Notice2021-25879
Self-Regulatory Organizations; Miami International Securities Exchange, LLC, MIAX Emerald, LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Changes To Amend Fee Schedules To Adopt Tiered-Pricing Structures for Additional Limited Service MIAX and MIAX Emerald Express Interface Ports
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 67745-67750]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25879]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93640; File Nos. SR-MIAX-2021-43, SR-EMERALD-2021-31]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC, MIAX Emerald, LLC; Suspension of and Order Instituting
Proceedings To Determine Whether To Approve or Disapprove Proposed Rule
Changes To Amend Fee Schedules To Adopt Tiered-Pricing Structures for
Additional Limited Service MIAX and MIAX Emerald Express Interface
Ports
November 22, 2021.
I. Introduction
On September 28, 2021, Miami International Securities Exchange, LLC
(``MIAX'') and MIAX Emerald, LLC (``MIAX Emerald'') (each an
``Exchange''; 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 (``Act''),\1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to adopt a tiered-
pricing structure for additional limited service express interface
ports. Each proposed rule change was 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 5, 2021.\4\ Pursuant to Section 19(b)(3)(C) of the
Act,\5\ the Commission is hereby: (1) Temporarily suspending File Nos.
SR-MIAX-2021-43 and SR-EMERALD-2021-31; and (2) instituting proceedings
to determine whether to approve or disapprove File Nos. SR-MIAX-2021-43
and SR-EMERALD-2021-31.
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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. 93185 (September
29, 2021), 86 FR 55093 (October 5, 2021) (SR-MIAX-2021-43) (``MIAX
Notice''); 93188 (September 29, 2021), 86 FR 55052 (October 5, 2021)
(SR-EMERALD-2021-31) (``MIAX Emerald 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-2021-43/srmiax202143.htm">https://www.sec.gov/comments/sr-miax-2021-43/srmiax202143.htm</a> (SR-MIAX-2021-
43); <a href="https://www.sec.gov/comments/sr-emerald-2021-31/sremerald202131.htm">https://www.sec.gov/comments/sr-emerald-2021-31/sremerald202131.htm</a> (SR-EMERALD-2021-31).
\5\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Changes
Limited Service MIAX Express Interface Ports and Limited Service
MIAX Emerald Express Interface Ports (collectively, ``Limited Service
MEI Ports'') provide Market Makers \6\ with the ability to send eQuotes
and quote purge messages, and are also capable of receiving
administrative information.\7\ Currently, each Exchange allocates two
Limited Service MEI Ports, free of charge, per matching engine to which
a Market Maker connects. Market Makers may request additional Limited
Service MEI Ports for each matching engine to which they connect for an
additional monthly fee for each such additional port. Prior to the
proposed rule changes, each Exchange charged a flat $100 monthly fee
for each such additional port. Each Exchange has proposed to adopt a
tiered-pricing structure.\8\ For both MIAX and MIAX Emerald, the first
and second Limited Service MEI Ports for each matching engine would
remain free of charge. For MIAX, the additional Limited Service MEI
Port fees for each matching engine would increase from $100 to: (i)
$150 for the third and fourth Limited Service MEI Ports; (ii) $200 for
the fifth and sixth Limited Service MEI Ports; and (iii) $250 for the
seventh or more Limited Service MEI Ports.\9\ For MIAX Emerald, the
additional Limited Service MEI Port fees for each matching engine would
increase from $100 to: (i) $200 for the third and fourth Limited
Service MEI Ports; (ii) $300 for the fifth and sixth Limited Service
MEI Ports; and (iii) $400 for the seventh to fourteenth Limited Service
MEI Ports.\10\
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\6\ Defined at MIAX Rule 100 and MIAX Emerald Rule 100.
\7\ See, e.g., MIAX Notice, supra note 4, at 55093 n.10.
\8\ The Exchanges initially filed the proposed fee changes on
August 2, 2021. See Securities Exchange Act Release Nos. 92661
(August 13, 2021), 86 FR 46737 (August 19, 2021) (SR-MIAX-2021-37),
92662 (August 13, 2021), 86 FR 46726 (August 19, 2021) (SR-EMERALD-
2021-25). These filings were withdrawn and replaced with the instant
filings, with additional information. See also Securities Exchange
Act Release No. 91857 (May 12, 2021), 86 FR 26973 (May 18, 2021)
(MIAX-2021-19) (allowing purchase of any number of additional
Limited Service MEI Ports and stating that, at a continued monthly
fee of $100 for each additional port, the Exchange anticipates
generating an annual loss from the provision).
\9\ See MIAX Notice, supra note 4, at 55094.
\10\ See MIAX Emerald Notice, supra note 4, at 55053. The MIAX
Emerald Fee Schedule states that Market Makers are limited to twelve
additional Limited Service MEI Ports per matching engine, for a
total of fourteen per matching engine. See MIAX Emerald Fee Schedule
5.d.ii.
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[[Page 67746]]
III. Suspension of the Proposed Rule Changes
Pursuant to Section 19(b)(3)(C) of the Act,\11\ 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,\12\ 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 described 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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\11\ 15 U.S.C. 78s(b)(3)(C).
\12\ 15 U.S.C. 78s(b)(1).
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In support of the proposed tiered-pricing structure and associated
fee increases, the Exchanges argue that they operate in a highly
competitive market \13\ and their ability to price access and ports is
constrained by competition among exchanges and third parties.\14\ MIAX
states that it has a market share of only 5.8%, and MIAX Emerald states
that it has a market share of only 4.99%, of the U.S. equity options
industry as of September 2021.\15\ The Exchanges also state that there
are 15 other U.S options exchanges which they must consider in their
pricing discipline in order to compete for market participants.\16\ As
evidence for their arguments, the Exchanges provide port fees for
competing exchanges which, according to the Exchanges, demonstrate that
the proposed tiered-pricing structure and proposed fees for additional
Limited Service MEI Ports are less than or similar to fees charged by
competing options exchanges for similar access on those exchanges.\17\
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\13\ See, e.g., MIAX Notice, supra note 4, at 55094.
\14\ See, e.g., id. at 55101.
\15\ See MIAX Notice, supra note 4, at 55095; MIAX Emerald
Notice, supra note 4, at 55054-55.
\16\ See, e.g., MIAX Notice, supra note 4, at 55101.
\17\ See, e.g., id. at 55095.
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In further support of their arguments that competitive forces
constrain the proposed tiered-pricing structure and the associated fee
increases, the Exchanges state that the use of such additional Limited
Service MEI Ports is entirely voluntary; \18\ and that there is no
regulatory requirement that any market participant access any one
options exchange, use more than the two free Limited Service MEI Ports
that the Exchanges provide per matching engine, access the Exchanges in
a particular capacity, or trade any particular product offered on the
Exchanges.\19\ Each Exchange further states that no options market
participant is required by rule, regulation, or competitive forces to
be a Member of its Exchange; \20\ and that it is not aware of any
reason why market participants could not simply drop their access (or
not initially access an exchange) if an exchange were to establish non-
transaction fees that did not make business or economic sense for such
market participants.\21\ The Exchanges believe this is illustrated by
the fact that market participants can and do drop their access to
exchanges based on non-transaction fee pricing \22\ and that they are
unaware of any one options exchange whose membership includes every
registered broker-dealer.\23\
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\18\ See, e.g., id. at 55101.
\19\ See, e.g., id. at 55100.
\20\ See, e.g., id. at 55096.
\21\ See, e.g., id.
\22\ See, e.g., id.
\23\ See, e.g., id. at 55100-101.
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The Exchanges also state that the proposed fee increases for
additional Limited Service MEI Ports (which they reference as
``Proposed Access Fees'') are intended to recover the Exchanges' costs
of providing access to their systems \24\ and are a reasonable attempt
to offset a portion of the costs associated with providing access to
their network infrastructure.\25\ The Exchanges provide an analysis of
their revenues, costs, and profitability associated with the Proposed
Access Fees. The Exchanges state that this analysis reflects an
extensive cost review in which the Exchanges analyzed nearly 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 associated with the
Proposed Access Fees.\26\
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\24\ See, e.g., id. at 55099.
\25\ See, e.g., id. at 55096.
\26\ See, e.g., id. Each Exchange also states that no expense
amount is allocated twice; and the expenses in each Exchange's
analysis only cover its own options market, not those of any
affiliate. See, e.g., id. at 55097.
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For 2021, the total annual expense for providing the access
services associated with the Proposed Access Fees is projected by the
Exchanges to be approximately $1.32 million for MIAX and $0.88 million
for MIAX Emerald.\27\ As described in more detail in the MIAX Notice
and MIAX Emerald Notice, the total annual expense for each Exchange is
comprised of the following, all of which the Exchanges state are
directly related to the access services associated with the Proposed
Access Fees: \28\
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\27\ See MIAX Notice, supra note 4, at 55096; MIAX Emerald
Notice, supra note 4, at 55056.
\28\ See, e.g., MIAX Notice, supra note 4, at 55096-99. The
Exchanges clarify that the projected total annual expense includes
costs related to all Limited Service MEI Ports, including the two
Limited Service MEI Ports that Market Makers receive for free. See,
e.g., id. at 55099.
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<bullet> Third-party expense, relating to fees paid by the
Exchanges to third-parties for certain products and services. This
included allocating a portion of fees paid to: (1) Equinix for data
center services; (2) Zayo Group Holdings, Inc. for network services;
(3) Secure Financial Transaction Infrastructure, which supports
connectivity and feeds; (4) various other service providers for
content, connectivity, and infrastructure services; and (5) various
other hardware and software providers; and
<bullet> internal expense, relating to the internal costs of the
Exchanges to provide the access services associated with the Proposed
Access Fees. This included allocating a portion of the Exchanges': (1)
Employee compensation and benefits expenses for full-time employees
that support the access services associated with the Proposed Access
Fees; (2) depreciation and amortization of hardware and software used
to provide the access services associated with the Proposed Access
Fees; and (3) occupancy expenses for leased office space for staff that
provide the access services associated with the Proposed Access Fees.
The Exchanges state that their cost and revenue analyses show that
the Proposed Access Fees will not result in excessive pricing or supra-
competitive profits.\29\ According to the Exchanges, on a fully-
annualized basis, the revenue the Exchanges project to collect from the
Proposed Access Fees \30\ would be approximately $3.21 million per year
for MIAX and $2.07 million per year for MIAX Emerald.\31\ This results
in a projected profit margin of approximately 59% for MIAX ($3.21
million in projected revenue minus $1.32 million in projected expense =
$1.89 million profit per year) and
[[Page 67747]]
approximately 58% for MIAX Emerald ($2.07 million in projected revenue
minus $0.88 million in projected expense = $1.19 million profit per
year).\32\ The Exchanges state that, based on the 2020 financial
statements filed by competing options exchanges in Form 1 amendments,
the Exchanges' revenues that are derived from access fees are in line
with the revenue that is derived from access fees of competing
exchanges, and the Exchanges' overall operating margins are in line
with or less than the operating margins of competing exchanges.\33\
MIAX further states that its anticipated operating margin, inclusive of
its proposed fee change, would remain lower than or comparable to that
of competing exchanges.\34\
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\29\ See, e.g., id. at 55099.
\30\ The revenue numbers include the revenues the Exchanges
project to collect only from the fees the Exchanges will charge for
additional Limited Service MEI Ports after the first two Limited
Service MEI Ports that Market Makers receive for free. See, e.g.,
id.
\31\ See MIAX Notice, supra note 4, at 55099; MIAX Emerald
Notice, supra note 4, at 55058.
\32\ See MIAX Notice, supra note 4, at 55099; MIAX Emerald
Notice, supra note 4, at 55058.
\33\ See, e.g., MIAX Notice, supra note 4, at 55100.
\34\ See MIAX Notice, supra note 4, at 55100.
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The Exchanges further state that the Proposed Access Fees are
reasonable, equitably allocated, and not unfairly discriminatory
because it benefits overall competition in the marketplace to allow
relatively new entrants like the Exchanges and their affiliate, MIAX
Pearl, LLC (``MIAX Pearl''), to propose fees that may help them recoup
their substantial investment in building out costly infrastructure. The
Exchanges state that they and MIAX Pearl have historically set their
fees purposefully low in order to attract business and market share.
The Exchanges also state that the concept of a tiered-pricing structure
for ports is not new or novel.\35\
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\35\ See, e.g., MIAX Notice, supra note 4, at 55100.
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In addition, the Exchanges state that the move from a flat fee per
month to a tiered-pricing structure is reasonable, equitably allocated,
and not unfairly discriminatory because the proposed structure would
encourage firms to be more efficient and economical in the number of
Limited Service MEI Ports they purchase, which the Exchanges believe
will enable them to better monitor and provide access to the Exchanges'
networks to ensure that the Exchanges meet their obligations under the
Act to offer access to the Exchanges on terms that are not unfairly
discriminatory, as well as to ensure sufficient capacity and headroom
in their systems.\36\
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\36\ See, e.g., id.
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The Exchanges further state that firms that are primarily order
routers seeking best-execution do not utilize Limited Service MEI
Ports; and that, therefore, the fees described in the proposed tiered-
pricing structure will only be allocated to market-making firms that
engage in advanced trading strategies and typically request multiple
additional Limited Service MEI Ports.\37\ The Exchanges further state
that such market-making firms generate higher costs by utilizing more
of the Exchanges' resources.\38\ The Exchanges state that they must
build out and continue to maintain networks that have the capacity the
handle the message rate requirements of not only firms that consume
minimal port resources, but also those firms that most heavily consume
port resources, network consumers, and purchasers of numerous Limited
Service MEI Ports, which handle billions of messages per day across the
Exchanges' networks.\39\ The Exchanges believe that, given that
purchasers of the greatest amount of Limited Service MEI Ports utilize
the most resources across their networks, it is reasonable to operate
at profit margins of approximately 59% (for MIAX) and 58% (for MIAX
Emerald) for these ports.\40\ The Exchanges state that such profit
margins should enable the Exchanges to continue to invest in their
networks and systems, maintain their current infrastructure, support
future enhancements to ports and network connectivity, and continue to
offer enhanced customer reporting and monitoring services.\41\
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\37\ See, e.g., id. at 55094.
\38\ See, e.g., id.
\39\ See, e.g., id. at 55099.
\40\ See MIAX Notice, supra note 4, at 55099; MIAX Emerald
Notice, supra note 4, at 55059.
\41\ See MIAX Notice, supra note 4, at 55099; MIAX Emerald
Notice, supra note 4, at 55059.
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The Commission received two comment letters from one commenter that
opposes the proposed rule changes.\42\ 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.\43\ Specifically, this
commenter argues that the Exchanges' filings make the same general
claims in support of their assertion that the port fee changes are fair
and reasonable, equitably allocated, and not unfairly discriminatory as
other filings relating to ``10Gb ULL'' connections,\44\ and that the
Exchanges' justifications for the Limited Service MEI Ports fail for
the same reasons as those offered in the 10Gb ULL filings.\45\ The
commenter asserts 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.\46\ The
commenter further 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.\47\ 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.\48\ 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.\49\ 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.\50\ The commenter also
suggests that any comparisons made by the Exchanges to the revenues and
margins of other exchanges are inapt
[[Page 67748]]
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.\51\
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.\52\
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.\53\
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\42\ 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'').
\43\ See Second SIG Letter, supra note 42, 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).
\44\ See Securities Exchange Act Release Nos. 93165 (September
28, 2021), 86 FR 54750 (October 4, 2021) (SR-MIAX-2021-41); 93162
(September 28, 2021), 86 FR 54739 (October 4, 2021) (SR-PEARL-45);
and 93166 (September 28, 2021), 86 FR 54760 (October 4, 2021) (SR-
EMERALD-29).
\45\ See Second SIG Letter, supra note 42, at 7.
\46\ See id. at 2-3.
\47\ See id. at 3.
\48\ See id.
\49\ 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.
\50\ See id. at 4-5.
\51\ See id.
\52\ See id. at 5.
\53\ See id. at 6.
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Another commenter asks the Commission to disapprove the proposed
fee changes because the Exchanges have not met their burden of
demonstrating that they are consistent with the standards under the
Exchange Act.\54\ This commenter states that the Exchanges' argument
that competition for order flow constrains pricing for products and
services exclusively offered by the Exchange does not demonstrate that
the fees are reasonable.\55\ 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 because it
does not reflect marketplace reality.\56\ This commenter also states
that the Exchanges have failed to demonstrate that the proposed fees
are equitably allocated and not unfairly discriminatory, with the
proposed fee changes ``clearly and directly'' impacting market makers
and burden of the fee increases falling predominantly on market makers
operating on the Exchanges.\57\ 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.\58\ 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.\59\ This commenter believes that the
Exchanges have withdrawn and refiled essentially identical
proposals,\60\ subverting proper consideration of the proposed fee
changes under the process set forth in the Exchange Act.\61\
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\54\ 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'').
\55\ See id. at 3. This commenter asserts that the proposals are
similar to proprietary market data products offered by the
Exchanges, which are unique to the Exchanges and market participants
cannot obtain anywhere else. Id. The commenter also states that for
market makers, additional MEI ports are critical for market makers
to provide liquidity on the Exchanges and the argument that the
additional MEI ports are options ``does not reflect marketplace
reality, nor does it demonstrate that the proposed fees are
reasonable.'' Id. at 4.
\56\ See id. at 4.
\57\ See id. at 4-5.
\58\ 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.
\59\ See id. at 5. 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.
\60\ See supra note 8.
\61\ See SIFMA Letter, supra note 54, at 5-6.
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When an exchange files a proposed rule change with the Commission,
including fee filings, it is required to provide a statement supporting
the proposal's basis under the Act and the rules and regulations
thereunder applicable to the exchange.\62\ The instructions to Form
19b-4, on which exchanges file their proposed rule changes, specify
that such statement ``should be sufficiently detailed and specific to
support a finding that the proposed rule change is consistent with
[those] requirements.'' \63\
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\62\ See 17 CFR 240.19b-4 (General Instructions for Form 19b-4--
Information to be Included in the Complete Form--Item 3 entitled
``Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change'').
\63\ See id.
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Section 6 of the Act, including Sections 6(b)(4), (5), and (8),
requires, among other things, that the rules of an exchange: (1)
Provide for the equitable allocation of reasonable fees among members,
issuers, and other persons using the exchange's facilities; \64\ (2) be
designed to perfect the mechanism of a free and open market and a
national market system and to protect investors and the public
interest, and not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers; \65\ and (3) not impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.\66\
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\64\ 15 U.S.C. 78f(b)(4).
\65\ 15 U.S.C. 78f(b)(5).
\66\ 15 U.S.C. 78f(b)(8).
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In temporarily suspending the Exchanges' proposed rule changes, the
Commission intends to further consider whether the proposed additional
Limited Service MEI Port fees are 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; are designed to
perfect the mechanism of a free and open market and a national market
system and to protect investors and the public interest, and are not
designed to 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.\67\
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\67\ 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.\68\
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\68\ 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 proposal, the Commission
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C)
\69\ and 19(b)(2)(B) of the Act \70\ to determine whether the
Exchanges' 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
[[Page 67749]]
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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\69\ 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.
\70\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\71\ the Commission is
providing notice of the grounds for possible disapproval under
consideration:
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\71\ 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 proposed
fees 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''; \72\
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\72\ 15 U.S.C. 78f(b)(4).
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<bullet> Whether the Exchanges have demonstrated how the proposed
fees 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 mechanism 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''; \73\ and
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\73\ 15 U.S.C. 78f(b)(5).
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<bullet> Whether the Exchanges have demonstrated how the proposed
fees 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].'' \74\
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\74\ 15 U.S.C. 78f(b)(8).
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As discussed in Section III above, the Exchanges made various
arguments in support of the proposals, and the Commission received
comment letters disputing the Exchanges' arguments and expressing
concerns regarding the proposals.\75\ In particular, the 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.\76\ The Commission believes that there are questions
as to whether the Exchanges have provided sufficient information to
demonstrate that the proposals are consistent with the Act and the
rules thereunder.
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\75\ See First SIG Letter and Second SIG Letter, supra note 42;
SIFMA Letter, supra note 54.
\76\ 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 [Act]
and the rules and regulations issued thereunder . . . is on the [SRO]
that proposed the rule change.'' \77\ 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,\78\ 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.\79\
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\77\ 17 CFR 201.700(b)(3).
\78\ See id.
\79\ 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, and 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 mechanism 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 a
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act; \80\ as well as any other provision of the
Act, or the rules and regulations thereunder.
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\80\ 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 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.\81\
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\81\ 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
proposed rule changes 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#5220273e377f313d3f3f373c2621122137317c353d24"><span class="__cf_email__" data-cfemail="6614130a034b05090b0b030812152615030548010910">[email protected]</span></a>. Please include
File Nos. SR-MIAX-2021-43 and SR-EMERALD-2021-31 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 Nos. SR-MIAX-2021-43 and SR-
EMERALD-2021-31. 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 filing also will be available for
[[Page 67750]]
inspection and copying at the principal office of the Exchanges. 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 Nos. SR-MIAX-2021-43 and SR-EMERALD-
2021-31 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,\82\ that File Nos. SR-MIAX-2021-43 and SR-EMERALD-2021-31 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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\82\ 15 U.S.C. 78s(b)(3)(C).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\83\
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\83\ 17 CFR 200.30-3(a)(57) and (58).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25879 Filed 11-26-21; 8:45 am]
BILLING CODE 8011-01-P
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