Notice2021-25878
Self-Regulatory Organizations; Miami International Securities Exchange LLC, MIAX PEARL, LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Changes To Amend the Fee Schedules To Adopt a Tiered-Pricing Structure for Certain Connectivity Fees
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 29, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 226 (Monday, November 29, 2021)</title>
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[Federal Register Volume 86, Number 226 (Monday, November 29, 2021)]
[Notices]
[Pages 67758-67763]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25878]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93639; File Nos. SR-MIAX-2021-41, SR-PEARL-2021-45]
Self-Regulatory Organizations; Miami International Securities
Exchange LLC, MIAX PEARL, LLC; Suspension of and Order Instituting
Proceedings To Determine Whether To Approve or Disapprove Proposed Rule
Changes To Amend the Fee Schedules To Adopt a Tiered-Pricing Structure
for Certain Connectivity Fees
November 22, 2021.
I. Introduction
On September 24, 2021, Miami International Securities Exchange LLC,
LLC (``MIAX'') and MIAX PEARL, LLC (``MIAX Pearl'') (collectively, the
``Exchanges'') each filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'' or ``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change (File Numbers SR-MIAX-2021-41 and
SR-PEARL-2021-45) to amend the MIAX Fee Schedule and MIAX Pearl Options
Fee Schedule (collectively, the ``Fee Schedules'') to adopt a tiered
pricing structure for certain connectivity fees. The proposed rule
changes were immediately effective upon filing with the Commission
pursuant to Section 19(b)(3)(A) of the Act.\3\ The proposed rule
changes were published for comment in the Federal Register on October
4, 2021.\4\ Under Section 19(b)(3)(C) of the Act,\5\ the Commission is
hereby: (i) Temporarily suspending File Numbers SR-MIAX-2021-41 and SR-
PEARL-2021-45; and (ii) instituting proceedings to determine whether to
approve or disapprove File Numbers SR-MIAX-2021-41 and SR-PEARL-2021-
45.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take
effect upon filing with the Commission if it is designated by the
exchange as ``establishing or changing a due, fee, or other charge
imposed by the self-regulatory organization on any person, whether
or not the person is a member of the self-regulatory organization.''
15 U.S.C. 78s(b)(3)(A)(ii).
\4\ See Securities Exchange Act Release Nos. 93165 (September
28, 2021), 86 FR 54750 (``MIAX Notice''); 93162 (September 28,
2021), 86 FR 54739 (``Pearl Notice''). For ease of reference,
citations to statements generally applicable to both notices are to
the MIAX Notice. Comments received on the proposed rule changes are
available on the Commission's website at: <a href="https://www.sec.gov/comments/sr-miax-2021-41/srmiax202141.htm">https://www.sec.gov/comments/sr-miax-2021-41/srmiax202141.htm</a> (SR-MIAX-2021-41); <a href="https://www.sec.gov/comments/sr-pearl-2021-45/srpearl202145.htm">https://www.sec.gov/comments/sr-pearl-2021-45/srpearl202145.htm</a> (SR-PEARL-
2021-45).
\5\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Changes
The Exchanges propose to modify their Fee Schedules to adopt a
tiered-pricing structure for 10 gigabit (``Gb'') ultra-low latency
(``ULL'') fiber connections to the Exchanges' primary and secondary
facilities available to both Members \6\ and non-Members. Specifically,
the Exchanges propose to modify the pricing structure for 10Gb ULL
connections from a flat monthly fee of $10,000 per 10Gb ULL connection
to the following fees (collectively, the ``Proposed Access Fees''): \7\
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\6\ The term ``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.
\7\ The Exchanges initially filed the proposed fee changes on
July 30, 2021. See Securities Exchange Act Release Nos. 92643
(August 11, 2021), 86 FR 46034 (August 17, 2021) (SR-MIAX-2021-35),
92644 (August 11, 2021), 86 FR 46055 (August 17, 2021) (SR-PEARL-
2021-36). These filings were withdrawn by the Exchanges and replaced
with the instant filings, with additional information.
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<bullet> $9,000 each for the 1st and 2nd connections;
<bullet> $11,000 each for the 3rd and 4th connections; and
<bullet> $13,000 for each additional connection after the 4th
connection.
These fees are assessed in any month the Member or non-Member is
credentialed to use any of the Exchanges' APIs or market data feeds in
the Exchanges' production environment, pro-rated when a Member or non-
Member makes a change to connectivity by adding or deleting
connections, and assessed in any month during which the Member or non-
Member has established connectivity with the Exchanges' disaster
recovery facility.\8\
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\8\ See MIAX Notice, supra note 4, at 54751.
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The Exchanges state that the Exchanges' MIAX Express Network
Interconnect (``MENI'') can be configured to provide Members and non-
Members of the Exchanges network connectivity to the trading platforms,
[[Page 67759]]
market data systems, test systems, and disaster recovery facilities of
both MIAX and MIAX Pearl, via a single, shared connection. The
Exchanges state that Members and non-Members utilizing the MENI to
connect to the trading platforms, market data systems, test systems,
and disaster recovery facilities of MIAX and MIAX Pearl via a single,
shared connection will be assessed one monthly connectivity fee per
connection, regardless of the trading platforms, market data systems,
test systems, and disaster recovery facilities accessed via such
connection.\9\
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\9\ See id. The Exchanges state that a firm that is a Member of
both MIAX Pearl and MIAX can also allocate connections to the
exchanges at the lowest rates. For example, a firm that purchases
three or four total 10 Gb ULL connections can allocate one or two to
MIAX Pearl and the remaining one or two to MIAX and pay the lowest
rate of $9,000 for each of these connections, due to the shared MENI
infrastructure of MIAX Pearl and MIAX. See id.
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III. Suspension of the Proposed Rule Changes
Pursuant to Section 19(b)(3)(C) of the Act,\10\ at any time within
60 days of the date of filing of an immediately effective proposed rule
change pursuant to Section 19(b)(1) of the Act,\11\ the Commission
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') if it appears to the Commission that
such action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Act. As discussed below, the Commission believes a temporary
suspension of the proposed rule changes is necessary and appropriate to
allow for additional analysis of the proposed rule changes' consistency
with the Act and the rules thereunder.
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\10\ 15 U.S.C. 78s(b)(3)(C).
\11\ 15 U.S.C. 78s(b)(1).
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The Exchanges state that the tiered-pricing structure is
reasonable, equitably allocated, and not unfairly discriminatory
because it will encourage Members and non-Members to be more efficient
and economical when determining how to connect to the Exchanges, and
also enable the Exchanges to better monitor and provide access to the
Exchanges' network to ensure sufficient capacity and headroom in the
System.\12\ The Exchanges also state 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.\13\ The Exchanges further state that firms that primarily
route orders for best executions generally only need a limited number
of connections to fulfill that obligation and connectivity costs will
likely to be lower for these firms, while for firms that engaged in
advanced trading strategies that typically require multiple connections
will generate higher costs by utilizing more of the Exchanges'
resources.\14\
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\12\ See MIAX Notice, supra note 4, at 54761-62. The term
``System'' means the automated trading system used by the Exchange
for the trading of securities. See Exchange Rule 100.
\13\ See MIAX Notice, supra note 4, at 54752, 54759. The
Exchanges state that they initially filed the proposed fee changes
on July 30, 2021 (SR-MIAX-2021-35 and SR-PEARL-2021-36) and, after
the effective date of SR-MIAX-2021-35 and SR-PEARL-2021-36 on August
1, 2021, approximately 80% of the firms that purchased at least one
10Gb ULL connection experienced a decrease in their monthly
connectivity fees, while approximately 20% of firms experienced an
increase in their monthly connectivity fees as a result of the
proposed tiered-pricing structure when compared to the flat monthly
fee structure. See id. at 54752. The Exchanges also state that no
Member or non-Member has altered its use of 10Gb ULL connectivity
since the proposed fees went into effect on August 1, 2021.
\14\ See id.
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In further support of the proposed fee changes, the Exchanges argue
principally that the fees for 10Gb ULL connections are constrained by
competitive forces, and that this is supported by their revenue and
cost analysis. The Exchanges state that they operate 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 and the Exchanges must continually adjust their fees for
services and products, and in addition to order flow, to remain
competitive with other exchanges.\15\ The Exchanges state that they are
not aware of any evidence that a market share of approximately 5-6%
provides the Exchanges with anti-competitive pricing power, and that
market participants may look to connect to the Exchanges via cheaper
alternatives or choose to disconnect from the Exchanges or reduce the
number of connections to the Exchanges as a means to reduce costs.\16\
The Exchanges state that market participants can and do drop their
access to exchanges based on non-transaction fee pricing.\17\ The
Exchanges also state that there is no regulatory requirement that any
market participant connect to any one options exchange, or connect at a
particular connection speed or act in a particular capacity on the
Exchanges, and that the Exchanges are unaware of any one options
exchange whose membership includes all registered broker-dealers.\18\
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\15\ See id. at 54751-52.
\16\ See id. at 54753. The Exchanges also note that non-Member
third-parties, such as service bureaus and extranets, resell the
Exchanges' connectivity, which is another viable alternative for
market participants to trade on the Exchanges. The Exchanges note
that they receive no connectivity revenue when connectivity is
resold, which the Exchanges believe creates and fosters a
competitive environment and subjects the Exchanges to competitive
forces in pricing their connectivity and access fees. See id. at
54759.
\17\ See id. at 54754.
\18\ See id. at 54759.
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The Exchanges also state that the proposed fees are reasonable and
appropriate to allow the Exchanges to offset expenses the Exchanges
have and will incur in relation to providing the Proposed Access Fees
and provide an analysis of their revenues, costs, and profitability
associated with these fees.\19\ The Exchanges state that this analysis
reflects an extensive cost review in which the Exchanges analyzed every
expense item in the Exchanges' general expense ledgers 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.\20\ The Exchanges state
that this analysis shows the fee increases will not result in excessive
pricing or supra-competitive profits when compared to MIAX's and MIAX
Pearl's annual expense associated with providing the 10Gb ULL
connections versus the annual revenue for the 10Gb ULL connections.\21\
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\19\ See id. at 54754-57.
\20\ See id. at 54752. The Exchanges also state that no expense
amount is allocated twice. Id. at 54755, 54757. Expenses associated
with the MIAX Pearl equities market are accounted for separately and
are not within the scope of this filing. See id. at 54754.
\21\ See id. at 54757.
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The Exchanges state that, for 2021, the total annual expense for
providing the access services associated with the Proposed Access Fees
for MIAX and MIAX Pearl is projected to be approximately $15.9
million.\22\ The $15.9 million in projected total annual expense is
comprised of the following, all of which the Exchanges state are
directly related to the access services associated with the Proposed
Access Fees: (1) Third-party expense, relating to fees paid by the
Exchanges to third-parties for certain products and services; and (2)
internal expense, relating to the internal costs of the Exchanges to
provide the services associated with the Proposed Access Fees. The
Exchanges state that the $15.9 million in projected total annual
expense is directly related to the access services associated with the
Proposed Access Fees, and not any
[[Page 67760]]
other product or service offered by the Exchanges.
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\22\ See id. at 54754.
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The Exchanges state that the total third-party expense, relating to
fees paid by MIAX and MIAX Pearl to third-parties for certain products
and services for the Exchanges to be able to provide the access
services associated with the Proposed Access Fees is projected to be
$3.9 million for 2021.\23\ The Exchanges represent that they determined
whether third-party expenses related to the access services associated
with the Proposed Access Fees, and, if such expense did so relate,
determined what portion (or percentage) of such expense represents the
cost to the Exchanges to provide access services associated with the
Proposed Access Fees. This includes allocating a portion of fees paid
to: (1) Equinix, for data center services (approximately 62% of the
Exchanges' total applicable Equinix expense); (2) Zayo Group Holdings,
Inc. for network services (approximately 62%); (3) Secure Financial
Transaction Infrastructure and various other services providers
(approximately 75%); \24\ and (4) various other hardware and software
providers (approximately 51%).
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\23\ See id. at 54755.
\24\ The Exchanges state that on October 22, 2019, the Exchanges
were notified by Secure Financial Transaction Infrastructure that it
was raising its fees charged to the Exchanges by approximately 11%,
without being required to make a rule filing with the Commission
pursuant to Section 19(b)(1) of the Act and Rule 19b-4 thereunder.
See id. at 54755 n.29; see also 15 U.S.C. 78s(b)(1) and 17 CFR
240.19b-4.
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In addition, the Exchanges state that the total internal expense,
relating to the internal costs of the Exchanges to provide the access
services associated with the Proposed Access Fees, is projected to be
approximately $12 million for 2021.\25\ The Exchanges represent that:
(1) The Exchanges' employee compensation and benefits expense relating
to providing the access services associated with the Proposed Access
Fees is projected to be approximately $6.1 million, which is a portion
of the total projected expense of $12.6 million for MIAX and $9.2
million for MIAX Pearl for employee compensation and benefits; (2) the
Exchanges' depreciation and amortization expense relating to providing
the access services associated with the Proposed Access Fees is
projected to be $5.3 million, which is a portion of the total projected
expense of $4.8 million for MIAX and $2.9 million for MIAX Pearl for
depreciation and amortization; and (3) the Exchanges' occupancy expense
relating to providing the access services associated with the Proposed
Access Fees is projected to be $0.6 million, which is a portion of the
Exchanges' total projected expense of $0.6 million for MIAX and $0.5
million for MIAX Pearl for occupancy.
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\25\ See MIAX Notice, supra note 4, at 54756.
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The Exchanges state that this cost and revenue analysis shows that
the proposed rule changes will not result in excessive pricing or
supra-competitive profit.\26\ The Exchanges project that, on a fully-
annualized basis, the Proposed Access Fees will have an expense of
approximately $15.9 million per annum and a projected revenue of $22
million per year, and including projected revenue for providing network
connectivity for all connectivity alternatives to be approximately
$22.8 million per annum, resulting in a projected profit margin of 30%
inclusive of the Proposed Access Fees and all other connectivity
alternatives ($22.8 million in total projected connectivity revenue
minus $15.9 million in projected expense = $6.9 million profit per
year). The Exchanges state that this profit margin does not take into
account the cost of capital expenditures that MIAX and MIAX Pearl
historically spent or are projected to spend each year going forward.
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\26\ See id. at 54757.
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The Exchanges state that the proposed fees for 10Gb ULL connections
is equitable and reasonable because the proposed highest tier is still
less than fees charged for similar connectivity provided by other
options exchanges.\27\ The Exchanges also state that their projected
revenue from access fees is less than, or similar to, the access fee
revenues generated by access fees charged by other U.S. options
exchanges based on the 2020 audited financial statements within their
Form 1 filings.\28\ The Exchanges also believe that their 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.\29\ The Exchanges state that
this incremental increase in revenue generated from the 30% profit
margin on connectivity will allow the Exchanges to further invest in
their system architecture and matching engine functionality to the
benefit of all market participants.\30\
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\27\ See id. at 54753. The Exchanges note that higher
connectivity fees for competing exchanges have been in place for
years (over 8 years in some cases), which allowed these exchanges to
derive significantly more revenue from their access fees. See id. at
54753-54. The Exchanges state that the Exchanges and their
affiliates have historically set their fees purposefully low in
order to attract business and market share, and that it benefits
overall competition in the marketplace to allow relatively new
entrants like the Exchanges and their affiliates to propose fees
that may help these new entrants recoup their substantial investment
in building out costly infrastructure. See id. at 54758-59.
\28\ See id. at 54758.
\29\ See id.
\30\ See id.
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The Exchanges state that the proposed fees are equitably allocated,
not unfairly discriminatory, and do not impose an unnecessary or
inappropriate burden on competition because the Proposed Access Fees do
not favor certain categories of market participants in a manner that
would impose a burden on competition because the allocation reflects
the network resources consumed by the various usage of market
participants, with the lowest bandwidth consuming members paying the
least, and highest bandwidth consuming members paying the most,
particularly since higher bandwidth consumption translates to higher
costs to the Exchanges; \31\ options market participants are not forced
to connect to all options exchanges; \32\ and options market
participants may choose alternative methods of connecting to the
Exchanges, including routing through another participant or market
center accessing the Exchanges indirectly.\33\
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\31\ See id. at 54759.
\32\ See id.
\33\ See id.
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The Commission received two comment letters from one commenter that
opposes the proposed rule changes.\34\ This commenter states that the
Exchanges have not sufficiently demonstrated their proposed fees'
consistency with the Act or addressed previous concerns with the
proposed fees raised by the same commenter.\35\ Specifically, this
commenter argues that there are no reasonable substitutes for the
Exchanges' 10Gb ULL connectivity lines, particularly for market makers
whose business models require them to subscribe to direct connectivity
to the Exchanges in the highest proposed pricing tier.\36\ The
commenter further
[[Page 67761]]
argues that the fact that no member or non-member has altered its use
of 10Gb ULL connectivity since the fee changes went into effect serves
as further support of its claim that there are no reasonable
alternatives to the service.\37\ This commenter also argues that the
ability for a member to withdraw from an exchange should not support
the reasonableness of any individual proposed fee, as a member would
incur significant costs in withdrawing from an exchange in the form of
lost infrastructure investments, the cost of withdrawal itself, and
other opportunity costs.\38\ This commenter further objects that the
Exchanges have not provided sufficient quantitative support for their
revenues, costs, and profitability under the current and proposed fees
to support an analysis that the proposed fees and the Exchanges'
profitability are reasonable.\39\ Moreover, the commenter argues that
the Exchanges' comparison of their projected access fee profit margins
to the overall profit margins of competing exchanges is insufficient as
it does not appropriately compare the individual components of these
other exchange fees to those of the Exchanges.\40\ The commenter also
suggests that any comparisons made by the Exchanges to the revenues and
margins of other exchanges are inapt because they do not account for
the circumstances under which other exchanges established their fees,
including, for example, whether the services are equivalent or the
costs to provide them are similar.\41\ Finally, this commenter claims
that the proposed tiers in the new fee structure are unfairly
discriminatory because the Exchanges have not provided any cost
breakdown to support the claim that the use of multiple connections
creates higher costs for the Exchanges.\42\ Instead, the commenter
argues that market participants who purchase more units of 10Gb ULL
connections use more exchange bandwidth simply due to the fact that
they have purchased more units, and that this does not justify the
proposal to charge a higher rate per unit, which the commenter claims
is unfairly discriminatory towards market maker subscribers.\43\
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\34\ See letters from Richard J. McDonald, Susquehanna
International Group, LLP, to Vanessa Countryman, Secretary,
Commission, dated October 1, 2021 (``First SIG Letter'') and October
26, 2021 (``Second SIG Letter'').
\35\ See Second SIG Letter, at 2. In the First SIG Letter the
commenter requested that the Commission suspend the proposals and
institute proceedings to determine whether to approve or disapprove
the proposals on the basis that the proposals represent the same fee
changes previously proposed by the Exchanges for which the commenter
expressed concerns. See also letter from Richard J. McDonald,
Susquehanna International Group, LLP, to Vanessa Countryman,
Secretary, Commission, dated September 7, 2021, available at <a href="https://www.sec.gov/comments/sr-miax-2021-35/srmiax202135-9208444-249989.pdf">https://www.sec.gov/comments/sr-miax-2021-35/srmiax202135-9208444-249989.pdf</a> (comment letter submitted to File Nos. SR-MIAX-2021-35,
SR-MIAX-2021-37, SR-PEARL-2021-33, SR-PEARL-2021-36, SR-EMERALD-
2021-23, and SR-EMERALD-2021-25, and expressing similar concerns to
those described herein).
\36\ See Second SIG Letter, supra note 36, at 2-3.
\37\ See id. at 3.
\38\ See id.
\39\ See id. at 4. The commenter further argues that the
Exchanges have not sufficiently justified the profit margins they
would be accruing with the proposed fees by, for example, explaining
specific technological undertakings the Exchanges expect to fund
with the revenue from the new fees. See id.
\40\ See id. at 4-5.
\41\ See id.
\42\ See id. at 5.
\43\ See id. at 6.
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Another commenter opposing the proposed rule changes states that
the Exchanges have not met their burden of demonstrating that the
proposed fees are consistent with the standards under the Act.\44\ This
commenter states that the Exchanges' argument that competition for
order flow constrains pricing for products and services exclusively
offered by the Exchanges does not demonstrate that the fees are
reasonable.\45\ This commenter also disagrees with the Exchanges'
statement that they must continually adjust the fees for these services
as a result of competition from other markets, arguing that this does
not reflect marketplace reality.\46\ This commenter also states that
the Exchanges have failed to demonstrate that the proposed fees are
equitably allocated and not unfairly discriminatory, claiming that the
proposed fee changes directly impact market makers and the burden of
the fee increases fall predominantly on market makers operating on the
Exchanges because 10Gb ULL connections are an essential technology tool
for market makers.\47\ The commenter states that the Exchanges offer no
concrete support for their arguments that the tiered pricing structure
would encourage firms to be more economical and efficient in the number
of connections they purchase, allowing the Exchanges to better monitor
and provide access to their networks to ensure that they have
sufficient capacity and headroom in their systems.\48\ This commenter
also states that the Exchanges provide no support for their position
that the use of multiple 10Gb ULL connections generates higher costs
for the Exchanges, positing that it is likely the Exchanges have fixed
costs associated with providing connections and any additional
connections purchased by users will result in greater Exchange
profits.\49\ The commenter also states that the Exchanges have provided
no public information on how they derived the cost amounts they
determined to allocate to the products and services subject to the
proposed fee changes nor any meaningful baseline information regarding
the Exchanges' overall costs.\50\ This commenter believes that the
Exchanges have withdrawn and refiled essentially identical
proposals,\51\ subverting proper consideration of the proposed fee
changes under the process set forth in the Act.\52\
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\44\ See letter from Ellen Green, Managing Director, Equity and
Options Market Structure, Securities Industry and Financial Markets
Association, to Vanessa Countryman, Secretary, Commission, dated
November 16, 2021 (``SIFMA Letter'').
\45\ See id. at 3. This commenter asserts that the proposals are
similar to proprietary market data products offered by the
Exchanges, which the commenter states are unique to the Exchanges
and market participants cannot obtain anywhere else. Id.
\46\ See id. at 4.
\47\ See id. at 4-5. The commenter asserts that without high
speed access provided through 10Gb ULL connections, market makers
could be exposed to tremendous risk if their quotes become ``stale''
due to price movements in underlying securities. See id. at 4.
\48\ See id. at 4. The commenter also states that the Exchanges
fail to provide any discussion of why their current capacity needs
are constrained under the current pricing structure.
\49\ See id. at 5.
\50\ See id. The commenter believes that such information is
needed to allow commenters to judge whether the allocations are
supportable. Id. This commenter also believes that the Exchanges'
discussion of profit margins are ``high-level and conclusory,'' and
fail to provide sufficient detail to understand whether or not the
fees are reasonable. Id.
\51\ See supra note 8.
\52\ See SIFMA Letter, supra note 46, at 5-6.
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A different commenter, while not expressing support or opposition
for the specific proposed fee changes, applauds the Exchanges for the
enhanced disclosure they have provided with respect to their proposed
fee changes as compared to the information in prior rule filings by
other exchanges proposing similar types of market data or connectivity
fees.\53\ This commenter states that the proposed fee changes would
``materially lower costs for many users, while increasing the costs for
some of [the Exchanges'] heaviest of users,'' noting that when these
fee filing proposals were withdrawn and refiled, they contained
``significantly greater information about who is impacted and how than
other filings that have been permitted to take effect without
suspension.'' \54\
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\53\ See letter from Tyler Gellasch, Executive Director, Healthy
Markets Association, to Gary Gensler, Chair, Commission, dated
October 29, 2021, at 17. This commenter also petitioned the
Commission for rulemaking regarding the process for reviewing self-
regulatory organization fee filings.
\54\ See id. The commenter highlights that the Exchanges'
proposals detailed both the projected revenues generated from the
proposed fees by user class as well as the percentage of subscribers
whose fees increased or decreased as a result of the proposed
changes. See id.
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When exchanges file their proposed rule changes with the
Commission, including fee filings like the Exchanges' present proposal,
they are required to provide a statement supporting the proposal's
basis under the Act and the rules and regulations thereunder applicable
to the exchange.\55\ The instructions to Form 19b-4, on which exchanges
file their proposed rule changes, specify that such statement
[[Page 67762]]
``should be sufficiently detailed and specific to support a finding
that the proposed rule change is consistent with [those]
requirements.'' \56\
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\55\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory
Organization's Statement of the Purpose of, and Statutory Basis for,
the Proposed Rule Change'').
\56\ Id.
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Section 6 of the Act, including Sections 6(b)(4), (5), and (8),
require the rules of an exchange to (1) provide for the equitable
allocation of reasonable fees among members, issuers, and other persons
using the exchange's facilities; \57\ (2) perfect the mechanism of a
free and open market and a national market system, protect investors
and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers; \58\
and (3) not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\59\
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\57\ 15 U.S.C. 78f(b)(4).
\58\ 15 U.S.C. 78f(b)(5).
\59\ 15 U.S.C. 78f(b)(8).
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In temporarily suspending the Exchanges' fee changes, the
Commission intends to further consider whether the proposals to modify
fees for certain connectivity options and implement a tiered pricing
fee structure is consistent with the statutory requirements applicable
to a national securities exchange under the Act. In particular, the
Commission will consider whether the proposed rule changes satisfy the
standards under the Act and the rules thereunder requiring, among other
things, that an exchange's rules provide for the equitable allocation
of reasonable fees among members, issuers, and other persons using its
facilities; not permit unfair discrimination between customers,
issuers, brokers or dealers; and do not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act.\60\
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\60\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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Therefore, the Commission finds that it is appropriate in the
public interest, for the protection of investors, and otherwise in
furtherance of the purposes of the Act, to temporarily suspend the
proposed rule changes.\61\
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\61\ For purposes of temporarily suspending the proposed rule
changes, the Commission has considered the proposed rules' impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Changes
In addition to temporarily suspending the proposals, the Commission
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C)
\62\ and 19(b)(2)(B) of the Act \63\ to determine whether the proposed
rule changes should be approved or disapproved. Institution of
proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved. Rather, the
Commission seeks and encourages interested persons to provide
additional comment on the proposed rule changes to inform the
Commission's analysis of whether to approve or disapprove the proposed
rule changes.
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\62\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily
suspends a proposed rule change, Section 19(b)(3)(C) of the Act
requires that the Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule change should be
approved or disapproved.
\63\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\64\ the Commission is
providing notice of the grounds for possible disapproval under
consideration:
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\64\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
See id. The time for conclusion of the proceedings may be extended
for up to 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding, or if the
exchange consents to the longer period. See id.
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<bullet> Whether the Exchanges have demonstrated how the proposals
are consistent with Section 6(b)(4) of the Act, which requires that the
rules of a national securities exchange ``provide for the equitable
allocation of reasonable dues, fees, and other charges among its
members and issuers and other persons using its facilities;'' \65\
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\65\ 15 U.S.C. 78f(b)(4).
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<bullet> Whether the Exchanges have demonstrated how the proposals
are consistent with Section 6(b)(5) of the Act, which requires, among
other things, that the rules of a national securities exchange be
``designed to perfect the operation of a free and open market and a
national market system'' and ``protect investors and the public
interest,'' and not be ``designed to permit unfair discrimination
between customers, issuers, brokers, or dealers;'' \66\ and
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\66\ 15 U.S.C. 78f(b)(5).
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<bullet> Whether the Exchanges have demonstrated how the proposals
are consistent with Section 6(b)(8) of the Act, which requires that the
rules of a national securities exchange ``not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of [the Act].'' \67\
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\67\ 15 U.S.C. 78f(b)(8).
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As discussed in Section III above, the Exchanges makes various
arguments in support of the proposals, and the Commission received
comment letters disputing the Exchanges' arguments and expressing
concerns regarding the proposals.\68\ In particular, two commenters
argue that the Exchanges did not provide sufficient information to
establish that the proposed fees are consistent with the Act and the
rules thereunder.\69\ The Commission believes that there are questions
as to whether the Exchanges have provided sufficient information to
demonstrate that the proposed 10Gb ULL connectivity fees are consistent
with the Act and the rules thereunder.
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\68\ See First SIG Letter and Second SIG Letter, supra note 36;
SIFMA Letter, supra note 46.
\69\ See id.
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations issued thereunder . . . is on the
[SRO] that proposed the rule change.'' \70\ The description of a
proposed rule change, its purpose and operation, its effect, and a
legal analysis of its consistency with applicable requirements must all
be sufficiently detailed and specific to support an affirmative
Commission finding,\71\ and any failure of an SRO to provide this
information may result in the Commission not having a sufficient basis
to make an affirmative finding that a proposed rule change is
consistent with the Act and the applicable rules and regulations.\72\
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\70\ 17 CFR 201.700(b)(3).
\71\ See id.
\72\ See id.
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The Commission is instituting proceedings to allow for additional
consideration and comment on the issues raised herein, including as to
whether the proposals are consistent with the Act, specifically, with
its requirements that the rules of a national securities exchange
provide for the equitable allocation of reasonable dues, fees, and
other charges among its members, issuers, and other persons using its
facilities; are designed to perfect the operation of a free and open
market and a national market system, and to protect investors and the
public interest; are not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers; and do not impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act; \73\ as well as any other
provision of the Act, or the rules and regulations thereunder.
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\73\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments
The Commission requests written views, data, and arguments with
respect
[[Page 67763]]
to the concerns identified above as well as any other relevant
concerns. Such comments should be submitted by December 20, 2021.
Rebuttal comments should be submitted by January 3, 2022. Although
there do not appear to be any issues relevant to approval or
disapproval that would be facilitated by an oral presentation of views,
data, and arguments, the Commission will consider, pursuant to Rule
19b-4, any request for an opportunity to make an oral presentation.\74\
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\74\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by an SRO. See Securities
Acts Amendments of 1975, Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
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The Commission asks that commenters address the sufficiency and
merit of the Exchanges' statements in support of the proposals, in
addition to any other comments they may wish to submit about the
proposed rule changes.
Interested persons are invited to submit written data, views, and
arguments concerning the proposed rule changes, including whether the
proposals are consistent with the Act. Comments may be submitted by any
of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#542621383179373b3939313a2027142731377a333b22"><span class="__cf_email__" data-cfemail="156760797038767a7878707b6166556670763b727a63">[email protected]</span></a>. Please include
File Nos. SR-MIAX-2021-41 and SR-PEARL-2021-45 on the subject line.
Paper Comments
<bullet> 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 Numbers SR-MIAX-2021-41 and SR-
PEARL-2021-45. These file numbers 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent
amendments, all written statements with respect to the proposed rule
changes that are filed with the Commission, and all written
communications relating to the proposed rule changes 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 filings also will be available for inspection and copying at the
principal office of each 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 Numbers SR-
MIAX-2021-41 and SR-PEARL-2021-45 and should be submitted on or before
December 20, 2021. Rebuttal comments should be submitted by January 3,
2022.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(3)(C) of the
Act,\75\ that File Numbers SR-MIAX-2021-41 and SR-PEARL-2021-45 be, and
hereby are, temporarily suspended. In addition, the Commission is
instituting proceedings to determine whether the proposed rule changes
should be approved or disapproved.
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\75\ 15 U.S.C. 78s(b)(3)(C).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\76\
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\76\ 17 CFR 200.30-3(a)(57) and (58).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25878 Filed 11-26-21; 8:45 am]
BILLING CODE 8011-01-P
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