Notice2021-27816
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Establish Fees for the cToM Market Data Product
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
December 23, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 244 (Thursday, December 23, 2021)</title>
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[Federal Register Volume 86, Number 244 (Thursday, December 23, 2021)]
[Notices]
[Pages 73051-73060]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-27816]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93811; File No. SR-EMERALD-2021-44]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Establish Fees for the cToM Market Data Product
December 17, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 10, 2021, MIAX Emerald, LLC (``MIAX Emerald'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the Exchange's Fee
Schedule (``Fee Schedule'') to establish fees for the market data
product known as MIAX Emerald Complex Top of Market (``cToM'').
The text of the proposed rule change is available on the Exchange's
website at <a href="http://www.miaxoptions.com/rule-filings/emerald">http://www.miaxoptions.com/rule-filings/emerald</a>, at MIAX's
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Section (6)(a) of the Fee Schedule
to establish fees for the cToM data product. The Exchange initially
filed this proposal on June 30, 2021 with the proposed fees to be
effective beginning July 1, 2021 (``First Proposed Rule Change'').\3\
The First Proposed Rule Change was published for comment in the Federal
Register on July 15, 2021.\4\ Although the Commission did not receive
any comment letters on the First Proposed Rule Change, on August 27,
2021, the Commission issued its Suspension of and Order Instituting
Proceedings to Determine Whether to Approve or Disapprove Proposed Rule
Changes to Establish Fees for the Exchanges' cToM Market Data Products
(relating to the First Proposed Rule Change and a similar filing by the
Exchange's affiliate, Miami International Securities Exchange, LLC
(``MIAX''), to also adopt cToM fees).\5\ The Exchange withdrew the
First Proposed Rule Change on September 30, 2021 \6\ and re-submitted
the proposal, with the proposed fee changes being immediately effective
(``Second Proposed Rule Change'').\7\ The Second Proposed Rule Change
provided additional justification for the proposed fee changes and
addressed comments provided by the Commission Staff. On October 14,
2021, the Exchange withdrew the Second Proposed Rule Change and
submitted its proposal to adopt cToM fees to again provide additional
justification for the proposed fee changes and address comments
provided by the Commission Staff (``Third Proposed Rule Change'').\8\
The Third Proposed Rule Change was published for comment in the Federal
Register on November 1, 2021.\9\ Although the Commission did not again
receive any comment letters on the Third Proposed Rule Change, the
Exchange withdrew the Third Proposed Rule Change on December 10, 2021
and now submits this proposal for immediate effectiveness (``Fourth
Proposed Rule Change''). This Fourth Proposed Rule Change meaningfully
attempts to provide additional justification and explanation for the
proposed fee changes in response to a telephone conversation with
Commission Staff on December 7, 2021 relating to the Third Proposed
Rule Change.
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\3\ See Securities Exchange Act Release No. 92358 (July 9,
2021), 86 FR 37361 (July 15, 2021) (SR-EMERALD-2021-21).
\4\ Id.
\5\ See Securities Exchange Act Release No. 92789 (August 27,
2021), 86 FR 49364 (September 2, 2021) (SR-MIAX-2021-28, SR-EMERALD-
2021-21) (the ``Suspension Order'').
\6\ See Securities Exchange Act Release No. 93471 (October 29,
2021), 86 FR 60947 (November 4, 2021).
\7\ See SR-EMERALD-2021-32.
\8\ Securities Exchange Act Release No. 93427 (October 26,
2021), 86 FR 60310 (November 1, 2021) (SR-EMERALD-2021-34).
\9\ Id.
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Background
The Exchange previously adopted rules governing the trading of
Complex Orders \10\ on the Emerald System \11\ in 2018,\12\ ahead of
the Exchange's planned launch, which took place on March 1, 2019.
Shortly thereafter, the Exchange also adopted the market data product
cToM and expressly waived fees for cToM to provide an incentive to
prospective market participants to subscribe to that market data
feed.\13\ The Exchange has not charged fees to cToM subscribers in the
nearly three years since it was first available for subscription.
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\10\ See Exchange Rule 518(a)(5) for the definition of Complex
Orders.
\11\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\12\ See Securities Exchange Act Release Nos. 84891 (December
20, 2018), 83 FR 67421 (December 28, 2018) (In the Matter of the
Application of MIAX EMERALD, LLC for Registration as a National
Securities Exchange; Findings, Opinion, and Order of the
Commission); and 85345 (March 18, 2019), 84 FR 10848 (March 22,
2019) (SR-EMERALD-2019-13) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend Exchange Rule 518,
Complex Orders).
\13\ See Securities Exchange Act Release No. 85207 (February 27,
2019), 84 FR 7963 (March 5, 2019) (SR-EMERALD-2019-09) (providing a
complete description of the cToM data feed).
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In summary, cToM provides subscribers with the same information as
the MIAX Emerald Top of Market (``ToM'') data product as it relates to
the Strategy Book,\14\ i.e., the Exchange's best bid and offer for a
complex strategy, with aggregate size, based on displayable order and
quoting interest in the complex strategy on the Exchange. However, cToM
provides subscribers with the following additional information that is
not included in ToM: (i) The identification of the complex strategies
currently trading on the Exchange; (ii) complex strategy last sale
information; and (iii) the status of securities underlying the complex
strategy (e.g., halted, open, or resumed). cToM is a distinct market
data product from ToM. ToM subscribers are not required to subscribe
[[Page 73052]]
to cToM, and cToM subscribers are not required to subscribe to ToM.\15\
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\14\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Exchange Rule 518(a)(17).
\15\ See supra note 13.
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Proposal
The Exchange now proposes to amend Section (6)(a) of the Fee
Schedule to charge monthly fees to Distributors \16\ of cToM.
Specifically, the Exchange proposes to assess Internal Distributors
$1,250 per month and External Distributors $1,750 per month for the
cToM data feed.\17\ The Exchange notes that the proposed monthly cToM
fees for Internal and External Distributor are the same prices that the
Exchange charges for its ToM data product and are identical to the
prices the Exchange's affiliate, MIAX, proposes to charge for its cToM
product.
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\16\ A ``Distributor'' of MIAX Emerald data is any entity that
receives a feed or file of data either directly from MIAX Emerald or
indirectly through another entity and then distributes it either
internally (within that entity) or externally (outside that entity).
All Distributors are required to execute a MIAX Emerald Distributor
Agreement. See Section (6)(a) of the Fee Schedule.
\17\ The Exchange also proposes to make a minor related change
to remove the phrase ``(as applicable)'' from the explanatory
paragraph in Section (6)(a).
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Like it does today for ToM, the Exchange proposes to assess cToM
fees on Internal and External Distributors in each month the
Distributor is credentialed to use cToM in the production environment.
Also, like the Exchange does today for ToM, market data fees for cToM
will be reduced for new Distributors for the first month during which
they subscribe to cToM, based on the number of trading days that have
been held during the month prior to the date on which that subscriber
has been credentialed to use cToM in the production environment. Such
new Distributors will be assessed a pro-rata percentage of the fees in
the table in Section (6)(a) of the Fee Schedule, which is the
percentage of the number of trading days remaining in the affected
calendar month as of the date on which they have been credentialed to
use cToM in the production environment, divided by the total number of
trading days in the affected calendar month.
The Exchange believes that other exchange's fees for complex market
data are useful examples and provides the below table for comparison
purposes only to show how the Exchange's proposed fees compare to fees
currently charged by other options exchanges for similar data. As shown
by the below table, the Exchange's proposed fees similar to or less
than fees charged for similar data products provided by other options
exchanges.
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Exchange Monthly fee
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MIAX Emerald (as proposed).... $1,250--Internal Distributor.
$1,750--External Distributor.
NYSE American, LLC (``Amex'') $1,500 Access Fee.
\18\.
$1,000 Redistribution Fee.
NYSE Arca, Inc. (``Arca'') $1,500 Access Fee.
\19\.
$1,000 Redistribution Fee.
NASDAQ PHLX LLC (``PHLX'') $3,000--Internal Distributor.
\20\.
$3,500--External Distributor.
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\18\ See NYSE American Options Priprietary Market Data Fees,
American Options Complex Fees, at <a href="https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Proprietary_Data_Fee_Schedule.pdf">https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Proprietary_Data_Fee_Schedule.pdf</a>.
\19\ See NYSE Area Options Proprietary Market Data Fees, Arca
Options Complex Fees, at <a href="https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf">https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf</a>.
\20\ See PHLX Price List--U.S. Deriatives Data, PHLX Orders
Fees, at <a href="http://www.nasdaqtrader.com/Trader.aspx?id=DPPriceListOptions#PHLX">http://www.nasdaqtrader.com/Trader.aspx?id=DPPriceListOptions#PHLX</a>.
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The Exchange also proposes to amend the paragraph below the table
of fees for ToM and cToM in Section (6)(a) of the Fee Schedule to make
a minor, non-substantive corrective edit. In particular, the Exchange
proposes to delete the phrase ``(as applicable)'' in the first sentence
following the table of fees for ToM and cToM. The purpose of this
proposed change is to remove unnecessary text from the Fee Schedule.
cToM Content Is Available From Alternative Sources
cToM is also not the exclusive source for Complex Order information
from the Exchange and market participants may choose to subscribe to
the Exchange's other data products to receive such information. It is a
business decision of market participants whether to subscribe to the
cToM data product or not. Market participants that choose not to
subscribe to cToM can derive much, if not all, of the same information
provided in the cToM feed from other Exchange sources, including, for
example, the MIAX Emerald Order Feed (``MOR'').\21\ The following cToM
information is provided to subscribers of MOR: The Exchange's best bid
and offer for a complex strategy, with aggregate size, based on
displayable order and quoting interest in the complex strategy on the
Exchange; the identification of the complex strategies currently
trading on the Exchange; and the status of securities underlying the
complex strategy (e.g., halted, open, or resumed). In addition to the
cToM information contained in MOR, complex strategy last sale
information can be derived from the Exchange's ToM feed. Specifically,
market participants may deduce that last sale information for multiple
trades in related options series that are disseminated via the ToM feed
with the same timestamp are likely part of a Complex Order transaction
and last sale.
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\21\ See MIAX website, Market Data & Offerings, at <a href="https://www.miaxoptions.com/market-data-offerings">https://www.miaxoptions.com/market-data-offerings</a> (last visited December 10,
2021). In general, MOR provides real-time ulta-low [sic] latency
updates on the following information: New Simple Orders added to the
MIAX Emerald Order Book; updates to Simple Orders resting on the
MIAX Emerald Order Book; new Complex Orders added to the Strategy
Book (i.e., the book of Complex Orders); updates to Complex Orders
resting on the Strategy Book; MIAX Emerald listed series updates;
MIAX Emerald Complex Strategy definitions; the state of the MIAX
Emerald System; and MIAX Emerald's underlying trading state.
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Implementation
The proposed rule change is immediately effective.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \22\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \23\ in
particular, in that it is an equitable allocation of reasonable dues,
fees and other charges among its members and issuers and other persons
using its facilities. The Exchange also believes the proposal furthers
the objectives of Section 6(b)(5) of the Act in that it is designed to
promote just and equitable principles of trade, remove impediments to
and perfect the
[[Page 73053]]
mechanism of a free and open market and a national market system, and,
in general protect investors and the public interest and is not
designed to permit unfair discrimination between customers, issuers,
brokers and dealers.
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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Fees Will Not Result in a Supra-Competitive Profit
The Exchange believes that exchanges, in setting fees of all types,
should meet very high standards of transparency to demonstrate why each
new fee or fee increase meets the requirements of the Act that fees be
reasonable, equitably allocated, not unfairly discriminatory, and not
create an undue burden on competition among market participants. The
Exchange believes this high standard is especially important when an
exchange sets certain non-transaction fees, including market data fees.
The Exchange believes that it is important to demonstrate that these
fees are based on its costs to provide these products and reasonable
business needs.
In its Guidance, the Commission Staff stated that, ``[a]s an
initial step in assessing the reasonableness of a fee, staff considers
whether the fee is constrained by significant competitive forces.''
\24\ The Commission Staff Guidance further states that, ``. . . even
where an SRO cannot demonstrate, or does not assert, that significant
competitive forces constrain the fee at issue, a cost-based discussion
may be an alternative basis upon which to show consistency with the
Exchange Act.'' \25\ In its Guidance, the Commission staff further
states that, ``[i]f an SRO seeks to support its claims that a proposed
fee is fair and reasonable because it will permit recovery of the SRO's
costs, or will not result in excessive pricing or supracompetitive
profit, specific information, including quantitative information,
should be provided to support that argument.'' \26\ The Exchange does
not assert that the proposed fees are constrained by competitive
forces. Rather, the Exchange asserts that the proposed fees are
reasonable because they will permit recovery of the Exchange's costs in
providing cToM data and will not result in the Exchange generating a
supra-competitive profit.
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\24\ See Staff Guidance on SRO Rule Filings Relating to Fees
(May 21, 2019), at <a href="https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees">https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees</a> (the ``Guidance'').
\25\ Id.
\26\ Id.
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The Guidance defines ``supra-competitive profit'' as ``profits that
exceed the profits that can be obtained in a competitive market.'' \27\
The Commission Staff further states in the Guidance that ``the SRO
should provide an analysis of the SRO's baseline revenues, costs, and
profitability (before the proposed fee change) and the SRO's expected
revenues, costs, and profitability (following the proposed fee change)
for the product or service in question.'' \28\ The Exchange provides
this analysis below.
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\27\ Id.
\28\ Id.
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Based on this analysis, the Exchange believes the proposed fees are
reasonable and do not result in a ``supra-competitive'' \29\ profit.
The Exchange believes that it is important to demonstrate that the
proposed fees are based on its costs and reasonable business needs. The
Exchange believes the proposed fees will allow the Exchange to offset
expenses the Exchange has and will incur, and that the Exchange
provides sufficient transparency (described below) into the costs and
revenue underlying the proposed fees. Accordingly, the Exchange
provides an analysis of its revenues, costs, and profitability
associated with the proposed fees. This analysis includes information
regarding its methodology for determining the costs and revenues
associated with the proposed fees. As a result of this analysis, the
Exchange believes the proposed fees are fair and reasonable as a form
of cost recovery plus present the possibility of a reasonable return
for the Exchange's aggregate costs of offering cToM data, which has
been offered for free for nearly three years.
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\29\ Id.
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The proposed fees are based on a cost-plus model. In determining
the appropriate fees to charge, the Exchange considered its costs to
provide cToM data, using what it believes to be a conservative
methodology (i.e., that strictly considers only those costs that are
most clearly directly related to the provision and maintenance of cToM
data) to estimate such costs,\30\ as well as the relative costs of
providing and maintaining cToM data feeds, and set fees that are
designed to cover its costs with a limited return in excess of such
costs. However, as discussed more fully below, such fees may also
result in the Exchange recouping less than all of its costs of
providing and maintaining cToM data feeds because of the uncertainty of
forecasting subscriber decision making with respect to firms' needs for
cToM data and the likely potential for increased costs to procure the
third-party services described below.
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\30\ For example, the Exchange only included the costs
associated with providing and supporting cToM data feeds and
excluded from its cost calculations any cost not directly associated
with providing and maintaining such cToM data feeds. Thus, the
Exchange notes that this methodology underestimates the total costs
of providing and maintaining cToM data feeds.
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To determine the Exchange's costs to provide cToM data associated
with the proposed fees, the Exchange conducted an extensive cost review
in which the Exchange analyzed nearly every expense item in the
Exchange's general expense ledger to determine whether each such
expense relates to the proposed fees, and, if such expense did so
relate, what portion (or percentage) of such expense actually supports
the cToM data product associated with the proposed fees.
The Exchange also provides detailed information regarding the
Exchange's cost allocation methodology--namely, information that
explains the Exchange's rationale for determining that it was
reasonable to allocate certain expenses described in this filing
towards the cost to the Exchange to provide the services associated
with the proposed fees. The Exchange conducted a thorough internal
analysis to determine the portion (or percentage) of each expense to
allocate to the support of services associated with the proposed fees.
This analysis included discussions with each Exchange department head
to determine the expenses that support services associated with the
proposed fees. Once the expenses were identified, the Exchange
department heads, with the assistance of the Exchange's internal
finance department, reviewed such expenses holistically on an Exchange-
wide level to determine what portion of that expense supports providing
services for the proposed fees. The sum of all such portions of
expenses represents the total cost to the Exchange to provide services
associated with the proposed fees. For the avoidance of doubt, no
expense amount was allocated twice.
To determine the Exchange's projected revenue associated with the
proposed fees, the Exchange analyzed the number of Members and non-
Members currently subscribing to the cToM data feeds and used a recent
monthly billing cycle representative of 2021 monthly revenue. The
Exchange also provided its baseline by analyzing June 2021, the monthly
billing cycle prior to the proposed fees going into effect, and
compared it to its expenses for that month. As discussed below, the
Exchange does not believe it is appropriate to factor into its analysis
future revenue growth or decline into its projections for purposes of
these
[[Page 73054]]
calculations, given the uncertainty of such projections due to the
continually changing market data needs of market participants and
potential increase in internal and third party expenses. The Exchange
is presenting its revenue and expense associated with the proposed fees
in this filing in a manner that is consistent with how the Exchange
presents its revenue and expense in its Audited Unconsolidated
Financial Statements. The Exchange's most recent Audited Unconsolidated
Financial Statement is for 2020. However, since the revenue and expense
associated with the proposed fees were not in place in 2020 or for the
first six months of 2021, the Exchange believes its 2020 Audited
Unconsolidated Financial Statement is not representative of its current
total annualized revenue and costs associated with the proposed fees.
Accordingly, the Exchange believes it is more appropriate to analyze
the proposed fees utilizing its 2021 revenue and costs, as described
herein, which utilize the same presentation methodology as set forth in
the Exchange's previously-issued Audited Unconsolidated Financial
Statements. Based on this analysis, the Exchange believes that the
proposed fees are reasonable because they will allow the Exchange to
recover its costs associated with providing services related to the
proposed fees and not result in excessive pricing or supra-competitive
profit. Since 2019, when the Exchange launched operations with Complex
Order functionality, the Exchange has spent time and resources building
out various Complex Order functionality in its System to provide better
trading strategies and risk functionality for market participants in
order to better compete with other exchanges' complex functionality and
similar data products focused on complex orders.\31\ The cToM data
product allows market participants to better utilize the Exchange's
Complex Order functionality by providing insights into the Exchange's
Complex Order flow. The Exchange notes that no market participant
ceased subscribing to the cToM feed since July 1, 2021, the date on
which the fees became effective when proposed in the First Proposed
Rule Change.
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\31\ See Securities Exchange Act Release Nos. 79405 (November
28, 2016), 81 FR 87086 (December 2, 2016) (SR-MIAX-2016-44)
(amendment to clarify the manner in which the System allocates
contracts at the end of a Complex Auction); 80089 (February 22,
2017), 82 FR 12153 (February 28, 2017) (SR-MIAX-2017-06) (adopting
the Complex MIAX Options Price Collar, an additional price
protection feature); 81229 (July 27, 2017), 82 FR 36023 (August 2,
2017) (SR-MIAX-2017-34) (amendment to ensure price and trade
protections apply to Complex Orders); 89085 (June 17, 2020), 85 FR
37719 (June 23, 2020) (SR-MIAX-2020-16) (adopting new order type,
Complex Attributable Order).
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As outlined in more detail below, the Exchange projects that its
annualized expense for 2021 to provide cToM data to be approximately
$202,657 per annum or an average of $16,888 per month. The Exchange
implemented the proposed fees on July 1, 2021 in the First Proposed
Rule Change. For June 2021, prior to the proposed fees, Exchange
Members and non-Members subscribed to a total of 14 cToM data feeds for
which the Exchange charged $0, as it has for the past three years. This
resulted in a loss of approximately $16,888 for that month. For the
month of November 2021, which includes the proposed fees, Exchange
Members and non-Members purchased 14 cToM data feeds, for which the
Exchange charged approximately $17,500 for that month. This resulted in
a profit of $612 for that month (a margin of approximately 3.5%). The
Exchange cautions that this margin may fluctuate from month to month
based on the uncertainty of predicting how many cToM data feeds may be
purchased from month to month as Members and non-Members are able to
add and drop subscriptions at any time based on their own business
decisions. This margin may also decrease due to the significant
inflationary pressure on capital items that the Exchange needs to
purchase to maintain the Exchange's technology and systems.\32\ The
Exchange has been subject to price increases upwards of 30% on network
equipment due to supply chain shortages. This, in turn, results in
higher overall costs for ongoing system maintenance, but also to
purchase the items necessary to ensure ongoing system resiliency,
performance, and determinism. These costs are expected to continue to
go up as the U.S. economy continues to struggle with supply chain and
inflation related issues.
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\32\ See ``Supply chain chaos is already hitting global growth.
And it's about to get worse'', by Holly Ellyatt, CNBC, available at
<a href="https://www.cnbc.com/2021/10/18/supply-chain-chaos-is-hitting-global-growth-and-could-get-worse.html">https://www.cnbc.com/2021/10/18/supply-chain-chaos-is-hitting-global-growth-and-could-get-worse.html</a> (October 18, 2021); and
``There will be things that people can't get, at Christmas, White
House warns'' by Jarrett Renshaw and Trevor Hunnicutt, Reuters,
available at <a href="https://www.reuters.com/world/us/americans-may-not-get-some-christmas-treats-white-house-officials-warn-2021-10-12/">https://www.reuters.com/world/us/americans-may-not-get-some-christmas-treats-white-house-officials-warn-2021-10-12/</a>
(October 12, 2021).
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Further, the Exchange chose to provide cToM data for free for the
past three years to attract order flow and encourage market
participants to experience the determinism and resiliency of the
Exchange's trading systems and market data products. This resulted in
the Exchange forgoing revenue it could have generated from assessing
any fees. The Exchange could have sought to charge some fees at the
outset, but that could have served to discourage participation on the
Exchange. Instead, the Exchange chose to provide a free exchange
product to the options industry, which resulted in no initial revenues,
going on three years. The Exchange now proposes to amend its fee
structure to enable it to continue to maintain and improve its overall
market and systems while also providing a highly reliable and
deterministic trading system to the marketplace, complete with robust
market data products, including cToM.
As mentioned above, the Exchange projects that its annualized
expense for 2021 to provide cToM data to be approximately $202,657 per
annum or an average of $16,888 per month and that these costs are
expected to increase not only due to anticipated significant
inflationary pressure, but also periodic fee increases by third
parties.\33\ The Exchange notes that there are material costs
associated with providing the infrastructure and headcount to fully-
support access to the Exchange and various Exchange products. The
Exchange incurs technology expense related to establishing and
maintaining Information Security services, enhanced network monitoring
and customer reporting, as well as Regulation SCI mandated processes,
associated with its network technology. While some of the expense is
fixed, much of the expense is not fixed, and thus increases the cost to
the Exchange to provide services associated with the proposed fees. For
example, new Members to the Exchange may require the purchase of
additional hardware to support those Members as well as enhanced
monitoring and reporting of customer performance that the Exchange and
its affiliates provide. Further, as the total number Members increases,
the Exchange and its affiliates may need to increase their data center
footprint and consume more power, resulting in increased costs charged
by their third-party data center provider. Accordingly, the cost to the
Exchange and its affiliates to provide services and
[[Page 73055]]
products to its Members is not fixed. The Exchange believes the
proposed fees are a reasonable attempt to offset a portion of the costs
to the Exchange associated with providing certain Exchange products.
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\33\ For example, on October 20, 2021, ICE Data Services
announced a 3.5% price increase effective January 1, 2022 for most
services. The price increase by ICE Data Services includes their
Secure Financial Transaction Infrastructure (``SFTI'') network,
which is relied on by a majority of market participants, including
the Exchange. See email from ICE Data Services to the Exchange,
dated October 20, 2021. The Exchange further notes that on October
22, 2019, the Exchange was notified by ICE Data Services that it was
raising its fees charged to the Exchange by approximately 11% for
the SFTI network.
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The Exchange only has four primary sources of revenue and cost
recovery mechanisms: Transaction fees, access fees, regulatory fees,
and market data fees. Accordingly, the Exchange must cover all of its
expenses from these four primary sources of revenue and cost recovery
mechanisms. Until recently, the Exchange has operated at a cumulative
net annual loss since it launched operations in 2019.\34\ This is a
result of providing a low cost alternative to attract order flow and
encourage market participants to experience the high determinism and
resiliency of the Exchange's trading Systems. To do so, the Exchange
chose to waive the fees for some non-transaction related services and
market data products or provide them at a very marginal cost, which has
not been profitable to the Exchange, but beneficial to the overall
options industry. This resulted in the Exchange forgoing revenue it
could have generated from assessing any amount of fees.
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\34\ The Exchange has incurred a cumulative loss of $22 million
since its inception in 2019 to 2020, the last year for which the
Exchange's Form 1 data is available. See Exchange's Form 1/A,
Application for Registration or Exemption from Registration as a
National Securities Exchange, filed July 28 [sic], 2021, available
at <a href="https://sec.report/Document/9999999997-21-004557/">https://sec.report/Document/9999999997-21-004557/</a>.
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The Exchange believes that the proposed fees are fair and
reasonable because they will not result in excessive pricing or supra-
competitive profit, when comparing the total annual expense that the
Exchange projects to incur in connection with providing these services
versus the total annual revenue that the Exchange projects to collect
in connection with services associated with the proposed fees. As
mentioned above, for 2021,\35\ the total annual expense for providing
the services associated with the proposed fees is projected to be
approximately $202,657, or approximately $16,888 per month. This
projected total annual expense is comprised of the following, all of
which are directly related to the services associated with the proposed
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 fees.\36\ As noted above, the
Exchange believes it is more appropriate to analyze the proposed fees
utilizing its 2021 revenue and costs, which utilize the same
presentation methodology as set forth in the Exchange's previously-
issued Audited Unconsolidated Financial Statements.\37\ The $202,657
projected total annual expense is directly related to the services
associated with the proposed fees, and not any other product or service
offered by the Exchange. It does not include general costs of operating
matching engines and other trading technology. No expense amount was
allocated twice.
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\35\ The Exchange has not yet finalized its 2021 year end
results.
\36\ The percentage allocations used in this proposed rule
change may differ from past filings from the Exchange or its
affiliates due to, among other things, changes in expenses charged
by third-parties, adjustments to internal resource allocations, and
different system architecture of the Exchange as compared to its
affiliates.
\37\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the
information technology and communication costs line item under the
section titled ``Operating Expenses Incurred Directly or Allocated
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing
its financial statements for 2018. See Securities Exchange Act
Release No. 87877 (December 31, 2019), 85 FR 738 (January 7, 2020)
(SR-EMERALD-2019-39). Accordingly, the third-party expense described
in this filing is attributed to the same line item for the
Exchange's 2021 Form 1 Amendment, which will be filed in 2022.
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As discussed above, the Exchange conducted an extensive cost review
in which the Exchange analyzed nearly every expense item in the
Exchange's general expense ledger (this includes over 150 separate and
distinct expense items) to determine whether each such expense relates
to the services associated with the proposed fees, and, if such expense
did so relate, what portion (or percentage) of such expense actually
supports those services, and thus bears a relationship that is, ``in
nature and closeness,'' directly related to those services. The sum of
all such portions of expenses represents the total cost of the Exchange
to provide services associated with the proposed fees.
External Expense Allocations
For 2021, total third-party expense, relating to fees paid by the
Exchange to third-parties for certain products and services for the
Exchange to be able to provide the services associated with the
proposed fees, is projected to be $4,160. This includes, but is not
limited to, a portion of the fees paid to: (1) Equinix, for data center
services, for the primary, secondary, and disaster recovery locations
of the Exchange's trading system infrastructure; (2) Zayo Group
Holdings, Inc. (``Zayo'') for network services (fiber and bandwidth
products and services) linking the Exchange's office locations in
Princeton, New Jersey and Miami, Florida, to all data center locations;
and (3) various other hardware and software providers (including Dell
and Cisco, which support the production environment in which Members
connect to the network to trade, receive market data, etc.). For
clarity, only a portion of all fees paid to such third-parties is
included in the third-party expense herein, and no expense amount is
allocated twice. Accordingly, the Exchange does not allocate its entire
information technology and communication costs to the services
associated with the proposed fees.
For clarity, only a portion of all fees paid to such third-parties
is included in the third-party expense herein, and no expense amount is
allocated twice. Accordingly, the Exchange does not allocate its entire
information technology and communication costs to the market data
product associated with the proposed fees. Further, the Exchange notes
that, with respect to the expenses included herein, those expenses only
cover the MIAX market; expenses associated with MIAX PEARL, LLC (``MIAX
Pearl'') for its options and equities markets and MIAX, are accounted
for separately and are not included within the scope of this filing. As
noted above, the percentage allocations used in this proposed rule
change may differ from past filings from the Exchange or its affiliates
due to, among other things, changes in expenses charged by third-
parties, adjustments to internal resource allocations, and different
system architecture of the Exchange as compared to its affiliates.
Further, as part its ongoing assessment of costs and expenses, the
Exchange recently conducted a periodic thorough review of its expenses
and resource allocations, which, in turn, resulted in a revised
percentage allocations in this filing.
The Exchange believes it is reasonable to allocate such third-party
expense described above towards the total cost to the Exchange to
provide the services associated with the proposed fees. In particular,
the Exchange believes it is reasonable to allocate the identified
portion of the Equinix expense because Equinix operates the data
centers (primary, secondary, and disaster recovery) that host the
Exchange's network infrastructure. This includes, among other things,
the necessary storage space, which continues to expand and increase in
cost, power to operate the network infrastructure, and cooling
apparatuses to ensure the Exchange's network infrastructure maintains
stability. Without these
[[Page 73056]]
services from Equinix, the Exchange would not be able to operate and
support the network and provide the cToM product associated with the
proposed fees to its Members, non-Members and their customers. The
Exchange did not allocate all of the Equinix expense toward the cost of
providing the cToM product associated with the proposed fees, only that
portion which the Exchange identified as being specifically mapped to
providing the cToM product associated with the proposed fees,
approximately 0.20% of the total applicable Equinix expense. The
Exchange believes this allocation is reasonable because it represents
the Exchange's actual cost to provide the cToM product associated with
the proposed fees, and not any other service, as supported by its cost
review.\38\
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\38\ As noted above, the percentage allocations used in this
proposed rule change may differ from past filings from the Exchange
or its affiliates due to, among other things, changes in expenses
charged by third-parties, adjustments to internal resource
allocations, and different system architecture of the Exchange as
compared to its affiliates. Again, as part its ongoing assessment of
costs and expenses, the Exchange recently conducted a periodic
thorough review of its expenses and resource allocations which, in
turn, resulted in a revised percentage allocations in this filing.
---------------------------------------------------------------------------
The Exchange believes it is reasonable to allocate the identified
portion of the Zayo expense because Zayo provides the internet, fiber
and bandwidth connections with respect to the network, linking the
Exchange with its affiliates, MIAX Pearl and MIAX, as well as the data
center and disaster recovery locations. As such, all of the trade data,
including the billions of messages each day per exchange, flow through
Zayo's infrastructure over the Exchange's network. Without these
services from Zayo, the Exchange would not be able to operate and
support the network and provide the cToM data associated with the
proposed fees. The Exchange did not allocate all of the Zayo expense
toward the cost of providing the cToM data associated with the proposed
fees, only the portion which the Exchange identified as being
specifically mapped to providing the cToM data associated with the
proposed fees, approximately 0.20% of the total applicable Zayo
expense. The Exchange believes this allocation is reasonable because it
represents the Exchange's actual cost to provide the cToM data
associated with the proposed fees, and not any other service, as
supported by its cost review.\39\
---------------------------------------------------------------------------
\39\ Id.
---------------------------------------------------------------------------
The Exchange did not allocate any expense associated with the
proposed fees towards SFTI and various other service providers'
(including Thompson Reuters, NYSE, Nasdaq, and Internap) because the
MIAX Emerald architecture takes advantage of an advance in design to
eliminate the need for a market data distribution gateway layer. The
computation and dissemination via an API is done solely within the
match engine environment and is then delivered via the member and non-
member connectivity infrastructure. This architecture delivers a market
data system that is more efficient both in cost and performance.
Accordingly, the Exchange determined not to allocate any expense
associated with SFTI and various other service providers.
The Exchange believes it is reasonable to allocate the identified
portion of the other hardware and software provider expense because
this includes costs for dedicated hardware licenses for switches and
servers, as well as dedicated software licenses for security monitoring
and reporting across the network. Without this hardware and software,
the Exchange would not be able to operate and support the network and
provide cToM data to its Members, non-Members and their customers. The
Exchange did not allocate all of the hardware and software provider
expense toward the cost of providing the cToM data associated with the
proposed fees, only the portions which the Exchange identified as being
specifically mapped to providing the cToM data associated with the
proposed fees, approximately 0.20% of the total applicable hardware and
software provider expense. The Exchange believes this allocation is
reasonable because it represents the Exchange's actual cost to provide
the cToM data associated with the proposed fees.\40\
---------------------------------------------------------------------------
\40\ Id.
---------------------------------------------------------------------------
Internal Expense Allocations
For 2021, total projected internal expense, relating to the
internal costs of the Exchange to provide the cToM data associated with
the proposed fees, is projected to be $198,497. This includes, but is
not limited to, costs associated with: (1) Employee compensation and
benefits for full-time employees that support the cToM data associated
with the proposed fees, including staff in network operations, trading
operations, development, system operations, and business that support
those employees and functions; (2) depreciation and amortization of
hardware and software used to provide the cToM data associated with the
proposed fees, including equipment, servers, cabling, purchased
software and internally developed software used in the production
environment to support the network for trading; and (3) occupancy costs
for leased office space for staff that provide the cToM data associated
with the proposed fees. The breakdown of these costs is more fully-
described below. For clarity, only a portion of all such internal
expenses are included in the internal expense herein, and no expense
amount is allocated twice. Accordingly, the Exchange does not allocate
its entire costs contained in those items to the cToM data associated
with the proposed fees.
The Exchange believes it is reasonable to allocate such internal
expense described above towards the total cost to the Exchange to
provide the cToM data associated with the proposed fees. In particular,
the Exchange's employee compensation and benefits expense relating to
providing the cToM data associated with the proposed fees is projected
to be approximately $185,002, which is only a portion of the $9.74
million total projected expense for employee compensation and benefits.
The Exchange believes it is reasonable to allocate the identified
portion of such expense because this includes the time spent by
employees of several departments, including Technology, Back Office,
Systems Operations, Networking, Business Strategy Development (who
create the business requirement documents that the Technology staff use
to develop network features, products and enhancements), and Trade
Operations. As part of the extensive cost review conducted by the
Exchange, the Exchange reviewed the amount of time spent by nearly
every employee on matters relating to cToM. Without these employees,
the Exchange would not be able to provide the cToM product to its
Members, non-Members and their customers. The Exchange did not allocate
all of the employee compensation and benefits expense toward the cost
of the cToM product, only the portion which the Exchange identified as
being specifically mapped to providing the cToM product associated with
the proposed fees, approximately 2.0% of the total applicable employee
compensation and benefits expense. The Exchange believes this
allocation is reasonable because it represents the Exchange's actual
cost to provide the cToM data associated with the proposed fees, and
not any other service, as supported by its cost review.\41\
---------------------------------------------------------------------------
\41\ Id.
---------------------------------------------------------------------------
The Exchange's depreciation and amortization expense relating to
providing the cToM data associated
[[Page 73057]]
with the proposed fees is projected to be $3,635, which is only a
portion of the $1.9 million total projected expense for depreciation
and amortization. The Exchange believes it is reasonable to allocate
the identified portion of such expense because such expense includes
the actual cost of the computer equipment, such as dedicated servers,
computers, laptops, monitors, information security appliances and
storage, and network switching infrastructure equipment, including
switches and taps that were purchased to operate and support the
network and provide the cToM product. Without this equipment, the
Exchange would not be able to operate the network and provide the cToM
product to its Members, non-Members and their customers. The Exchange
did not allocate all of the depreciation and amortization expense
toward the cost of providing the cToM product, only the portion which
the Exchange identified as being specifically mapped to providing the
cToM product, approximately 0.20% of the total applicable depreciation
and amortization expense, as this product would not be possible without
relying on such. The Exchange believes this allocation is reasonable
because it represents the Exchange's actual cost to provide the cToM
product associated with the proposed fees, and not any other service,
as supported by its cost review.\42\
---------------------------------------------------------------------------
\42\ Id.
---------------------------------------------------------------------------
The Exchange's occupancy expense relating to providing the cToM
product associated with the proposed fees is projected to be $9,860,
which is only a portion of the $0.60 million total projected expense
for occupancy. The Exchange believes it is reasonable to allocate the
identified portion of such expense because such expense represents the
portion of the Exchange's cost to rent and maintain a physical location
for the Exchange's staff who operate and support the network, including
providing the cToM product. This amount consists primarily of rent for
the Exchange's Princeton, New Jersey office, as well as various related
costs, such as physical security, property management fees, property
taxes, and utilities. The Exchange operates its Network Operations
Center (``NOC'') and Security Operations Center (``SOC'') from its
Princeton, New Jersey office location. A centralized office space is
required to house the staff that operates and supports the network and
Exchange products. The Exchange currently has approximately 200
employees. Approximately two-thirds of the Exchange's staff are in the
Technology department, and the majority of those staff have some role
in the operation and performance of the services associated with the
proposed fees. Accordingly, the Exchange believes it is reasonable to
allocate the identified portion of its occupancy expense because such
amount represents the Exchange's actual cost to house the equipment and
personnel who operate and support the Exchange's network infrastructure
and the market data services associated with the proposed fees. The
Exchange did not allocate all of the occupancy expense toward the cost
of providing the market data services associated with the proposed
fees, only the portion which the Exchange identified as being
specifically mapped to operating and supporting the network,
approximately 2.0% of the total applicable occupancy expense. The
Exchange believes this allocation is reasonable because it represents
the Exchange's cost to provide the market data services associated with
the proposed fees, and not any other service, as supported by its cost
review.\43\
---------------------------------------------------------------------------
\43\ Id.
---------------------------------------------------------------------------
Based on the above, the Exchange believes that its provision of
market data services associated with the proposed fees will not result
in excessive pricing or supra-competitive profit. As discussed above,
the Exchange projects that its annualized expense for 2021 to provide
the cToM data associated with the proposed fees is projected to be
approximately $202,657, or approximately $16,888 per month on average.
The Exchange implemented the proposed fees on July 1, 2021 in the First
Proposed Rule Change. For June 2021, prior to the proposed fees,
Members and non-Members subscribed to a total of 14 cToM data feeds,
for which the Exchange charged $0, for the past three years. This
resulted in a month over month loss of $16,888. For the month of
November 2021, which includes the proposed fees, Members and non-
Members subscribed to 14 cToM data feeds, for which the Exchange
charged approximately $17,500 for that month. This resulted in a profit
of $612 for that month (a margin of approximately 3.5%). The Exchange
believes this margin will allow it to begin to recoup its expenses and
continue to invest in its technology infrastructure. Therefore, the
Exchange also believes that this proposed margin is reasonable because
it represents a reasonable rate of return.
Again, the Exchange cautions that this margin may fluctuate from
month to month based in the uncertainty of predicting how many market
data feeds may be purchased from month to month as Members and non-
Members are free to add and drop subscriptions at any time based on
their own business decisions. This margin may also decrease due to the
significant inflationary pressure on capital items that it needs to
purchase to maintain the Exchange's technology and systems.
Accordingly, the Exchange believes its total projected revenue for the
providing the market data services associated with the proposed fees
will not result in excessive pricing or supra-competitive profit.
The Exchange believes it is reasonable, equitable and not unfairly
discriminatory to allocate the respective percentages of each expense
category described above towards the total cost to the Exchange of
operating and supporting the network, including providing the market
data services associated with the proposed fees because the Exchange
performed a line-by-line item analysis of nearly every expense of the
Exchange, and has determined the expenses that directly relate to
providing market data services to the Exchange. Further, the Exchange
notes that, without the specific third-party and internal expense items
listed above, the Exchange would not be able to provide the market data
services associated with the proposed fees to its Members, non-Members
and their customers. Each of these expense items, including physical
hardware, software, employee compensation and benefits, occupancy
costs, and the depreciation and amortization of equipment, have been
identified through a line-by-line item analysis to be integral to
providing market data services. The proposed fees are intended to
recover the costs of providing cToM data. Accordingly, the Exchange
believes that the proposed fees are fair and reasonable because they do
not result in excessive pricing or supra-competitive profit, when
comparing the actual costs to the Exchange versus the projected annual
revenue from the proposed fees.
No market participant is required by any rule or regulation to
utilize the Exchange's Complex Order functionality or subscribe to the
cToM data feed. Further, unlike orders on the Exchange's Simple Order
Book, Complex Orders are not protected and will never trade through
Priority Customer \44\ orders,
[[Page 73058]]
thus protecting the priority that is established in the Simple Order
Book.\45\ Additionally, unlike the continuous quoting requirements of
Market Makers in the simple order market, there are no continuous
quoting requirements respecting Complex Orders. It is a business
decision whether market participants utilize Complex Order strategies
on the Exchange and whether to purchase cToM data to help effect those
strategies.
---------------------------------------------------------------------------
\44\ The term ``Priority Customer'' means a person or entity
that (i) is not a broker or dealer in securities and (ii) does not
place more than 390 orders in listed options per day on average
during a calendar month for its own beneficial accounts(s). The term
``Priority Customer Order'' means an order for the account of a
Priority Customer. See Exchange Rule 100.
\45\ The ``Simple Order Book'' is the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 518(a)(5)
[sic].
---------------------------------------------------------------------------
The Proposed Fees Are Reasonable When Compared to the Fees of Other
Options Exchanges With Similar Market Share
The Exchange does not have visibility into other options exchanges'
costs to provide market data or their fee markup over those costs, and
therefore cannot use other exchange's market data fees as a benchmark
to determine a reasonable markup over the costs of providing market
data. Nevertheless, the Exchange believes the other exchange's market
data fees are a useful examples [sic] of alternative approaches to
providing and charging for market data. To that end, the Exchange
believes the proposed pricing is reasonable because the proposed rates
are similar to or less than the fees charged by other options exchanges
for similar data products.\46\
---------------------------------------------------------------------------
\46\ See supra notes 18, 19 and 20.
---------------------------------------------------------------------------
Until recently, the Exchange has operated at a cumulative net
annual loss since it launched operations in 2019.\47\ This is a result
of providing a low cost alternative to attract order flow and encourage
market participants to experience the high determinism and resiliency
of the Exchange's trading Systems. To do so, the Exchange chose to
waive the fees for some non-transaction related services or Exchange
products or provide them at a very marginal cost, which was not
profitable to the Exchange. This resulted in the Exchange forgoing
revenue it could have generated from assessing any fees or higher fees.
The Exchange could have sought to charge higher fees at the outset, but
that could have served to discourage participation on the Exchange.
Instead, the Exchange chose to provide a low cost exchange alternative
to the options industry which resulted in lower initial revenues. An
example of this is cToM, for which the Exchange only now seeks to adopt
fees at a level similar to or lower than those of other options
exchanges.
---------------------------------------------------------------------------
\47\ See supra note 34.
---------------------------------------------------------------------------
Since, the Exchange initially established the cToM data product
when it launched trading operations on March 1, 2019, all Exchange
Members and non-Members have had the ability to receive the Exchange's
cToM data free of charge for the past three years.\48\ Since 2019, when
the Exchange launched operations with Complex Order functionality, the
Exchange has spent time and resources building out various Complex
Order functionality in its System to provide better trading strategies
and risk functionality for market participants in order to better
compete with other exchanges' complex functionality and similar data
products focused on complex orders.\49\ The cToM data product allows
market participants to better utilize the Exchange's Complex Order
functionality by providing insights into the Exchange's Complex Order
flow. The Exchange currently has 14 subscribers (12 Members and 2 non-
Members) for its cToM data product. Each one of these subscribers have
not paid any cToM data fees (other than the five months in which the
First, Second and Third Proposed Rule Changes were in effect) but have
received the benefit of the Exchange building out its Complex Order
functionality to better compete with other exchanges complex
functionality. The Exchange notes that no market participant ceased
subscribing to the cToM feed since July 1, 2021, the date on which the
fees became effective when proposed in the First Proposed Rule Change.
---------------------------------------------------------------------------
\48\ See supra note 13.
\49\ See Securities Exchange Act Release Nos. 85345 (March 18,
2019), 84 FR 10848 (March 22, 2019) (SR-EMERALD-2019-13) (adopting
complex stock-option order functionality); 85346 (March 18, 2019),
84 FR 10854 (March 22, 2019) (SR-EMERALD-2019-14) (adopting
additional price protection during a Complex Auction and the Complex
Liquidity Exposure Process to provide additional price discovery).
---------------------------------------------------------------------------
The Proposed Pricing Is Not Unfairly Discriminatory and Provides for
the Equitable Allocation of Fees, Dues, and Other Charges
The Exchange believes that it is reasonable, equitable and not
unfairly discriminatory to assess Internal Distributors fees that are
less than the fees assessed for External Distributors for subscriptions
to the cToM data feed because Internal Distributors have limited,
restricted usage rights to the market data, as compared to External
Distributors, which have more expansive usage rights. All Members and
non-Members that determine to receive any market data feed of the
Exchange (or its affiliates, MIAX Pearl and MIAX), must first execute,
among other things, the MIAX Exchange Group Exchange Data Agreement
(the ``Exchange Data Agreement'').\50\ Pursuant to the Exchange Data
Agreement, Internal Distributors are restricted to the ``internal use''
of any market data they receive. This means that Internal Distributors
may only distribute the Exchange's market data to the recipient's
officers and employees and its affiliates.\51\ External Distributors
may distribute the Exchange's market data to persons who are not
officers, employees or affiliates of the External Distributor,\52\ and
may charge their own fees for the distribution of such market data.
Accordingly, the Exchange believes it is fair, reasonable and not
unfairly discriminatory to assess External Distributors a higher fee
for the Exchange's market data products as External Distributors have
greater usage rights to commercialize such market data. The Exchange
also utilizes more resources to support External Distributors versus
Internal Distributors, as External Distributors have reporting and
monitoring obligations that Internal Distributors do not have, thus
requiring additional time and effort of Exchange staff. The Exchange
believes the proposed cToM fees are equitable and not unfairly
discriminatory because the fee level results in a reasonable and
equitable allocation of fees amongst subscribers for similar services,
depending on whether the subscribers is an Internal or External
Distributor. Moreover, the decision as to whether or not to purchase
market data is entirely optional to all market participants. Potential
purchasers are not required to purchase the market data, and the
Exchange is not required to make the market data available. Purchasers
may request the data at any time or may decline to purchase such data.
The allocation of fees among users is fair and reasonable because, if
market participants deem the proposed fees to be unfair or inequitable,
firms can discontinue their use of the cToM data.
---------------------------------------------------------------------------
\50\ See Exchange Data Agreement, available at <a href="https://miaxweb2.pairsite.com/sites/default/files/page-files/MIAX_Exchange_Group_Data_Agreement_09032020.pdf">https://miaxweb2.pairsite.com/sites/default/files/page-files/MIAX_Exchange_Group_Data_Agreement_09032020.pdf</a>.
\51\ See id.
\52\ See id.
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Further, the Exchange believes that the proposal is equitable and
not unfairly discriminatory because the proposed cToM fees will apply
to all market participants of the Exchange on a uniform basis. The
Exchange also notes that the proposed monthly cToM fees for Internal
and External Distributors are the same prices that the
[[Page 73059]]
Exchange charges for its ToM data product.
The Exchange believes the proposed change to delete certain text
from Section (6)(a) of the Fee Schedule promotes just and equitable
principles of trade and removes impediments to and perfects the
mechanism of a free and open market and a national market system
because the proposed change is a non-substantive edit to the Fee
Schedule to remove unnecessary text. The Exchange believes that this
proposed change will provide greater clarity to Members and the public
regarding the Exchange's Fee Schedule and that it is in the public
interest for the Fee Schedule to be accurate and concise so as to
eliminate the potential for confusion.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
Intra-Market Competition
The Exchange believes the proposed fees will not result in any
burden on intra-market competition that is not necessary or appropriate
in furtherance of the purposes of the Act because the proposed fees
will allow the Exchange to recoup some of its costs in providing cToM
to market participants. As described above, the Exchange has operated
at a cumulative net annual loss since it launched operations in 2019
\53\ due to providing a low cost alternative to attract order flow and
encourage market participants to experience the high determinism and
resiliency of the Exchange's trading Systems. To do so, the Exchange
chose to waive the fees for some non-transaction related services and
Exchange products or provide them at a very marginal cost, which was
not profitable to the Exchange. This resulted in the Exchange forgoing
revenue it could have generated from assessing any fees or higher fees.
The Exchange could have sought to charge higher fees at the outset, but
that could have served to discourage participation on the Exchange.
Instead, the Exchange chose to provide a low cost exchange alternative
to the options industry which resulted in lower initial revenues. An
example of this is cToM, for which the Exchange only now seeks to adopt
fees at a level similar to or lower than those of other options
exchanges.
---------------------------------------------------------------------------
\53\ See supra note 34.
---------------------------------------------------------------------------
Since the Exchange initially launched operations with the cToM data
product in 2019, all Exchange Members and non-Members have had the
ability to receive the Exchange's cToM data free of charge for the past
three years.\54\ Since 2019, when the Exchange adopted Complex Order
functionality, the Exchange has spent time and resources building out
various Complex Order functionality in its System to provide better
trading strategies and risk functionality for market participants in
order to better compete with other exchanges' complex functionality and
similar data products focused on complex orders.\55\ The Exchange now
seeks to recoup its costs for providing cToM to market participants and
believes the proposed fees will not result in excessive pricing or
supracompetitive profit.
---------------------------------------------------------------------------
\54\ See supra note 13.
\55\ See supra note 49.
---------------------------------------------------------------------------
Inter-Market Competition
The Exchange also does not believe the proposed fees would cause
any unnecessary or in appropriate burden on intermarket competition as
other exchanges are free to introduce their own comparable data product
and lower their prices to better compete with the Exchange's offering.
The Exchange does not believe the proposed rule change would cause any
unnecessary or inappropriate burden on intramarket competition.
Particularly, the proposed product and fees apply uniformly to any
purchaser, in that it does not differentiate between subscribers that
purchase cToM. The proposed fees are set at a modest level that would
allow any interested Member or non-Member to purchase such data based
on their business needs.
The Exchange does not believe that the proposed rule change to make
a minor, non-substantive edit to Section (6)(a) of the Fee Schedule by
deleting unnecessary text will result in any burden on competition that
is not necessary or appropriate in furtherance of the purposes of the
Act. This proposed rule change is not being made for competitive
reasons, but rather is designed to remedy a minor non-substantive issue
and will provide added clarity to the Fee Schedule. The Exchange
believes that it is in the public interest for the Fee Schedule to be
accurate and concise so as to eliminate the potential for confusion on
the part of market participants. In addition, the Exchange does not
believe the proposal will impose any burden on inter-market competition
as the proposal does not address any competitive issues and is intended
to protect investors by providing further transparency regarding the
Exchange's Fee Schedule.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act,\56\ and Rule 19b-4(f)(2) \57\ thereunder.
At any time within 60 days of the filing of the proposed rule change,
the Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act. If the Commission takes such
action, the Commission shall institute proceedings to determine whether
the proposed rule should be approved or disapproved.
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\56\ 15 U.S.C. 78s(b)(3)(A)(ii).
\57\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<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#84f6f1e8e1a9e7ebe9e9e1eaf0f7c4f7e1e7aae3ebf2"><span class="__cf_email__" data-cfemail="582a2d343d753b3735353d362c2b182b3d3b763f372e">[email protected]</span></a>. Please include
File Number SR-EMERALD-2021-44 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-2021-44. 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
[[Page 73060]]
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-2021-44, and should be submitted
on or before January 13, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
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\58\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27816 Filed 12-22-21; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on December 23, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.