisfy, and is not

warranted here.

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See Securities Exchange Act Release Nos.

92643 (August 11, 2021), 86 FR 46034 (August 17,

2021) (SR–MIAX–2021–35); 92661 (August 13,

2021), 86 FR 46737 (August 19, 2021) (SR–MIAX–

2021–37); 92644 (August 11, 2021), 86 FR 46055

(August 17, 2021) (SR–PEARL–2021–36); 92645

(August 11, 2021), 86 FR 46048 (August 17, 2021)

(SR–EMERALD–2021–23); and 92662 (August 13,

2021), 86 FR 46726 (August 19, 2021) (SR–

EMERALD–2021–25).

See SIG Letter at page 2, supra note 69.

The rates set forth for Full Service MEO Ports

under Section 5(d) of the Exchange’s Fee Schedule

entitle a Member to two (2) such Ports for each

Matching Engine for a single port fee.

Members may be allocated two (2) Full-Service

MEO Ports per Matching Engine and may request

Limited Service MEO Ports for which the Exchange

will assess no fee for the first two Limited Service

MEO Ports requested by the Member. See Section

5(d) of the Exchange’s Fee Schedule.

See SIG Letter at page 3, supra note 69.

Id.

See supra note 82.

In addition, the arguments in the SIG

Letter do not support their claim that

the Exchange has not met its burden to

show the proposed rule change is

consistent with the Act. Prior to, and

after submitting the Initial Proposed Fee

Change, the Exchange solicited feedback

from its Members, including SIG. SIG

relayed their concerns regarding the

proposed change. The Exchange then

sought to work with SIG to address their

concerns and gain a better

understanding of the access/

connectivity/quoting infrastructure of

other exchanges. In response, SIG

provided no substantive suggestions on

how to amend the Initial Proposed to

address their concerns and instead

chose to submit a comment letter. One

could argue that SIG is using the

comment letter process not to raise

legitimate regulatory concerns regarding

the proposal, but to inhibit or delay

proposed fee changes by the Exchange.

The SIG Letter was submitted in

response to six (6) filings submitted by

the Exchange and its affiliates, MIAX

and MIAX Emerald, and is primarily

focused on proposed fee changes

concerning 10Gb ULL connectivity.

With regards to the Initial Proposed Fee

Change, the SIG Letter does not directly

address the proposed fees or lay out

specific arguments as to why the

proposal is not consistent with Section

6(b)(4) of the Act. Rather, it simply

describes the proposed fee change and

flippantly states that its claims

concerning the 10Gb ULL fee change

proposals by the Exchange, and its

affiliates, apply to the Initial Proposed

Fee Change. Nonetheless, the Exchange

submits the below response to the SIG

Letter concerning the Initial Proposed

Fee Change.

General

First, the SIG Letter states that 10Gb

ULL ‘‘lines are critical to Exchange

members to be competitive and to

provide essential protection from

adverse market events’’ (emphasis

added).

The Exchange notes that this

statement is generally not true for Full

Service MEO Ports as those ports are

used primarily for order entry and not

risk protection activities like purging

quotes resting on the MIAX Pearl

Options Book. Full Service MEO Ports

are essentially used for competitive

reasons and Members may choose to

utilize one or two Full Service MEO

Ports

based on their business needs

and desire to attempt to access the

market quicker by using one port that

may have less latency. For instance, a

Member may have just sent numerous

messages and/or orders over one of their

Full Service MEO Ports that are in

queue to be processed. That same

Member then seeks to enter an order to

remove liquidity from the Exchange’s

Book. That Member may choose to send

that order over another of their other

Full Service MEO Ports with less

message and/or order traffic or any of

their optional additional Limit Service

MEO Ports

to ensure that their

liquidity taking order accesses the

Exchange quicker because that port’s

queue is shorter.

The Tiered Pricing Structure for Full

Service MEO Ports Provides for the

Equitable Allocation of Reasonable

Dues, Fees, and Other Charges

The SIG Letter challenges the below

two bases the Exchange set forth in its

Initial Proposed Fee Change and herein

to support the assertion that the

proposal provides for the equitable

allocation of reasonable dues, fees, and

other charges:

•‘‘If the Exchanges were to attempt to

establish unreasonable pricing, then no

market participant would join or

connect to the Exchanges, and existing

market participants would disconnect.

•The fees will not result in excessive

pricing or supra-competitive profit.’’

The Exchange responds to each of

SIG’s challenges in turn below.

If the Exchanges Were To Attempt To

Establish Unreasonable Pricing, Then

No Market Participant Would Join or

Connect to the Exchange, and Existing

Market Participants Would Disconnect

The SIG Letter asserts that the

prospect that a market participant may

withdraw from the Exchange ‘‘if the

participant determines that any of their

fees are too high is in no way a basis for

claiming that a fee increase is

reasonable.’’

The SIG Letter further

asserts that the Exchange’s ‘‘claim that

a market participant would leave the

Exchanges, or any of them, if a given fee

was felt to be too high is an

unsupported claim.’’

The Exchange,

in fact, did support its claim by

providing two examples where members

chose to depart the Exchange, or a

competing exchange, directly due to the

specific fee increases. SIG attempts to

dismiss the examples provided by the

Exchange by implying that the members

may have chosen to depart the

Exchange, or the competing exchange,

for other reasons. In the first example,

R2G explicitly stated in their comment

letter ‘‘[w]hen BOX instituted a $10,000/

month price increase for connectivity;

we had no choice but to terminate

connectivity into them as well as

terminate our market data relationship.

The cost benefit analysis just didn’t

make any sense for us at those new

levels.’’ There is no other way to

interpret R2G’s statement other than

that R2G terminated their access to that

particular exchange because of that

particular non-transaction fee increase.

In the second example, MIAX Emerald,

not SIG, is uniquely positioned to know

why this Member chose to depart MIAX

Emerald as it discussed the issues with

the Member at the time of their

departure and that Member stated it was

related to the imposition of non-

transaction fees. The SIG Letter

correctly asserts that ‘‘[t]here are many

reasons a market participant may join,

remain at, or leave an

exchange....’’

However, the

members discussed in the examples

above terminated their exchange access

because of fees alone.

Further, the argument that a Member’s

ability to terminate access to an

exchange based on fees has been used

not only in this proposal, but also in

other fee filings submitted by the

Exchange and its affiliates to justify

certain non-transaction fees.

The

Exchange discussed this basis with

Commission Staff as it shows that

market participants may choose not to

pay a fee where they view that fee as

excessive. The ability to terminate

access to an exchange shows that if a

market participant believes, based on its

business model, that an exchange

charges too high of a fee for connectivity

and/or other non-transaction fees for its

relevant marketplace, market

participants can choose to drop their

access to such exchange. A Member’s

ability to terminate access to the

Exchange where it deems a fee increase

too excessive is not the only basis, but

one of many, used to support the

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Federal Register / Vol. 86, No. 219 / Wednesday, November 17, 2021 / Notices

See SIG Letter at page 6, supra note 69.

See supra notes 60, 61, 62, and 65 and

accompanying text.

See supra note 83.

See ‘‘Supply chain chaos is already hitting

global growth. And it’s about to get worse’’, by

Holly Ellyatt, CNBC, available at https://

www.cnbc.com/2021/10/18/supply-chain-chaos-is-

hitting-global-growth-and-could-get-worse.html

(October 18, 2021); and ‘‘There will be things that

people can’t get, at Christmas, White House warns’’

by Jarrett Renshaw and Trevor Hunnicutt, Reuters,

available at https://www.reuters.com/world/us/

americans-may-not-get-some-christmas-treats-

white-house-officials-warn-2021-10-12/ (October 12,

2021).

See SIG Letter at page 4, supra note 69.

100

See supra note 83.

Exchange’s justification that the

proposal is consistent with the Act.

The Proposed Fees Will Not Result in

Excessive Pricing or Supra-Competitive

Profit

In the Initial Proposed Fee Change,

the Exchange provided data that the

proposed fee change would not result in

excessive pricing or a supra-competitive

profit. The Exchange outlined its

projected revenues and expense related

to the proposed fee change and

estimated it would generate a 39%

profit margin. The Exchange then

compared its projected profit margin to

the 2019 operating profit margin of

Nasdaq ISE and Nasdaq Phlx, which

were 83% and 67%, respectively. SIG

opined that a using the overall operating

profit margins of Nasdaq ISE and

Nasdaq Phlx is an ‘‘apple-to-oranges’’

comparison because 2019 was ‘‘record

setting year.’’

SIG assumes that

because 2019 was a record setting year

for options volumes, that each options

exchange generated above average

profits without providing any evidence

to support this assumption. Data for

2019 was the most recent data available

at the time the Exchange filed the Initial

Proposed Fee Change on July 1, 2021.

Since that time, data for 2020 became

available and the Exchange discusses

that data for numerous other options

exchanges under Section 3.b. above in

this proposed fee change.

The

Exchange also included in this proposal

additional data from its own 2021

Audited Financial Statements and

projections of future revenues and costs

from the proposed fee change.

The Exchange sought to provide

additional data to support a 39% profit

margin based on the best, most recent

data available. It did not provide this

data to do an ‘‘apple-to-apples’’

comparison, but rather to provide

insight into the profit margins of other

exchanges to put the projected profit

margin here into perspective. While the

Exchange provided a detailed analysis

and disclosure of its projected profit

margins in this proposed fee change and

the Initial Proposed Fee Change, other

exchanges are generally not required to

disclose profit margins on a more

granular, per-product/non-transaction

fee basis within their annual Form 1

filings. The Exchange, therefore, used

the best, most recent data available to

generate percentages of other exchanges’

profit margins. SIG has access to the

same public data as the Exchange used

in making the above projections

regarding Nasdaq ISE and Nasdaq Phlx

and is free to generate its own

assumptions on that data if it believes

the Exchange’s calculations are wrong

or misguided.

As stated above, the Exchange and its

affiliates have worked diligently with

Commission Staff on ensuring the

justification included in past fee filings

fully supported an assertion that those

proposed fee changes were consistent

with the Act.

This work with

Commission Staff included thorough

reviews of the Exchange’s projected

revenues and assignment of internal and

third party expenses. The SIG Letter

simply seeks to ignore the vast amount

of disclosure the Exchange provided

and kick up some sand in the hopes that

raising questions about the analysis

with no support on whether the answers

to those questions would cause the

proposed fee change to be excessive or

result in supra-competitive pricing.

Furthermore, the Exchange is

beginning to see significant inflationary

pressure on capital items that it needs

to purchase to maintain the Exchange’s

technology and systems.

The

Exchange has seen price increases

upwards of 30% on network equipment

due to supply chain shortages. This, in

turn, results in higher overall costs for

ongoing system maintenance, but also to

purchase the items necessary to ensure

ongoing system resiliency, performance,

and determinism. These costs are

expected to continue to go up as the

U.S. economy continues to struggle with

supply chain and inflation related

issues.

The Proposed Tiered Pricing Structure

Is Not Part of a Discriminatory Fee

Structure and Tiered Fee Structures Are

Commonplace Amongst Exchanges

The SIG Letter challenges the below

three bases the Exchange set forth in its

Initial Proposed Fee Change and herein

to support that the proposed tiered

pricing structure provides for the

equitable allocation of reasonable dues,

fees, and other charges:

•‘‘The Exchanges contend that the

proposed structure would encourage

firms to be more economical and

efficient in the number of connections

they purchase. The Exchanges assert

that this will enable them to better

monitor and provide access to their

networks to ensure sufficient capacity

and headroom in the System.

•The Exchanges claim that the

majority of members and non-members

that purchase 10Gb ULL connections

will either save money or pay the same

amount after the tiered-pricing structure

is implemented.

•The Exchanges contend that it

benefits overall competition in the

marketplace to allow relatively new

entrants like the Exchanges to propose

fees that may help these new entrants

recoup their infrastructure

investments.’’

The SIG Letter’s challenges to the first

two assertions above are not applicable

here as a tiered pricing structure for Full

Service MEO Ports is not a new

proposal, but was previously in place

prior to this proposal and the Initial

Proposed Fee Change. The Exchange is

therefore only responding to the SIG

Letter’s challenge to the Exchange’s

third assertion.

SIG Incorrectly Claims That the

Exchange Contends That It Benefits

Overall Competition in the Marketplace

To Allow Relatively New Entrants Like

the Exchange To Propose Fees That May

Help These New Entrants Recoup Their

Infrastructure Investments

Nowhere in this proposal or in the

Initial Proposed Fee change did the

Exchange assert that it benefits

competition to allow a new exchange

entrant to recoup their infrastructure

costs. Rather, the Exchange asserts

above that its ‘‘proposed fees are

reasonable, equitably allocated and not

unfairly discriminatory because the

Exchange, and its affiliates, are still

recouping the initial expenditures from

building out their systems while the

legacy exchanges have already paid for

and built their systems.’’ As stated

above, the Exchange and its affiliates

have worked diligently with

Commission Staff on ensuring the

justification included in past fee filings

fully supported an assertion that those

proposed fee changes were consistent

with the Act.

100

The Exchange leveraged

its past work with Commission Staff to

ensure the justification provided herein

and in the Initial Proposed Fee Change

included the same level of detail as

those past proposed fee changes that

previously survived Commission

scrutiny. Asserting that the proposed

fees are reasonable, equitably allocated

and not unfairly discriminatory because

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101

See supra note 81.

102

15 U.S.C. 78s(b)(3)(A)(ii).

103

17 CFR 240.19b–4(f)(2).

104

17 CFR 200.30–3(a)(12).

15 U.S.C. 78s(b)(1).

17 CFR 240.19b–4.

See Exchange Rule 1.5(p).

the Exchange, and its affiliates, are still

recouping the initial expenditures from

building out their systems is one of

many justifications for the proposed fees

and not a cornerstone of the Exchange’s

proposal.

As stated above, until recently, the

Exchange has operated at a net annual

loss since it launched operations in

2017.

101

This is a result of providing a

low cost alternative to attract order flow

and encourage market participants to

experience the determinism and

resiliency of the Exchange’s trading

systems. To do so, the Exchange chose

to offer some non-transaction related

services for little to no cost. This

resulted in the Exchange forgoing

revenue it could have generated from

assessing higher fees and then use that

revenue to more quickly recover its

initial capital expenditures. Further, a

vast majority of the Exchange’s

Members, if not all, benefited from these

lower fees. The Exchange could have

sought to charge higher fees at the

outset, but that could have served to

discourage participation on the

Exchange. Instead, the Exchange chose

to provide a low cost exchange

alternative to the options industry

which resulted in lower initial revenues

and extending the duration during

which it would recoup its initial capital

expenditures. The SIG Letter chose to

ignore this reality and instead criticize

the Exchange for initially charging

lower fees or providing a moratorium on

certain non-transaction fees to the

benefit of all market participants. The

Exchange is now trying to amend its fee

structure to enable it to continue to

maintain and improve its overall market

and systems while also providing a

highly reliable and deterministic trading

system to the marketplace.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change has become

effective pursuant to Section

19(b)(3)(A)(ii) of the Act,

102

and Rule

19b–4(f)(2)

103

thereunder. At any time

within 60 days of the filing of the

proposed rule change, the Commission

summarily may temporarily suspend

such rule change if it appears to the

Commission that such action is

necessary or appropriate in the public

interest, for the protection of investors,

or otherwise in furtherance of the

purposes of the Act. If the Commission

takes such action, the Commission shall

institute proceedings to determine

whether the proposed rule should be

approved or disapproved.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

Comments may be submitted by any of

the following methods:

Electronic Comments

•Use the Commission’s internet

comment form (http://www.sec.gov/

rules/sro.shtml); or

•Send an email to rule-comments@

sec.gov. Please include File Number SR–

PEARL–2021–53 on the subject line.

Paper Comments

•Send paper comments in triplicate

to Secretary, Securities and Exchange

Commission, 100 F Street NE,

Washington, DC 20549–1090.

All submissions should refer to File

Number SR–PEARL–2021–53. This file

number should be included on the

subject line if email is used. To help the

Commission process and review your

comments more efficiently, please use

only one method. The Commission will

post all comments on the Commission’s

internet website (http://www.sec.gov/

rules/sro.shtml). Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for website viewing and

printing in the Commission’s Public

Reference Room, 100 F Street NE,

Washington, DC 20549, on official

business days between the hours of

10:00 a.m. and 3:00 p.m. Copies of the

filing also will be available for

inspection and copying at the principal

office of the Exchange. All comments

received will be posted without change.

Persons submitting comments are

cautioned that we do not redact or edit

personal identifying information from

comment submissions. You should

submit only information that you wish

to make available publicly. All

submissions should refer to File

Number SR–PEARL–2021–53 and

should be submitted on or before

December 8, 2021.

For the Commission, by the Division of

Trading and Markets, pursuant to delegated

authority.

104

J. Matthew DeLesDernier,

Assistant Secretary.

[FR Doc. 2021–25020 Filed 11–16–21; 8:45 am]

BILLING CODE 8011–01–P

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–93554; File No. SR–MEMX–

2021–16]

Self-Regulatory Organizations; MEMX

LLC; Notice of Filing and Immediate

Effectiveness of a Proposed Rule

Change To Amend the Exchange’s Fee

Schedule

November 10, 2021.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934 (the

‘‘Act’’),

and Rule 19b–4 thereunder,

notice is hereby given that on October

29, 2021, MEMX LLC (‘‘MEMX’’ or the

‘‘Exchange’’) filed with the Securities

and Exchange Commission (the

‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by the Exchange. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange is filing with the

Commission a proposed rule change to

amend the Exchange’s fee schedule

applicable to Members

(the ‘‘Fee

Schedule’’) pursuant to Exchange Rules

15.1(a) and (c). The Exchange proposes

to implement the changes to the Fee

Schedule pursuant to this proposal on

November 1, 2021. The text of the

proposed rule change is provided in

Exhibit 5.

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

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

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