Notice2021-25883
Self-Regulatory Organizations; MIAX Emerald, LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Change To Amend the Exchange's Fee Schedule 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 67750-67755]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25883]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93644; File No. SR-EMERALD-2021-29]
Self-Regulatory Organizations; MIAX Emerald, LLC; Suspension of
and Order Instituting Proceedings To Determine Whether To Approve or
Disapprove Proposed Rule Change To Amend the Exchange's Fee Schedule To
Adopt a Tiered-Pricing Structure for Certain Connectivity Fees
November 22, 2021.
I. Introduction
On September 24, 2021, MIAX Emerald, LLC (``MIAX Emerald'' or
``Exchange'') 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 Number SR-EMERALD-2021-29)
to amend the Exchange's Fee Schedule (``Fee Schedule'') to adopt a
tiered pricing structure for certain connectivity fees. The 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 change
was 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 Number SR-EMERALD-2021-29; and
(ii) instituting proceedings to determine whether to approve or
disapprove File Number SR-EMERALD-2021-29.
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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 No. 93166 (September 28,
2021), 86 FR 54760 (``Notice''). Comments received on the proposed
rule change are available on the Commission's website at: <a href="https://www.sec.gov/comments/sr-emerald-2021-29/sremerald202129.htm">https://www.sec.gov/comments/sr-emerald-2021-29/sremerald202129.htm</a>.
\5\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Change
MIAX Emerald proposes to modify the Exchange's Fee Schedule to
adopt a tiered-pricing structure for 10 gigabit (``Gb'') ultra-low
latency (``ULL'') fiber connections to the Exchange's primary and
secondary facilities available to both Members \6\ and non-Members.
Specifically, the Exchange proposes 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 Exchange initially filed the proposed fee change on July
30, 2021. See Securities Exchange Act Release No. 92645 (August 11,
2021), 86 FR 46048 (August 17, 2021) (SR-EMERALD-2021-23). That
filing was withdrawn by the Exchange and replaced with the instant
filing, 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 Exchange's APIs or market data feeds in
the Exchange's 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 Exchange's disaster
recovery facility.\8\
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\8\ See Notice, supra note 4, at 54761.
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III. Suspension of the Proposed Rule Change
Pursuant to Section 19(b)(3)(C) of the Act,\9\ 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,\10\ 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 change is necessary and appropriate to
allow for additional analysis of the proposed rule change's consistency
with the Act and the rules thereunder.
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\9\ 15 U.S.C. 78s(b)(3)(C).
\10\ 15 U.S.C. 78s(b)(1).
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The Exchange states 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 Exchange, and
also enable the Exchange to better monitor and provide access to the
Exchange's network to ensure sufficient capacity and headroom in the
System.\11\ The Exchange also states 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.\12\ The Exchange further states 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
[[Page 67751]]
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 Exchange's
resources.\13\
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\11\ See Notice, supra note 4, at 54761. The term ``System''
means the automated trading system used by the Exchange for the
trading of securities. See Exchange Rule 100.
\12\ See Notice, supra note 4, at 54761, 54769. The Exchange
states that it initially filed this proposed fee change on July 30,
2021 (SR-EMERALD-2021-23) and, after the effective date of SR-
EMERALD-2021-23 on August 1, 2021, approximately 60% of the firms
that purchased at least one 10Gb ULL connection experienced a
decrease in their monthly connectivity fees, while approximately 40%
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 54761. The Exchange
also states 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. See id. at 54768.
\13\ See id. at 54762.
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In further support of the proposed fee changes, the Exchange argues
principally that the fees for 10Gb ULL connections are constrained by
competitive forces, and that this is supported by its revenue and cost
analysis. The Exchange states 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 and the
Exchange must continually adjust its fees for services and products,
and in addition to order flow, to remain competitive with other
exchanges.\14\ The Exchange states that it is not aware of any evidence
that a market share of approximately 5-6% provides the Exchange with
anti-competitive pricing power, and that market participants may look
to connect to the Exchange via cheaper alternatives or choose to
disconnect from the Exchange or reduce the number of connections to the
Exchange as a means to reduce costs.\15\ The Exchange states that
market participants can and do drop their access to exchanges based on
non-transaction fee pricing.\16\ The Exchange also states 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 Exchange, and that the Exchange is
unaware of any one options exchange whose membership includes all
registered broker-dealers.\17\
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\14\ See id. at 54761.
\15\ See id. at 54763. The Exchange also notes that non-Member
third-parties, such as service bureaus and extranets, resell the
Exchange's connectivity, which is another viable alternative for
market participants to trade on the Exchange. The Exchange notes
that it receives no connectivity revenue when connectivity is
resold, which the Exchange believes creates and fosters a
competitive environment and subjects the Exchange to competitive
forces in pricing its connectivity and access fees. See id. at
54769.
\16\ See id. at 54763.
\17\ See id. at 54768.
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The Exchange also states that the proposed fees are reasonable and
appropriate to allow the Exchange to offset expenses the Exchange has
and will incur in relation to providing the Proposed Access Fees and
provides an analysis of its revenues, costs, and profitability
associated with these fees.\18\ The Exchange states that this analysis
reflects an extensive cost review in which the Exchange analyzed 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.\19\ The Exchange states
that this analysis shows the fee increase will not result in excessive
pricing or supra-competitive profits when compared to the Exchange's
annual expense associated with providing the 10Gb ULL connections
versus the annual revenue for the 10Gb ULL connections.\20\
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\18\ See id. at 54764-67.
\19\ See id. at 54762. The Exchange also states that no expense
amount is allocated twice and the expenses only cover the Exchange
and not its affiliates. Id. at 54762, 54764. 54766.
\20\ See id. at 54767.
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The Exchange states that, 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 $7.2 million.\21\ The
$7.2 million in projected total annual expense is comprised of the
following, all of which the Exchange states 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. The Exchange states that the
$7.2 million in projected total annual expense is directly related to
the access services associated with the Proposed Access Fees, and not
any other product or service offered by the Exchange.
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\21\ See id. at 54764.
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The Exchange states that the 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 $1.7
million for 2021.\22\ The Exchange represents that it 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 Exchange 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
Exchange's 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 89%); \23\ and (4) various other hardware and software
providers (approximately 51%).
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\22\ See id. at 54764-65.
\23\ The Exchange states that on October 22, 2019, the Exchange
was notified by Secure Financial Transaction Infrastructure that it
was raising its fees charged to the Exchange 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 54764 n.29; see also 15 U.S.C. 78s(b)(1) and 17 CFR
240.19b-4.
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In addition, the Exchange states that the total 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
approximately $5.5 million for 2021.\24\ The Exchange represents that:
(1) The Exchange's employee compensation and benefits expense relating
to providing the access services associated with the Proposed Access
Fees is projected to be approximately $3.2 million, which is a portion
of the Exchange's total projected expense of approximately $9.7 million
for employee compensation and benefits; (2) the Exchange's depreciation
and amortization expense relating to providing the access services
associated with the Proposed Access Fees is projected to be $2 million,
which is a portion of the Exchange's total projected expense of $3.1
million for depreciation and amortization; and (3) the Exchange's
occupancy expense relating to providing the access services associated
with the Proposed Access Fees is projected to be $0.3 million, which is
a portion of the Exchange's total projected expense of $0.5 million for
occupancy.
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\24\ See Notice, supra note 4, at 54765-66.
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The Exchange states that this cost and revenue analysis shows that
the proposed rule change will not result in excessive pricing or supra-
competitive profit.\25\ The Exchange projects that, on a fully-
annualized basis, the Proposed Access Fees will have an expense of
approximately $7.2 million per annum and a projected revenue of $14.6
million per year, and including projected revenue for providing network
connectivity for all connectivity alternatives to be approximately
$14.63 million per annum, resulting in a projected profit margin of 51%
inclusive of the Proposed Access Fees and all other connectivity
alternatives ($14.63 million in total projected connectivity revenue
minus $7.2 million in projected expense = $7.43 million profit per
year). The Exchange states that this profit margin does not take into
account the cost of capital expenditures that the
[[Page 67752]]
Exchange historically spent or are projected to spend each year going
forward.
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\25\ See id. at 54767.
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The Exchange states 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.\26\ The Exchange also states that its 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.\27\ The Exchange also believes that its 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.\28\ The Exchange states that
this incremental increase in revenue generated from the 30% profit
margin on connectivity will allow the Exchange to further invest in its
system architecture and matching engine functionality to the benefit of
all market participants.\29\
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\26\ See id. at 54763. The Exchange notes 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.
The Exchange states that the Exchange and its 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
Exchange and its affiliates to proposed fees that may help these new
entrants recoup their substantial investment in building out costly
infrastructure. See id. at 54768.
\27\ See id. at 54767-68.
\28\ See id. at 54768.
\29\ See id. at 54767.
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The Exchange states 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 Exchange; \30\ options market participants are not forced
to connect to all options exchanges; \31\ and options market
participants may choose alternative methods of connecting to the
Exchange, including routing through another participant or market
center accessing the Exchange indirectly.\32\
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\30\ See id. at 54769.
\31\ See id.
\32\ See id.
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The Commission received two comment letters from one commenter that
opposes the proposed rule change.\33\ This commenter states that the
Exchange has not sufficiently demonstrated its proposed fees'
consistency with the Act or addressed previous concerns with the
proposed fees raised by the same commenter.\34\ Specifically, this
commenter argues that there are no reasonable substitutes for the
Exchange's 10Gb ULL connectivity lines, particularly for market makers
whose business models require them to subscribe to direct connectivity
to the Exchange in the highest proposed pricing tier.\35\ 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.\36\ 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.\37\ This commenter further objects that the
Exchange has not provided sufficient quantitative support for its
revenues, costs, and profitability under the current and proposed fees
to support an analysis that the proposed fees and the Exchange's
profitability are reasonable.\38\ Moreover, the commenter argues that
the Exchange's comparison of its 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 Exchange.\39\ The commenter also suggests
that any comparisons made by the Exchange 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.\40\ Finally, this commenter claims
that the proposed tiers in the new fee structure are unfairly
discriminatory because the Exchange has not provided any cost breakdown
to support the claim that the use of multiple connections creates
higher costs for the Exchange.\41\ 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.\42\
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\33\ 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'').
\34\ See Second SIG Letter, supra note 33, at 2. In the First
SIG Letter the commenter requested that the Commission suspend the
proposal and institute proceedings to determine whether to approve
or disapprove the proposal on the basis that the proposal represents
the same fee changes previously proposed by the Exchange 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).
\35\ See Second SIG Letter, supra note 33, at 2-3.
\36\ See id. at 3.
\37\ See id.
\38\ See id. at 4. The commenter further argues that the
Exchange has not sufficiently justified the profit margins they
would be accruing with the proposed fees by, for example, explaining
specific technological undertakings the Exchange expects to fund
with the revenue from the new fees. See id.
\39\ See id. at 4-5.
\40\ See id.
\41\ See id. at 5.
\42\ See id. at 6.
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Another commenter opposing the proposed rule change states that the
Exchange has not met its burden of demonstrating that the proposed fees
are consistent with the standards under the Act.\43\ This commenter
states that the Exchange's 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.\44\ This
commenter also disagrees with the Exchange's statement that it must
continually adjust the fees for these services as a result of
competition from other markets, arguing that this does not reflect
marketplace reality.\45\ This commenter also states
[[Page 67753]]
that the Exchange has 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
Exchange because 10Gb ULL connections are an essential technology tool
for market makers.\46\ The commenter states that the Exchange offers no
concrete support for its arguments that the tiered pricing structure
would encourage firms to be more economical and efficient in the number
of connections they purchase, allowing the Exchange to better monitor
and provide access to its network to ensure that it has sufficient
capacity and headroom in its system.\47\ This commenter also states
that the Exchange provides no support for its position that the use of
multiple 10Gb ULL connections generates higher costs for the Exchange,
positing that it is likely the Exchange has fixed costs associated with
providing connections and any additional connections purchased by users
will result in greater Exchange profits.\48\ The commenter also states
that the Exchange has provided no public information on how it derived
the cost amounts it determined to allocate to the products and services
subject to the proposed fee changes nor any meaningful baseline
information regarding the Exchange's overall costs.\49\ This commenter
believes that the Exchange has withdrawn and refiled an essentially
identical proposal,\50\ subverting proper consideration of the proposed
fee changes under the process set forth in the Act.\51\
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\43\ 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'').
\44\ See id. at 3. This commenter asserts that the proposals are
similar to proprietary market data products offered by the Exchange,
which the commenter states are unique to the Exchange and market
participants cannot obtain anywhere else. Id.
\45\ See id. at 4.
\46\ 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.
\47\ See id. at 4. The commenter also states that the Exchange
fails to provide any discussion of why its current capacity needs
are constrained under the current pricing structure.
\48\ See id. at 5.
\49\ 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 Exchange's
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.
\50\ See supra note 7.
\51\ See SIFMA Letter, supra note 43, at 5-6.
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A different commenter, while not expressing support or opposition
for the specific proposed fee changes, applauds the Exchange for the
enhanced disclosure it has provided with respect to its proposed fee
changes as compared to the information in prior rule filings by other
exchanges proposing similar types of market data or connectivity
fees.\52\ This commenter states that the proposed fee changes would
``materially lower costs for many users, while increasing the costs for
some of [the Exchange's] 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.'' \53\
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\52\ 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.
\53\ See id. The commenter highlights that the Exchange's
proposal details 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 Exchange's 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.\54\ 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.'' \55\
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\54\ 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'').
\55\ 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; \56\ (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; \57\
and (3) not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\58\
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\56\ 15 U.S.C. 78f(b)(4).
\57\ 15 U.S.C. 78f(b)(5).
\58\ 15 U.S.C. 78f(b)(8).
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In temporarily suspending the Exchange's fee change, the Commission
intends to further consider whether the proposal 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 change satisfies 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.\59\
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\59\ 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 change.\60\
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\60\ For purposes of temporarily suspending the proposed rule
change, the Commission has considered the proposed rule's 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 Change
In addition to temporarily suspending the proposal, the Commission
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C)
\61\ and 19(b)(2)(B) of the Act \62\ to determine whether the proposed
rule change 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 change to inform the
Commission's analysis of whether to approve or disapprove the proposed
rule change.
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\61\ 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.
\62\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\63\ the Commission is
providing
[[Page 67754]]
notice of the grounds for possible disapproval under consideration:
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\63\ 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 Exchange has demonstrated how the proposal is
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;'' \64\
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\64\ 15 U.S.C. 78f(b)(4).
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<bullet> Whether the Exchange has demonstrated how the proposal is
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;'' \65\ and
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\65\ 15 U.S.C. 78f(b)(5).
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<bullet> Whether the Exchange has demonstrated how the proposal is
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].'' \66\
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\66\ 15 U.S.C. 78f(b)(8).
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As discussed in Section III above, the Exchange makes various
arguments in support of the proposal, and the Commission received
comment letters disputing the Exchange's arguments and expressing
concerns regarding the proposal.\67\ In particular, two commenters
argue that the Exchange did not provide sufficient information to
establish that the proposed fees are consistent with the Act and the
rules thereunder.\68\ The Commission believes that there are questions
as to whether the Exchange has provided sufficient information to
demonstrate that the proposed 10Gb ULL connectivity fees is consistent
with the Act and the rules thereunder.
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\67\ See First SIG Letter and Second SIG Letter, supra note 33;
SIFMA Letter, supra note 43.
\68\ See supra note 67.
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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.'' \69\ 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,\70\ 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.\71\
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\69\ 17 CFR 201.700(b)(3).
\70\ See id.
\71\ 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 proposal is 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; \72\ as well as any other
provision of the Act, or the rules and regulations thereunder.
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\72\ 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.\73\
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\73\ 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 Exchange's statements in support of the proposal, in
addition to any other comments they may wish to submit about the
proposed rule change.
Interested persons are invited to submit written data, views, and
arguments concerning the proposed rule change, including whether the
proposal is 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#b0c2c5dcd59dd3dfddddd5dec4c3f0c3d5d39ed7dfc6"><span class="__cf_email__" data-cfemail="81f3f4ede4ace2eeecece4eff5f2c1f2e4e2afe6eef7">[email protected]</span></a>. Please include
File No. SR-EMERALD-2021-29 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 Number SR-EMERALD-2021-29. 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 (<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 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-EMERALD-2021-29 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,\74\ that File
[[Page 67755]]
Number SR-EMERALD-2021-29 be, and hereby is, temporarily suspended. In
addition, the Commission is instituting proceedings to determine
whether the proposed rule change should be approved or disapproved.
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\74\ 15 U.S.C. 78s(b)(3)(C).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\75\
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\75\ 17 CFR 200.30-3(a)(57) and (58).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25883 Filed 11-26-21; 8:45 am]
BILLING CODE 8011-01-P
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