Notice2024-05836
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Increase Fees for the ToM Market Data Product and 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
March 20, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 55 (Wednesday, March 20, 2024)</title>
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[Federal Register Volume 89, Number 55 (Wednesday, March 20, 2024)]
[Notices]
[Pages 19915-19929]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-05836]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99737; File No. SR-EMERALD-2024-09]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Increase Fees for the ToM Market Data Product and Establish Fees for
the cToM Market Data Product
March 14, 2024.
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 March 1, 2024, MIAX Emerald, LLC (``MIAX Emerald'' or ``Exchange''),
filed with the
[[Page 19916]]
Securities and Exchange Commission (``Commission'') a proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by the Exchange. The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
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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 MIAX Emerald Fee
Schedule (the ``Fee Schedule'') to (i) amend the fees for the MIAX
Emerald Top of Market (``ToM'') data feed; and (ii) establish fees for
the MIAX Emerald Complex Top of Market (``cToM'') data feed.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings">https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings</a>, at MIAX Emerald'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: (i) amend the fees for ToM; and (ii)
establish fees for cToM. The ToM data feed contains top of book
quotations based on options orders \3\ and quotes \4\ resting on the
Exchange's Simple Order Book \5\ as well as administrative messages.\6\
The cToM data feed includes the same types of information as ToM, but
for Complex Orders \7\ on the Exchange's Strategy Book.\8\ This
information includes the Exchange's best bid and offer for a complex
strategy,\9\ with aggregate size, based on displayable orders in the
complex strategy. The cToM data feed also provides subscribers with the
following information: (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). ToM subscribers are not
required to subscribe to cToM, and cToM subscribers are not required to
subscribe to ToM.
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\3\ The term ``order'' means a firm commitment to buy or sell
option contracts. See Exchange Rule 100.
\4\ The term ``quote'' or ``quotation'' means a bid or offer
entered by a Market Maker that is firm and may update the Market
Maker's previous quote, if any. The Rules of the Exchange provide
for the use of different types of quotes, including Standard quotes
and eQuotes, as more fully described in Rule 517. A Market Maker
may, at times, choose to have multiple types of quotes active in an
individual option. See Exchange Rule 100.
\5\ The term ``Simple Order Book'' means the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
\6\ See Fee Schedule, Section 6)a).
\7\ In sum, a ``Complex Order'' is ``any order involving the
concurrent purchase and/or sale of two or more different options in
the same underlying security (the `legs' or `components' of the
complex order), for the same account . . . .'' See Exchange Rule
518(a)(5).
\8\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Exchange Rule 518(a)(17).
\9\ The term ``complex strategy'' means a particular combination
of components and their ratios to one another. New complex
strategies can be created as the result of the receipt of a complex
order or by the Exchange for a complex strategy that is not
currently in the System. The Exchange may limit the number of new
complex strategies that may be in the System at a particular time
and will communicate this limitation to Members via Regulatory
Circular. See Exchange Rule 518(a)(6).
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The Exchange notes that there is no requirement that any Member
\10\ or market participant subscribe to either the ToM or cToM data
feeds. Instead, a Member may choose to maintain subscriptions to ToM or
cToM based on their trading strategies and individual business
decisions. Moreover, persons (including broker-dealers) who subscribe
to any exchange proprietary data feed must also have equivalent access
to consolidated Options Information \11\ from the Options Price
Reporting Authority (``OPRA'') for the same classes or series of
options that are included in the proprietary data feed (including for
exclusively listed products), and proprietary data feeds cannot be used
to meet that particular requirement. As such, all proprietary data
feeds are purely optional and only those that deem the product to be of
sufficient overall value and usefulness would purchase it. The proposed
fees described below would not apply differently based upon the size or
type of firm, but rather based upon the type of subscription a firm has
to ToM or cToM and their use thereof, which are based upon factors
deemed relevant by each firm. The proposed pricing for ToM and cToM is
set forth below.\12\
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\10\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
\11\ The term ``consolidated Options Information'' means
``consolidated Last Sale Reports combined with either consolidated
Quotation Information or the BBO furnished by OPRA. . .'' Access to
consolidated Options Information is deemed ``equivalent'' if both
kinds of information are equally accessible on the same terminal or
work station. See Limited Liability Company Agreement of Options
Price Reporting Authority, LLC (``OPRA Plan''), Section 5.2(c)(iii).
The Exchange notes that this requirement under the OPRA Plan is also
reiterated under the Cboe Global Markets Global Data Agreement and
Cboe Global Markets North American Data Policies, which subscribers
to any exchange proprietary product must sign and are subject to,
respectively. Additionally, the Exchange's Data Order Form (used for
requesting the Exchange's market data products) requires
confirmation that the requesting market participant receives data
from OPRA.
\12\ The Exchange first filed the proposed fee change on
December 28, 2022. See Securities Exchange Act Release No. 96625
(January 10, 2023), 88 FR 2688 (January 17, 2023) (SR-EMERALD-2022-
37). After serval withdrawals and re-filings, the Commission Staff
suspended the proposed fees on August 3, 2023. See Securities
Exchange Act Release No. 98051 (August 3, 2023), 88 FR 53937 (August
9, 2023) (SR-EMERALD-2023-13). On January 17, 2024, the Exchange
withdrew the suspended proposed fee change. See Securities Exchange
Act Release No. 99407 (January 22, 2024), 89 FR 5273 (January 26,
2024).
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ToM
The Exchange currently charges a monthly fee of $1,250 to Internal
Distributors \13\ and $1,750 to External Distributors. The Exchange
proposes to charge a monthly fee of $2,000 to Internal Distributors and
$3,000 to External Distributors. The proposed fee increases are
intended to cover the Exchange's increasing costs with compiling and
producing the ToM data feed described in the Exchange's Cost Analysis
detailed below. The Exchange does not currently charge, nor does it now
propose to charge any additional fees based on a Distributor's use of
the ToM and cToM data feeds (e.g., displayed versus non-displayed use),
redistribution fees, or individual per user fees.
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\13\ 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 Fee Schedule, Section 6)a).
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cToM
The Exchange previously adopted rules governing the trading of
Complex Orders on the MIAX Emerald System in 2018,\14\ ahead of the
Exchange's planned
[[Page 19917]]
launch, which took place on March 1, 2019. Shortly thereafter, the
Exchange adopted the cToM data feed product and expressly waived fees
for cToM to incentivize market participants to subscribe.\15\ In the
five years since the Exchange launched operations and adopted Complex
Order functionality, the Exchange has grown its monthly complex market
share from 0% to 3.53% of the total electronic complex non-index volume
executed on exchanges offering electronic complex functionality based
on the month of January 2024.\16\ During that same period, the Exchange
experienced a steady increase in the number of cToM subscribers. Until
the Exchange initially filed to adopt cToM fees in July of 2021,\17\
the Exchange did not charge fees for subscriptions to the cToM data
feed. The objective of this approach was to eliminate any fee-based
barriers for Members when the Exchange first launched Complex Order
functionality, which the Exchange believed was necessary to attract
order flow as a relatively new exchange at that time. During that time,
the Exchange absorbed all costs associated with compiling and
disseminating the cToM data feed. The Exchange now proposes to
establish fees for the cToM data feed to recoup its ongoing costs going
forward, as described below.
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\14\ 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).
\15\ 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).
\16\ The Exchange notes that it receives complex market data for
all U.S. options exchanges that offer complex functionality from
direct feeds from OPRA.
\17\ See Securities Exchange Act Release Nos. 92358 (July 9,
2021), 86 FR 37361 (July 15, 2021) (SR-EMERALD-2021-21); 98051
(August 3, 2023), 88 FR 53937 (August 9, 2023) (SR-EMERALD-2023-13)
(Suspension of and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove Proposed Rule Change To Increase
Fees for the ToM Market Data Product and Establish Fees for the cToM
Market Data Product).
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The Exchange proposes to charge a monthly fee of $2,000 to Internal
Distributors and $3,000 to External Distributors of the cToM data feed.
The proposed fees are identical to those proposed herein for the ToM
data feed. Like the ToM data feed, the Exchange does not propose to
adopt separate redistribution fees for the cToM data feed. However, the
recipient of cToM data would be required to become a Distributor and
would be subject to the applicable Distribution fees. Also like the ToM
data feed, the Exchange does not propose to charge individual per user
fees or any additional fees based on a subscriber's use of the cToM
data feed (e.g., displayed versus non-displayed use).
The Exchange proposes to assess cToM fees to Internal and External
Distributors in the same manner as it currently does for the ToM data
feed. Each Distributor would be charged for each month it is
credentialed to receive cToM in the Exchange's production environment.
Also, fees for cToM will be reduced for new mid-month Distributors for
the first month they subscribe. New mid-month cToM Distributors would
be assessed a pro-rata percentage of the applicable Distribution fee
based on the percentage of the number of trading days remaining in the
affected calendar month as of the date on which they have been first
credentialed to receive cToM in the production environment, divided by
the total number of trading days in the affected calendar month.
Minor, Non-Substantive Changes
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 correction by deleting 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. This proposed change does not alter the
operation of either fee.
Implementation
The proposed fee changes are effective beginning March 1, 2024.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of section 6(b) \18\ of the Act in general, and
furthers the objectives of section 6(b)(4) \19\ of the Act, in
particular, in that it is designed to provide for the equitable
allocation of reasonable dues, fees and other charges among its Members
and other persons using its facilities. Additionally, the Exchange
believes that the proposed fees are consistent with the objectives of
section 6(b)(5) \20\ of the Act in that they are designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to a free and open market and
national market system, and, in general, to protect investors and the
public interest, and, particularly, are not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
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\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(4).
\20\ 15 U.S.C. 78f(b)(5).
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In 2019, Commission staff published guidance suggesting the types
of information that self-regulatory organizations (``SROs'') may use to
demonstrate that their fee filings comply with the standards of the
Exchange Act (the ``Staff Guidance'').\21\ While the Exchange
understands that the Staff Guidance does not create new legal
obligations on SROs, the Staff Guidance is consistent with the
Exchange's view about the type and level of transparency that exchanges
should meet to demonstrate compliance with their existing obligations
when they seek to charge new fees. The Staff Guidance provides that in
assessing the reasonableness of a fee, the Staff would consider whether
the fee is constrained by significant competitive forces. To determine
whether a proposed fee is constrained by significant competitive
forces, the Staff Guidance further provides that the Staff would
consider whether the evidence provided by an SRO in a Fee Filing
proposal demonstrates (i) that there are reasonable substitutes for the
product or service that is the subject of a proposed fee; (ii) that
``platform'' competition constrains the fee; and/or (iii) that the
revenue and cost analysis provided by the SRO otherwise demonstrates
that the proposed fee would not result in the SRO taking supra-
competitive profits.\22\ The Exchange provides sufficient evidence
below to support the findings that the proposed fees are constrained by
competitive forces; the ToM and cToM data feeds each have a reasonable
substitute; and that the proposed fees would not result in a supra-
competitive profit.
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\21\ See Staff Guidance on SRO Rule Filings Relating to Fees
(May 21, 2019), available 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>.
\22\ Id.
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As noted above, the Exchange also adopted the cToM data feed and
expressly waived fees over two years to incentivize market participants
to subscribe and make the Exchange's cToM data more widely
available.\23\ In the five years since the Exchange launched operations
and adopted Complex Order functionality, the Exchange has grown its
monthly complex market share from 0% to 3.53% of the total electronic
complex
[[Page 19918]]
non-index volume executed on U.S. options exchanges offering complex
functionality for the month of January 2024. One of the primary
objectives of the Exchange is to provide competition and to reduce
fixed costs imposed upon the industry. Consistent with this objective,
the Exchange believes that this proposal reflects a simple,
competitive, reasonable, and equitable pricing structure.
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\23\ See supra note 15.
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The Proposed Fees for the ToM and cToM Data Products Are Subject to
Significant Competitive Forces and the Fee Levels Are Comparable to the
Fees Charged by Other Exchanges for Similar Data Products
In adopting Regulation NMS, the Commission granted SROs and broker-
dealers increased authority and flexibility to offer new and unique
market data to the public. It was believed that this authority would
expand the amount of data available to consumers, and also spur
innovation and competition for the provision of market data.
Particularly, the ToM and cToM data feeds further broaden the
availability of U.S. option market data to investors consistent with
the principles of Regulation NMS. The data products also promotes
increased transparency through the dissemination of information
regarding quotes and last sale information during the trading day,
which may allow market participants to make better informed trading
decisions throughout the day.
As a threshold matter, the Exchange is subject to significant
competitive forces, which constrains its pricing determinations for
transaction fees as well market data fees. Indeed, there are currently
17 registered exchanges that trade equity options. For the month of
January 2024, based on publicly available information, no single
options exchange had more than approximately 13-14% of the equity
options market share and the Exchange represented only approximately
3.59% of the equity options market share for the month of January
2024.\24\ The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. Particularly, in
Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \25\ Making
similar data products available to market participants fosters
competition in the marketplace, and constrains the ability of exchanges
to charge supra-competitive fees. In the event that a market
participant views one exchange's data product as more or less
attractive than the competition they can and do switch between similar
products.
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\24\ See the ``Market Share'' section of the Exchange's website,
available at <a href="https://www.miaxglobal.com/">https://www.miaxglobal.com/</a>.
\25\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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The fact that the market for order flow is competitive has long
been recognized by the courts. In NetCoalition v. Securities and
Exchange Commission, the D.C. Circuit stated, ``[n]o one disputes that
competition for order flow is `fierce.' . . . As the SEC explained,
`[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .'' \26\
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\26\ See NetCoalition, 615 F.3d at 539 (D.C. Cir. 2010) (quoting
Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR
74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention to determine
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues, and also recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \27\
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\27\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Congress directed the Commission to ``rely on `competition,
whenever possible, in meeting its regulatory responsibilities for
overseeing the SROs and the national market system.' '' \28\ As a
result, and as evidenced above, the Commission has historically relied
on competitive forces to determine whether a fee proposal is equitable,
fair, reasonable, and not unreasonably or unfairly discriminatory. ``If
competitive forces are operative, the self-interest of the exchanges
themselves will work powerfully to constrain unreasonable or unfair
behavior.'' \29\ Accordingly, ``the existence of significant
competition provides a substantial basis for finding that the terms of
an exchange's fee proposal are equitable, fair, reasonable, and not
unreasonably or unfairly discriminatory.'' \30\ In the Staff Guidance,
Commission Staff indicated that they would look at factors beyond the
competitive environment, such as cost, only if a ``proposal lacks
persuasive evidence that the proposed fee is constrained by significant
competitive forces.'' \31\ In this case, the Exchange provided the
below Cost Analysis.
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\28\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep.
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that
the national market system evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed.'').
\29\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
\30\ Id.
\31\ See supra note 21.
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The Exchange notes that the proposed fees are consistent with the
fee amounts charged by competing U.S. securities exchanges. For this
reason, the Exchange believes that the proposed fees are consistent
with the Act generally, and section 6(b)(5) \32\ of the Act in
particular. The Exchange believes the proposed fees are competitive and
reasonable because the proposed fees are similar to or less than fees
charged for similar market data feeds provided by other options
exchanges with comparable market shares. As such, the Exchange believes
that denying its ability to adopt the proposed fees that would allow
the Exchange to recoup its costs with a reasonable margin in a manner
that is closer to parity with legacy exchanges, in effect, impedes its
ability to compete, including in its pricing of transaction fees and
ability to invest in competitive infrastructure and other offerings.
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\32\ 15 U.S.C. 78f(b)(5).
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First, the proposed fees for ToM are comparable to the fees
currently in place for the options exchanges, particularly Nasdaq ISE,
LLC (``ISE'').\33\ For the month of January 2024, the Exchange had
3.59% market share of equity options volume; for that same month, ISE
had 6.19% market share of
[[Page 19919]]
equity options volume.\34\ The Exchange's proposed fees for ToM are
equal to, and for Internal Distributors, lower than, the rates data
recipients pay for comparable data feeds from ISE. The Exchange notes
that other competitors maintain fees applicable to market data that are
considerably higher than those proposed by the Exchange, including NYSE
Arca, Inc. (``NYSE Arca'').\35\ However, the Exchange has focused its
comparison on ISE because it is the closest market in terms of market
share and offers market data at prices lower than several other
incumbent exchanges. The fees for the ISE Top Quote Feed, similar to
ToM, includes top of book, trades, and security status messages, and
costs market participants an internal distributor access fee of $3,000
per month (50% higher than the Exchange's proposed rate), and an
external distributor access fee of $3,000 per month (equal to the
Exchange's proposed rate).\36\ ISE's overall charge to receive the ISE
Top Quote Feed may be even higher than the Exchange's proposed rates
because ISE charges additional per controlled device fees that can
cause the distribution fee to reach up to $5,000 per month.\37\ The
Exchange's proposed rates do not include additional fees.
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\33\ See ISE Options 7 Pricing Schedule, Section 10, H.,
available at <a href="https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207">https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207</a> (assessing Professional internal and external
distributors $3,000 per month, plus $20 per month per controlled
device for ISE's Top Quote Feed).
\34\ See Market Share section of <a href="https://www.miaxglobal.com/">https://www.miaxglobal.com/</a>.
\35\ Fees for the NYSE Arca Options Top Feed, which is the
comparable product to ToM, are $3,000 per month for access (internal
use) and an additional $2,000 per month for redistribution (external
distribution), compared to the Exchange's proposed fees of $2,000
and $3,000 for Internal and External Distributors, respectively. In
addition, for its NYSE Arca Options Top Feed, NYSE Arca charges for
three different categories of non-display usage, and user fees, both
of which the Exchange does not propose to charge, causing the
overall cost of NYSE Arca Options Top Feed to far exceed the
Exchange's proposed rates. See NYSE Arca Options Proprietary Market
Data Fees, available 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>.
\36\ See supra note 33.
\37\ Id.
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Like ToM described above, the proposed fees for cToM are comparable
to the fees currently in place for competing options exchanges,
particularly NYSE American, LLC (``NYSE American'').\38\ As noted
above, for the month of January 2024, the Exchange had 3.59% of the
total equity options market share and 3.53% of the total electronic
complex non-index volume executed on exchanges offering electronic
complex functionality. For that same month, NYSE American had 7.44% of
the total equity options market share and 5.90% of the total electronic
complex non-index volume.\39\ The Exchange proposes fees for cToM that
are comparable to the rates data recipients pay for comparable data
feeds from NYSE American. The Exchange has focused its comparison on
NYSE American because it is the closest market in terms of market
share. The fees for the NYSE American Options Complex data feed, which,
similar to cToM, includes top of book, trades, and security status
messages for complex orders, costs market participants an internal
distributor access fee of $1,500 per month (slightly lower than the
Exchange's proposed rate), and an external distributor access fee of
$1,000 per month (resulting in a total external distribution fee of
$2,500 per month).\40\ However, NYSE American's overall charge to
receive NYSE American Options Complex data may be even higher than the
Exchange's proposed rates because NYSE American charges additional non-
displayed usage fees (each are $1,000 per month and a subscriber may
pay multiple non-displayed usage fees), per user fees ($20 per month
for professional users and $1.00 per month for non-professional users),
and multiple data feed fees ($200 per month), all of which the Exchange
does not propose to charge. These additional charges by NYSE American
can cause the total cost to receive NYSE American Complex data to
exceed the rates that the Exchange proposes to charge.
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\38\ See NYSE American Options Proprietary Market Data Fees,
available at <a href="https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Market_Data_Fee_Schedule.pdf">https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Market_Data_Fee_Schedule.pdf</a>.
\39\ See supra note 34.
\40\ See supra note 38.
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There Are Reasonable Substitutes for the ToM and cToM Data Feeds
Each options exchange offers top-of-book quotation and last sale
information based on their own quotation and trading activity that is
substantially similar to the information provided by the Exchange
through the ToM data feed. Further, the quote and last sale data
contained in the ToM data feed is identical to the data sent to OPRA
for redistribution to the public.\41\ Accordingly, market participants
can substitute ToM data with feeds from other exchanges and/or through
OPRA. Exchange top-of-book data is therefore widely available today
from a number of different sources.
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\41\ The Exchange notes that it makes available to subscribers
that is included in the ToM data feed no earlier than the time at
which the Exchange sends that data to OPRA.
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Further, cToM is not the exclusive source for Complex Order
information from the Exchange. It is a business decision of market
participants whether to subscribe to cToM or not. Market participants
that choose not to subscribe to cToM can derive much, if not all, of
the same information from other Exchange sources, including, for
example, the MIAX Emerald Order Feed (``MOR'').\42\ The following cToM
information is included in MOR: the Exchange's best bid and offer for a
complex strategy, with aggregate size, based on displayable orders 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 MOR, complex strategy last sale information
can be derived from ToM. Specifically, market participants may deduce
that last sale information for multiple trades in related options
series with the same timestamps disseminated via ToM are likely part of
a Complex Order transaction and last sale.
---------------------------------------------------------------------------
\42\ See MIAX Emerald website, Market Data & Offerings,
available at <a href="https://www.miaxglobal.com/company/data/data-products-services/market-data">https://www.miaxglobal.com/company/data/data-products-services/market-data</a> (last visited February 28, 2024). In general,
MOR provides real-time ultra-low 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.
---------------------------------------------------------------------------
Cost Analysis
In general, the Exchange believes that exchanges, in setting fees
of all types, should meet high standards of transparency to demonstrate
why each new fee or fee increase meets the Exchange Act requirements
that fees be reasonable, equitably allocated, not unfairly
discriminatory, and not create an undue burden on competition among
members and markets. In particular, the Exchange believes that each
exchange should take extra care to be able to demonstrate that these
fees are based on its costs and reasonable business needs.
Accordingly, in proposing to charge fees for market data, the
Exchange is especially diligent in assessing those fees in a
transparent way against its own aggregate costs of providing the
related service, and in carefully and transparently assessing the
impact on Members--both generally and in relation to other Members--to
ensure the fees will not create a financial burden on any participant
and will not have an undue impact in particular on smaller Members and
competition among Members in general. The Exchange does not believe it
needs to otherwise address questions about
[[Page 19920]]
market competition in the context of this filing because the proposed
fees are consistent with the Act based on its Cost Analysis. The
Exchange also believes that this level of diligence and transparency is
called for by the requirements of section 19(b)(1) under the Act,\43\
and Rule 19b-4 thereunder,\44\ with respect to the types of information
SROs should provide when filing fee changes, and section 6(b) of the
Act,\45\ which requires, among other things, that exchange fees be
reasonable and equitably allocated,\46\ not designed to permit unfair
discrimination,\47\ and that they not impose a burden on competition
not necessary or appropriate in furtherance of the purposes of the
Act.\48\ This proposal addresses those requirements, and the analysis
and data in this section are designed to clearly and comprehensively
show how they are met.
---------------------------------------------------------------------------
\43\ 15 U.S.C. 78s(b)(1).
\44\ 17 CFR 240.19b-4.
\45\ 15 U.S.C. 78f(b).
\46\ 15 U.S.C. 78f(b)(4).
\47\ 15 U.S.C. 78f(b)(5).
\48\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
In 2019, the Exchange completed a study of its aggregate costs to
produce market data and connectivity (the ``Cost Analysis'').\49\ The
Cost Analysis required a detailed analysis of the Exchange's aggregate
baseline costs, including a determination and allocation of costs for
core services provided by the Exchange--transaction execution, market
data, membership services, physical connectivity, and port access
(which provide order entry, cancellation and modification
functionality, risk functionality, the ability to receive drop copies,
and other functionality). The Exchange separately divided its costs
between those costs necessary to deliver each of these core services,
including infrastructure, software, human resources (i.e., personnel),
and certain general and administrative expenses (``cost drivers'').
---------------------------------------------------------------------------
\49\ The Exchange frequently updates it Cost Analysis as
strategic initiatives change, costs increase or decrease, and market
participant needs and trading activity changes. The Exchange's most
recent Cost Analysis was conducted ahead of this filing.
---------------------------------------------------------------------------
As an initial step, the Exchange determined the total cost for the
Exchange and its affiliated markets \50\ for each cost driver as part
of its 2024 budget review process. The 2024 budget review is a company-
wide process that occurs over the course of many months, includes
meetings among senior management, department heads, and the Finance
Team. Each department head is required to send a ``bottom up'' budget
to the Finance Team allocating costs at the profit and loss account and
vendor levels for the Exchange and its affiliated markets based on a
number of factors, including server counts, additional hardware and
software utilization, current or anticipated functional or non-
functional development projects, capacity needs, end-of-life or end-of-
service intervals, number of members, market model (e.g., price time or
pro-rata, simple only or simple and complex markets, auction
functionality, etc.), which may impact message traffic, individual
system architectures that impact platform size,\51\ storage needs,
dedicated infrastructure versus shared infrastructure allocated per
platform based on the resources required to support each platform,
number of available connections, and employees allocated time. All of
these factors result in different allocation percentages among the
Exchange and its affiliated markets, i.e., the different percentages of
the overall cost driver allocated to the Exchange and its affiliated
markets will cause the dollar amount of the overall cost allocated
among the Exchange and its affiliated markets to also differ. Because
the Exchange's parent company currently owns and operates four separate
and distinct marketplaces, the Exchange must determine the costs
associated with each actual market--as opposed to the Exchange's parent
company simply concluding that all costs drivers are the same at each
individual marketplace and dividing total cost by four (4) (evenly for
each marketplace). Rather, the Exchange's parent company determines an
accurate cost for each marketplace, which results in different
allocations and amounts across exchanges for the same cost drivers, due
to the unique factors of each marketplace as described above. This
allocation methodology also ensures that no cost would be allocated
twice or double-counted between the Exchange and its affiliated
markets. The Finance Team then consolidates the budget and sends it to
senior management, including the Chief Financial Officer and Chief
Executive Officer, for review and approval. Next, the budget is
presented to the Board of Directors and the Finance and Audit
Committees for each exchange for their approval. The above steps
encompass the first step of the cost allocation process.
---------------------------------------------------------------------------
\50\ The affiliated markets include Miami International
Securities Exchange, LLC (``MIAX''); separately, the options and
equities markets of MIAX PEARL, LLC (``MIAX Pearl''); and MIAX
Emerald, LLC (``MIAX Emerald'').
\51\ For example, MIAX maintains 24 matching engines, MIAX Pearl
Options maintains 12 matching engines, MIAX Pearl Equities maintains
24 matching engines, and MIAX Emerald maintains 12 matching engines.
---------------------------------------------------------------------------
The next step involves determining what portion of the cost
allocated to the Exchange pursuant to the above methodology is to be
allocated to each core service, e.g., connectivity and ports, market
data, and transaction services. The Exchange and its affiliated markets
adopted an allocation methodology with thoughtful and consistently
applied principles to guide how much of a particular cost amount
allocated to the Exchange should be allocated within the Exchange to
each core service. This is the final step in the cost allocation
process and is applied to each of the cost drivers set forth below. For
instance, fixed costs that are not driven by client activity (e.g.,
message rates), such as data center costs, were allocated more heavily
to the provision of physical connectivity (for example, 61.9% of the
data center total expense amount is allocated to 10Gb ULL
connectivity), with smaller allocations to ToM and cToM (1.1%
combined), and the remainder to the provision of other connectivity,
ports, transaction execution, membership services and other market data
services (37%). This next level of the allocation methodology at the
individual exchange level also took into account factors similar to
those set forth under the first step of the allocation methodology
process described above, to determine the appropriate allocation to
connectivity or market data versus allocations for other services. This
allocation methodology was developed through an assessment of costs
with senior management intimately familiar with each area of the
Exchange's operations. After adopting this allocation methodology, the
Exchange then applied an allocation of each cost driver to each core
service, resulting in the cost allocations described below. Each of the
below cost allocations is unique to the Exchange and represents a
percentage of overall cost that was allocated to the Exchange pursuant
to the initial allocation described above.
By allocating segmented costs to each core service, the Exchange
was able to estimate by core service the potential margin it might earn
based on different fee models. The Exchange notes that as a non-listing
venue it has five primary sources of revenue that it can potentially
use to fund its operations: transaction fees, fees for connectivity and
port services, membership fees, regulatory fees, and market data fees.
Accordingly, the Exchange must cover its expenses from these five
primary
[[Page 19921]]
sources of revenue. The Exchange also notes that as a general matter
each of these sources of revenue is based on services that are
interdependent. For instance, the Exchange's system for executing
transactions is dependent on physical hardware and connectivity; only
Members and parties that they sponsor to participate directly on the
Exchange may submit orders to the Exchange; many Members (but not all)
consume market data from the Exchange in order to trade on the
Exchange; and, the Exchange consumes market data from external sources
in order to comply with regulatory obligations. Accordingly, given this
interdependence, the allocation of costs to each service or revenue
source required judgment of the Exchange and was weighted based on
estimates of the Exchange that the Exchange believes are reasonable, as
set forth below. While there is no standardized and generally accepted
methodology for the allocation of an exchange's costs, the Exchange's
methodology is the result of an extensive review and analysis and will
be consistently applied going forward for any other cost-justified
potential fee proposals. In the absence of the Commission attempting to
specify a methodology for the allocation of exchanges' interdependent
costs, the Exchange will continue to be left with its best efforts to
attempt to conduct such an allocation in a thoughtful and reasonable
manner.
Through the Exchange's extensive Cost Analysis, which was again
recently further refined, the Exchange analyzed nearly every expense
item in the Exchange's general expense ledger to determine whether each
such expense relates to the provision of ToM and cToM data feeds, and,
if such expense did so relate, what portion (or percentage) of such
expense actually supports the provision of ToM and cToM data feeds, and
thus bears a relationship that is, ``in nature and closeness,''
directly related to ToM and cToM data feeds. In turn, the Exchange
allocated certain costs more to physical connectivity and others to
ports, while certain costs were only allocated to such services at a
very low percentage or not at all, using consistent allocation
methodologies as described above. Based on this analysis, the Exchange
estimates that the aggregate monthly cost to provide ToM and cToM data
feeds is $62,626 (the Exchange divided the annual cost for each of ToM
and cToM by 12 months, then added both numbers together), as further
detailed below.
Costs Related to Offering ToM and cToM Data Feeds
The following chart details the individual line-item (annual) costs
considered by the Exchange to be related to offering the ToM and cToM
data feeds to its Members and other customers, as well as the
percentage of the Exchange's overall costs that such costs represent
for such area (e.g., as set forth below, the Exchange allocated
approximately 2.3% of its overall Human Resources cost to offering ToM
and cToM data feeds).
----------------------------------------------------------------------------------------------------------------
Allocated Allocted
Cost drivers annual cost monthly cost Percent of all
\a\ \b\
----------------------------------------------------------------------------------------------------------------
Human Resources................................................. $509,350 $42,446 2.3
Connectivity (external fees, cabling, switches, etc.)........... 1,011 84 1.1
Internet Services and External Market Data...................... 0.00 0.00 0.0
Data Center..................................................... 16,624 1,385 1.1
Hardware and Software Maintenance & Licenses.................... 18,958 1,580 1.1
Depreciation.................................................... 17,853 1,488 0.5
Allocated Shared Expenses....................................... 187,711 15,643 2.1
-----------------------------------------------
Total....................................................... 751,507 62,626 2.0
----------------------------------------------------------------------------------------------------------------
\a\ The Annual Cost includes figures rounded to the nearest dollar.
\b\ The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
rounding up or down to the nearest dollar.
Below are additional details regarding each of the line-item costs
considered by the Exchange to be related to offering ToM and cToM.
While some costs were attempted to be allocated as equally as possible
among the Exchange and its affiliated markets, the Exchange notes that
some of its cost allocation percentages for certain cost drivers differ
when compared to the same cost drivers for the Exchange's affiliated
market, MIAX, in its similar proposed fee change for ToM and cToM. This
is because the Exchange's cost allocation methodology utilizes the
actual projected costs of the Exchange (which are specific to the
Exchange and are independent of the costs projected and utilized by the
Exchange's affiliated markets) to determine its actual costs, which may
vary across the Exchange and its affiliated markets based on factors
that are unique to each marketplace. The Exchange provides additional
explanation below (including the reason for the deviation) for the
significant differences, if any.
The Exchange also notes that expenses included in its 2024 fiscal
year budget and this proposal are generally higher than its 2023 fiscal
year budget and Cost Analysis included in prior filings. This is due to
a number of factors, such as, critical vendors and suppliers increasing
costs they charge the Exchange, significant exchange staff headcount
increases, increased data center costs from the Exchange's data center
providers in multiple locations and facilities, higher technology and
communications costs, planned hardware refreshes, and system capacity
upgrades that increase depreciation expense. Specifically, with regard
to employee compensation, the 2024 fiscal year budget includes
additional expenses related to increased headcount and new hires that
are needed to support the Exchange as it continues to grow (the
Exchange and its affiliated companies are projected to hire over 60
additional staff in 2024). Hardware and software expenses have also
increased primarily due to price increases from critical vendors and
equipment suppliers. Further, the Exchange budgeted for additional
hardware and software needs to support the Exchange's continued growth
and expansion. Depreciation and amortization have likewise increased
due to recent and planned refreshes in Exchange hardware and software.
This new equipment and software then becomes depreciable, as described
below. Data center costs have also increased due the following: the
Exchange expanding its footprint within its data center; and the data
center vendor increasing the costs it charges the Exchange. Lastly,
allocated shared expenses have increased due to the
[[Page 19922]]
overall budgeted increase in costs from 2023 to 2024 necessary to
operate and support the Exchange as described below.
Human Resources
The Exchange notes that it and its affiliated markets anticipate
that by year-end 2024, there will be 289 employees (excluding employees
at non-options/equities exchange subsidiaries of Miami International
Holdings, Inc. (``MIH''), the holding company of the Exchange and its
affiliated markets), and each department leader has direct knowledge of
the time spent by each employee with respect to the various tasks
necessary to operate the Exchange. Specifically, twice a year, and as
needed with additional new hires and new project initiatives, in
consultation with employees as needed, managers and department heads
assign a percentage of time to every employee and then allocate that
time amongst the Exchange and its affiliated markets to determine each
market's individual Human Resources expense. Then, managers and
department heads assign a percentage of each employee's time allocated
to the Exchange into buckets including network connectivity, ports,
market data, and other exchange services. This process ensures that
every employee is 100% allocated, ensuring there is no double counting
between the Exchange and its affiliated markets.
For personnel costs (Human Resources), the Exchange calculated an
allocation of employee time for employees whose functions include
providing and maintaining ToM and cToM data feeds and performance
thereof (primarily the Exchange's network infrastructure team, which
spends a portion of their time performing functions necessary to
provide market data). As described more fully above, the Exchange's
parent company allocates costs to the Exchange and its affiliated
markets and then a portion of the Human Resources costs allocated to
the Exchange is then allocated to market data. From that portion
allocated to the Exchange that applied to market data, the Exchange
then allocated a weighted average of 2.1% of each employee's time from
the above group to ToM and cToM data feeds (which excludes an
allocation for the recently hired Head of Data Services for the
Exchange and its affiliates).
The Exchange also allocated Human Resources costs to provide ToM
and cToM to a limited subset of personnel with ancillary functions
related to establishing and maintaining such market data feeds (such as
information security, sales, membership, and finance personnel). The
Exchange allocated cost on an employee-by-employee basis (i.e., only
including those personnel who support functions related to providing
market data feeds) and then applied a smaller allocation to such
employees' time to ToM and cToM (less than 1.6%, which includes an
allocation for the Head of Data Services). This other group of
personnel with a smaller allocation of Human Resources costs also have
a direct nexus to providing ToM and cToM, whether it is a sales person
selling a market data feed, finance personnel billing for market data
feeds or providing budget analysis, or information security ensuring
that such market data feeds are secure and adequately defended from an
outside intrusion.
The estimates of Human Resources cost were therefore determined by
consulting with such department leaders, determining which employees
are involved in tasks related to providing market data feeds, and
confirming that the proposed allocations were reasonable based on an
understanding of the percentage of time such employees devote to those
tasks. This includes personnel from the Exchange departments that are
predominately involved in providing ToM and cToM data feeds: Business
Systems Development, Trading Systems Development, Systems Operations
and Network Monitoring, Network and Data Center Operations, Listings,
Trading Operations, and Project Management. Again, the Exchange
allocated 2.1% of each of their employee's time assigned to the
Exchange for ToM and cToM, as stated above. Employees from these
departments perform numerous functions to support ToM and cToM data
feeds, such as the configuration and maintenance of the hardware
necessary to support the ToM and cToM data feeds. This hardware
includes servers, routers, switches, firewalls, and monitoring devices.
These employees also perform software upgrades, vulnerability
assessments, remediation and patch installs, equipment configuration
and hardening, as well as performance and capacity management. These
employees also engage in research and development analysis for
equipment and software supporting ToM and cToM data feeds and design,
and support the development and on-going maintenance of internally-
developed applications as well as data capture and analysis, and Member
and internal Exchange reports related to network and system
performance. The above list of employee functions is not exhaustive of
all the functions performed by Exchange employees to support ToM and
cToM, but illustrates the breath of functions those employees perform
in support of the above cost and time allocations.
Lastly, the Exchange notes that senior level executives' time was
only allocated to the ToM and cToM related Human Resources costs to the
extent that they are involved in overseeing tasks related to providing
market data. The Human Resources cost was calculated using a blended
rate of compensation reflecting salary, equity and bonus compensation,
benefits, payroll taxes, and 401(k) matching contributions.
Connectivity (External Fees, Cabling, Switches, etc.) \52\
---------------------------------------------------------------------------
\52\ This cost driver was titled ``Network Infrastructure'' in
prior proposals. The Exchange has updated this section to now be in
line with its similar cost analysis and cost driver descriptions for
other non-transaction fee filings. See, e.g., Securities Exchange
Act Release No. 99475 (February 5, 2024), 89 FR 9223 (February 9,
2024) (SR-EMERALD-2024-03).
---------------------------------------------------------------------------
The Connectivity cost driver includes cabling and switches required
to generate and disseminate the ToM and cToM data feeds and operate the
Exchange. The Connectivity cost driver is more narrowly focused on
technology used to complete Member subscriptions to ToM and cToM and
the servers used at the Exchange's primary and back-up data centers
specifically for the ToM and cToM data feeds. Further, as certain
servers are only partially utilized to generate and disseminate the ToM
and cToM data feeds, only the percentage of such servers devoted to
generating and disseminating the ToM and cToM data feeds was included
(i.e., the capacity of such servers allocated to the ToM and cToM data
feeds).\53\
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\53\ The Exchange understands that the Investors Exchange, Inc.
(``IEX'') and MEMX LLC (``MEMX'') both allocated a percentage of
their servers to the production and dissemination of market data to
support proposed market data fees. See Securities Exchange Act
Release Nos. 94630 (April 7, 2022), 87 FR 21945, at page 21949
(April 13, 2022) (SR-IEX-2022-02) and 97130 (March 13, 2023), 88 FR
16491 (March 17, 2023) (SR-MEMX-2023-04). The Exchange does not have
insight into either MEMX's or IEX's technology infrastructure or
what their determinations were based on. However, the Exchange
reviewed its own technology infrastructure and believes based on its
design, it is more appropriate for the Exchange to allocate a
portion of its Connectivity cost driver to market data based on a
percentage of overall cost, not on a per server basis.
---------------------------------------------------------------------------
Internet Services and External Market Data
The next cost driver consists of internet services and external
market data. Internet services includes third-party service providers
that provide the internet, fiber and bandwidth
[[Page 19923]]
connections between the Exchange's networks, primary and secondary data
centers, and office locations in Princeton and Miami. External market
data includes fees paid to third parties, including other exchanges, to
receive market data. The Exchange allocate any costs associated with
internet services or external market data to the ToM and cToM data
feeds.
Data Center
Data Center costs includes an allocation of the costs the Exchange
incurs to provide ToM and cToM in the third-party data centers where it
maintains its equipment (such as dedicated space, security services,
cooling and power). The Exchange does not own the primary data center
or the secondary data center, but instead leases space in data centers
operated by third parties. As the Data Center costs are primarily for
space, power, and cooling of servers, the Exchange allocated 1.1% to
the applicable Data Center costs for the ToM and cToM data feeds. The
Exchange believes it is reasonable to apply the same proportionate
percentage of Data Center costs to that of the Connectivity cost
driver.
Hardware and Software Maintenance and Licenses
Hardware and Software Maintenance and Licenses includes hardware
and software licenses used to operate and monitor physical assets
necessary to offer the ToM and cToM data feeds.\54\ Because the
hardware and software license fees are correlated to the servers used
by the Exchange, the Exchange again applied an allocation of 1.1% of
its costs for Hardware and Software Maintenance and Licenses to the ToM
and cToM data feeds. The Exchange notes that this allocation is less
than MIAX as MIAX allocated 1.3% of its Hardware and Software
Maintenance and License expense to ToM and cToM, while MIAX Emerald
allocated 1.1% of its Hardware and Software Maintenance and License
expense to ToM and cToM. MIAX's allocation results in a slightly higher
dollar amount of $8,000 per year (or approximately $667 per month, when
dividing the annual cost difference by 12 months and rounding to the
nearest dollar) compared to the annual cost of MIAX Emerald for its
Hardware and Software Maintenance and License cost driver. This is
because MIAX is in the process of replacing and upgrading various
hardware and software used to operate its options trading platform in
order to maintain premium network performance, including dissemination
of ToM and cToM. At the time of this filing, MIAX is undergoing a major
hardware refresh, replacing older hardware with new hardware. This
hardware includes servers, network switches, cables, optics, protocol
data units, and cabinets, to maintain a state-of-the-art technology
platform. Because of the timing of the hardware refresh with the timing
of this filing, MIAX has a slightly higher expense than MIAX Emerald.
---------------------------------------------------------------------------
\54\ This expense may be less than the Exchange's affiliated
markets, specifically MIAX. This is because each market may maintain
and utilize a different amount of hardware and software based on its
market model and infrastructure needs. The Exchange allocated a
percentage of the overall cost based on actual amounts of hardware
and software utilized by that market, which resulted in different
cost allocations and dollar amounts.
---------------------------------------------------------------------------
Depreciation
All physical assets, software, and hardware used to provide ToM and
cToM, which also includes assets used for testing and monitoring of
Exchange infrastructure to provide market data, were valued at cost,
and depreciated or leased over periods ranging from three to five
years. Thus, the depreciation cost primarily relates to servers
necessary to operate the Exchange, some of which are owned by the
Exchange and some of which are leased by the Exchange in order to allow
efficient periodic technology refreshes. The Exchange also included in
the Depreciation cost driver certain budgeted improvements that the
Exchange intends to capitalize and depreciate with respect to ToM and
cToM in the near-term. As with the other allocated costs in the
Exchange's updated Cost Analysis, the Depreciation cost was therefore
narrowly tailored to depreciation related to ToM and cToM. As noted
above, the Exchange allocated 0.5% of its allocated depreciation costs
to providing ToM and cToM.
The vast majority of the software the Exchange uses for its
operations to generate and disseminate the ToM and cToM data feeds has
been developed in-house over an extended period. This software
development also requires quality assurance and thorough testing to
ensure the software works as intended. Hardware used to generate and
disseminate the ToM and cToM data feeds, which includes servers and
other physical equipment the Exchange purchased. Accordingly, the
Exchange included depreciation costs related to depreciated hardware
and software used to generate and disseminate the ToM and cToM data
feeds. The Exchange also included in the Depreciation costs certain
budgeted improvements that the Exchange intends to capitalize and
depreciate with respect to the ToM and cToM data feeds in the near-
term. As with the other allocated costs in the Exchange's updated Cost
Analysis, the Depreciation cost was therefore narrowly tailored to
depreciation related to the ToM and cToM data feeds.
The Exchange notes that this allocation differs from its affiliated
market, MIAX, due to a number of factors, such as the age of physical
assets and software (e.g., older physical assets and software were
previously depreciated and removed from the allocation), or certain
system enhancements that required new physical assets and software,
thus providing a higher contribution to the depreciated cost. For
example, the Exchange notes that the percentages it and its affiliate,
MIAX, allocated to the depreciation of software and hardware used to
generate and disseminate their respective ToM and cToM data feeds are
similar (0.8% for MIAX and 0.5% for MIAX Emerald). However, MIAX's
dollar amount is greater than that of MIAX Emerald by approximately
$17,000 per year (albeit a relatively small amount of approximately
$1,415 per month, when rounding to the nearest dollar). This is due to
two primary factors. First, MIAX has undergone a technology refresh
since the time MIAX Emerald launched in February 2019, leading to it
having more hardware and software that is subject to depreciation.
Second, MIAX maintains 24 matching engines while MIAX Emerald maintains
only 12 matching engines. This also results in more of MIAX's hardware
and software being subject to depreciation than MIAX Emerald's hardware
and software due to the greater amount of equipment and software
necessary to support the greater number of matching engines on MIAX.
Allocated Shared Expenses
Finally, as with other exchange products and services, a portion of
general shared expenses was allocated to the provision of ToM and cToM
data feeds. These general shared costs are integral to exchange
operations, including its ability to provide ToM and cToM. Costs
included in general shared expenses include office space and office
expenses (e.g., occupancy and overhead expenses), utilities, recruiting
and training, marketing and advertising costs, professional fees for
legal, tax and accounting services (including external and internal
audit expenses), and telecommunications. Similarly, the cost of paying
directors to serve on the Exchange's Board of Directors is also
included in the Exchange's general
[[Page 19924]]
shared expense cost driver.\55\ These general shared expenses are
incurred by the Exchange's parent company, MIH, as a direct result of
operating the Exchange and its affiliated markets.
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\55\ The Exchange notes that MEMX allocated a precise amount of
10% of the overall cost for directors in a similar non-transaction
fee filing. See Securities Exchange Act Release No. 97130 (March 13,
2023), 88 FR 16491 (March 17, 2023) (SR-MEMX-2023-04). The Exchange
does not calculate is expenses at that granular a level. Instead,
director costs are included as part of the overall general
allocation.
---------------------------------------------------------------------------
The Exchange employed a process to determine a reasonable
percentage to allocate general shared expenses to ToM and cToM pursuant
to its multi-layered allocation process. First, general expenses were
allocated among the Exchange and affiliated markets as described above.
Then, the general shared expense assigned to the Exchange was allocated
across core services of the Exchange, including market data. Then,
these costs were further allocated to sub-categories within the final
categories, i.e., ToM and cToM as sub-categories of market data. In
determining the percentage of general shared expenses allocated to
market data that ultimately apply to ToM and cToM, the Exchange looked
at the percentage allocations of each of the cost drivers and
determined a reasonable allocation percentage. The Exchange also held
meetings with senior management, department heads, and the Finance Team
to determine the proper amount of the shared general expense to
allocate to ToM and cToM. The Exchange, therefore, believes it is
reasonable to assign an allocation, in the range of allocations for
other cost drivers, while continuing to ensure that this expense is
only allocated once. Again, the general shared expenses are incurred by
the Exchange's parent company as a result of operating the Exchange and
its affiliated markets and it is therefore reasonable to allocate a
percentage of those expenses to the Exchange and ultimately to specific
product offerings such as ToM and cToM.
Again, a portion of all shared expenses were allocated to the
Exchange (and its affiliated markets) which, in turn, allocated a
portion of that overall allocation to all market data products offered
by the Exchange. The Exchange then allocated 2.1% of the portion
allocated to market data to ToM and cToM. The Exchange believes this
allocation percentage is reasonable because, while the overall dollar
amount may be higher than other cost drivers, the 2.1% is based on and
in line with the percentage allocations of each of the Exchange's other
cost drivers. The percentage allocated to ToM and cToM also reflects
its importance to the Exchange's strategy and necessity towards the
nature of the Exchange's overall operations, which is to provide a
resilient, highly deterministic trading system that relies on faster
market data feeds than the Exchange's competitors to maintain premium
performance. This allocation reflects the Exchange's focus on providing
and maintaining high performance market data services, of which ToM and
cToM are main contributors.
The Exchange notes that this allocation differs from its affiliated
market, MIAX, due to a number of factors, such as the increase in
overall headcount, thus providing a higher contribution on MIAX to the
depreciated cost. The Exchange notes that the percentages it and its
affiliate, MIAX, allocated to this cost driver are similar (2.5% for
MIAX and 2.1% for MIAX Emerald). However, MIAX's dollar amount is
greater than that of MIAX Emerald by approximately $38,000 per year
(albeit a relatively small amount of approximately $3,192 per month,
when rounding to the nearest dollar). This is due primarily to
significant exchange staff headcount increases. As mentioned above, the
2024 fiscal year budget includes additional expenses related to
increased headcount and new hires that are needed to support the
Exchange as it continues to grow (with a projected 60 additional staff
in 2024). Lastly, allocated shared expenses have increased due to the
overall budgeted increase in costs from 2023 to 2024 necessary to
operate and support the Exchange and its affiliated markets.
* * * * *
Approximate Cost for ToM and cToM per Month
After determining the approximate allocated monthly cost related to
ToM and cToM combined, the total monthly cost for ToM and cToM of
$62,626 was divided by the number of total subscribers to ToM and cToM
that the Exchange maintained at the time that proposed pricing was
determined (34 Distributors), to arrive at a cost of approximately
$1,842 per month per subscription (rounded to the nearest dollar). Due
to the nature of this particular cost, this allocation methodology
results in an allocation among the Exchange and its affiliated markets
based on set quantifiable criteria, i.e., actual number of ToM and cToM
subscribers.
Cost Analysis--Additional Discussion
In conducting its Cost Analysis, the Exchange did not allocate any
of its expenses in full to any core service (including market data) and
did not double-count any expenses. Instead, as described above, the
Exchange allocated applicable cost drivers across its core services and
used the same Cost Analysis to form the basis of this proposal and the
filings the Exchange recently submitted proposing fees for certain
connectivity and ports offered by the Exchange. For instance, in
calculating the Human Resources expenses to be allocated to market data
based upon the above described methodology, the Exchange has a team of
employees dedicated to network infrastructure and with respect to such
employees the Exchange allocated network infrastructure personnel with
a high percentage of the cost of such personnel (5.9%) given their
focus on functions necessary to provide market data. The salaries of
those same personnel were allocated only 2.1% to ToM and cToM and the
remaining 97.9% was allocated to other market data products offered by
the Exchange (MOR, AIS, etc.), connectivity services, port services,
transaction services, and membership services. The Exchange did not
allocate any other Human Resources expense for providing market data to
any other employee group, outside of a smaller allocation of 2.1% for
ToM and cToM of the cost associated with certain specified personnel
who work closely with and support network infrastructure personnel.
In total, the Exchange allocated 2.3% of its personnel costs (Human
Resources) to providing ToM and cToM. In turn, the Exchange allocated
the remaining 97.7% of its Human Resources expense to membership
services, transaction services, connectivity services, port services
and other market data products. Thus, again, the Exchange's allocations
of cost across core services were based on real costs of operating the
Exchange and were not double-counted across the core services or their
associated revenue streams.
As another example, the Exchange allocated depreciation expense to
all core services, including market data, but in different amounts. 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
[[Page 19925]]
purchased to operate and support the network. Without this equipment,
the Exchange would not be able to operate the network and provide ToM
and cToM data feeds to its Members and their customers. However, the
Exchange did not allocate all of the depreciation and amortization
expense toward the cost of providing ToM and cToM, but instead
allocated approximately 0.5% of the Exchange's overall depreciation and
amortization expense to ToM and cToM combined. The Exchange allocated
the remaining depreciation and amortization expense (99.5%) toward the
cost of providing transaction services, membership services,
connectivity services, port services, and other market data products.
The Exchange notes that its revenue estimates are based on
projections across all potential revenue streams and will only be
realized to the extent such revenue streams actually produce the
revenue estimated. The Exchange does not yet know whether such
expectations will be realized. For instance, in order to generate the
revenue expected from ToM and cToM, the Exchange will have to be
successful in retaining existing clients that wish to maintain
subscriptions to those market data feeds or in obtaining new clients
that will purchase such services. Similarly, the Exchange will have to
be successful in retaining a positive net capture on transaction fees
in order to realize the anticipated revenue from transaction pricing.
The Exchange notes that the Cost Analysis is based on the
Exchange's 2024 fiscal year of operations and projections. It is
possible, however, that actual costs may be higher or lower. To the
extent the Exchange sees growth in use of market data services it will
receive additional revenue to offset future cost increases. However, if
use of market data services is static or decreases, the Exchange might
not realize the revenue that it anticipates or needs in order to cover
applicable costs. Accordingly, the Exchange is committing to conduct a
one-year review after implementation of these fees. The Exchange
expects that it may propose to adjust fees at that time, to increase
fees in the event that revenues fail to cover costs and a reasonable
mark-up of such costs. Similarly, the Exchange may propose to decrease
fees in the event that revenue materially exceeds our current
projections. In addition, the Exchange will periodically conduct a
review to inform its decision making on whether a fee change is
appropriate (e.g., to monitor for costs increasing/decreasing or
subscribers increasing/decreasing, etc. in ways that suggest the then-
current fees are becoming dislocated from the prior cost-based
analysis) and would propose to increase fees in the event that revenues
fail to cover its costs and a reasonable mark-up, or decrease fees in
the event that revenue or the mark-up materially exceeds our current
projections. In the event that the Exchange determines to propose a fee
change, the results of a timely review, including an updated cost
estimate, will be included in the rule filing proposing the fee change.
More generally, the Exchange believes that it is appropriate for an
exchange to refresh and update information about its relevant costs and
revenues in seeking any future changes to fees, and the Exchange
commits to do so.
Projected Revenue \56\
---------------------------------------------------------------------------
\56\ For purposes of calculating projected 2024 revenue for ToM
and cToM, the Exchange used revenues for the most recently completed
full month.
---------------------------------------------------------------------------
The proposed fees will allow the Exchange to cover certain costs
incurred by the Exchange associated with creating, generating, and
disseminating the ToM and cToM data feeds and the fact that the
Exchange will need to fund future expenditures (increased costs,
improvements, etc.). The Exchange routinely works to improve the
performance of the network's hardware and software. The costs
associated with maintaining and enhancing a state-of-the-art exchange
network is a significant expense for the Exchange, and thus the
Exchange believes that it is reasonable and appropriate to help offset
those costs by amending fees for market data subscribers. Subscribers,
particularly those of ToM and cToM, expect the Exchange to provide this
level of support so they continue to receive the performance they
expect. This differentiates the Exchange from its competitors. As
detailed above, the Exchange has five primary sources of revenue that
it can potentially use to fund its operations: transaction fees, fees
for connectivity services, membership and regulatory fees, and market
data fees. Accordingly, the Exchange must cover its expenses from these
five primary sources of revenue.
The Exchange's Cost Analysis estimates the annual cost to provide
ToM and cToM will equal $751,507. Based on current ToM and cToM
subscribers, the Exchange would generate annual revenue of
approximately $872,880 for ToM and cToM combined. The Exchange believes
this represents a modest profit of 13.9% when compared to the cost of
providing ToM and cToM data feeds.
Based on the above discussion, the Exchange believes that even if
the Exchange earns the above revenue or incrementally more or less, the
proposed fees are fair and reasonable because they will not result in
pricing that deviates from that of other exchanges or a supra-
competitive profit, when comparing the total expense of the Exchange
associated with providing ToM and cToM data feeds versus the total
projected revenue of the Exchange associated with ToM and cToM.
The Exchange also notes that the resultant profit margin differs
slightly from the profit margins set forth in a similar fee filing by
its affiliated market, MIAX. This is not atypical among exchanges and
is due to a number of factors that differ between these two markets,
including: different market models, market structures, and product
offerings (price-time, pro-rata, simple, and complex); different
pricing models; different number of market participants and
connectivity subscribers; different maintenance and operations costs,
as described in the cost allocation methodology above; different
technical architecture (e.g., the number of matching engines per
exchange, i.e., MIAX maintains 24 matching engines while MIAX Emerald
maintains only 12 matching engines); and different maturity phase of
MIAX and its affiliated markets (i.e., start-up versus growth versus
more mature). All of these factors contribute to a unique and differing
level of profit margin per exchange.
Further, MIAX and MIAX Emerald propose to charge the same rates for
their respective ToM and cToM data feeds, which are comparable to, or
lower than, similar fees for similar products charged by competing
exchanges. For example, for Internal Distributors of ToM and cToM, the
Exchange proposes a lower fee than the fee charged by ISE for ISE's Top
Quote Feed ($2,000 for the Exchange vs. $3,000 for ISE).\57\ NYSE Arca
charges even higher fees for the NYSE Arca Options Top Feed than the
Exchange's proposed fees ($2,000 for the Exchange vs. $3,000 per month
plus an additional $2,000 for redistribution on NYSE Arca).\58\
Accordingly, the Exchange believes that comparable and competitive
pricing are key factors in determining whether a proposed fee meets the
requirements of the Act, regardless of whether that same fee across the
Exchange's affiliated markets leads to slightly different profit
margins due to factors outside of the Exchange's control (i.e., more
subscribers to ToM
[[Page 19926]]
and/or cToM on MIAX or MIAX Emerald and vice versa).
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\57\ See supra note 33.
\58\ See supra note 35.
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The Exchange also reiterates that prior to July of 2021, the month
in which it first proposed to adopt fees for cToM, the Exchange did not
charge any fees for cToM and its allocation of costs to cToM was part
of a holistic allocation that also allocated costs to other core
services without double-counting any expenses. The Exchange is owned by
a holding company that is the parent company of four exchange markets
and, therefore, the Exchange and its affiliated markets must allocate
shared costs across all of those markets accordingly, pursuant to the
above-described allocation methodology. In contrast, IEX and MEMX,
which are currently each operating only one exchange, in their recent
non-transaction fee filings allocate the entire amount of that same
cost to a single exchange. This can result in lower profit margins for
the non-transaction fees proposed by IEX and MEMX because the single
allocated cost does not experience the efficiencies and synergies that
result from sharing costs across multiple platforms.\59\ The Exchange
and its affiliated markets often share a single cost, which results in
cost efficiencies that can cause a broader gap between the allocated
cost amount and projected revenue, even though the fee levels being
proposed are lower or competitive with competing markets (as described
above). To the extent that the application of a cost-based standard
results in Commission Staff making determinations as to the
appropriateness of certain profit margins, the Commission Staff should
consider whether the proposed fee level is comparable to, or
competitive with, the same fee charged by competing exchanges and how
different cost allocation methodologies (such as across multiple
markets) may result in different profit margins for comparable fee
levels. If Commission Staff is making determinations as to appropriate
profit margins, the Exchange believes that the Commission should be
clear to all market participants as to what they have determined is an
appropriate profit margin and should apply such determinations
consistently and, in the case of certain legacy exchanges,
retroactively, if such standards are to avoid having a discriminatory
effect. Further, the proposal reflects the Exchange's efforts to
control its costs, which the Exchange does on an ongoing basis as a
matter of good business practice. A potential profit margin should not
be judged alone based on its size, but is also indicative of costs
management and whether the ultimate fee reflects the value of the
services provided. For example, a profit margin on one exchange should
not be deemed excessive where that exchange has been successful in
controlling its costs, but not excessive where on another exchange
where that exchange is charging comparable fees but has a lower profit
margin due to higher costs. Doing so could have the perverse effect of
not incentivizing cost control where higher costs alone are used to
justify fees increases.
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\59\ The Exchange acknowledges that IEX included in its proposal
to adopt market data fees after offering market data for free an
analysis of what its projected revenue would be if all of its
existing customers continued to subscribe versus what its projected
revenue would be if a limited number of customers subscribed due to
the new fees. See Securities Exchange Act Release No. 94630 (April
7, 2022), 87 FR 21945 (April 13, 2022) (SR-IEX-2022-02). MEMX did
not include a similar analysis in either of its recent non-
transaction fee proposals. See, e.g., supra notes 53 and 55. The
Exchange does not believe a similar analysis would be useful here
because it is amending existing fees, not proposing to charge a new
fee where existing subscribers may terminate connections because
they are no longer enjoying the service at no cost.
---------------------------------------------------------------------------
Accordingly, while the Exchange is supportive of transparency
around costs and potential margins (applied across all exchanges), as
well as periodic review of revenues and applicable costs (as discussed
below), the Exchange does not believe that these estimates should form
the sole basis of whether or not a proposed fee is reasonable or can be
adopted. Instead, the Exchange believes that the information should be
used solely to confirm that an Exchange is not earning--or seeking to
earn--supra-competitive profits, the standard set forth in the Staff
Guidance. The Exchange believes the Cost Analysis and related
projections in this filing demonstrate this fact.
The Exchange notes that the Cost Analysis is based on the
Exchange's 2024 fiscal year of operations and projections. It is
possible, however, that such costs will either decrease or increase. To
the extent the Exchange sees growth in use of ToM and cToM data feeds
it will receive additional revenue to offset future cost increases.
However, if use of ToM and cToM data feeds is static or decreases, the
Exchange might not realize the revenue that it anticipates or needs in
order to cover applicable costs. Accordingly, the Exchange is
committing to conduct a one-year review after implementation of these
fees. The Exchange expects that it may propose to adjust fees at that
time, to increase fees in the event that revenues fail to cover costs
and a reasonable mark-up of such costs.
Similarly, the Exchange expects that it would propose to decrease
fees in the event that revenue materially exceeds current projections.
In addition, the Exchange will periodically conduct a review to inform
its decision making on whether a fee change is appropriate (e.g., to
monitor for costs increasing/decreasing or subscribers increasing/
decreasing, etc. in ways that suggest the then-current fees are
becoming dislocated from the prior cost-based analysis) and expects
that it would propose to increase fees in the event that revenues fail
to cover its costs and a reasonable mark-up, or decrease fees in the
event that revenue or the mark-up materially exceeds current
projections. In the event that the Exchange determines to propose a fee
change, the results of a timely review, including an updated cost
estimate, will be included in the rule filing proposing the fee change.
More generally, the Exchange believes that it is appropriate for an
exchange to refresh and update information about its relevant costs and
revenues in seeking any future changes to fees, and the Exchange
commits to do so.
Reasonableness
Overall. With regard to reasonableness, the Exchange understands
that the Commission has traditionally taken a market-based approach to
examine whether the exchange making the fee proposal was subject to
significant competitive forces in setting the terms of the proposal.
The Exchange understands that in general the analysis considers whether
the exchange has demonstrated in its filing that (i) there are
reasonable substitutes for the product or service; (ii) ``platform''
competition constrains the ability to set the fee; and/or (iii) revenue
and cost analysis shows the fee would not result in the exchange taking
supra-competitive profits. If the exchange demonstrates that the fee is
subject to significant competitive forces, the Exchange understands
that in general the analysis will next consider whether there is any
substantial countervailing basis to suggest the fee's terms fail to
meet one or more standards under the Exchange Act. The Exchange further
understands that if the filing fails to demonstrate that the fee is
constrained by competitive forces, the exchange must provide a
substantial basis, other than competition, to show that it is
consistent with the Exchange Act, which may include production of
relevant revenue and cost data pertaining to the product or service.
The Exchange has not determined its proposed overall market data
fees based on assumptions about market competition, instead relying
upon a cost-plus model to determine a
[[Page 19927]]
reasonable fee structure that is informed by the Exchange's
understanding of different uses of the products by different types of
participants. In this context, the Exchange believes the proposed fees
overall are fair and reasonable as a form of cost recovery plus the
possibility of a reasonable return for the Exchange's aggregate costs
of offering the ToM and cToM data feeds. The Exchange believes the
proposed fees are reasonable because they are designed to generate
annual revenue to recoup some or all of Exchange's annual costs of
providing ToM and cToM data with a reasonable mark-up. As discussed in
the Purpose section, the Exchange estimates this fee filing will result
in annual revenue of approximately $872,880, representing a potential
mark-up of just 13.9% over the cost of providing ToM and cToM data.
Accordingly, the Exchange believes that this fee methodology is
reasonable because it allows the Exchange to recoup all of its expenses
for providing the ToM and cToM data products (with any additional
revenue representing no more than what the Exchange believes to be a
reasonable rate of return). The Exchange also believes that the
proposed fees are reasonable because they are generally less than the
fees charged by competing options exchanges for comparable market data
products, notwithstanding that the competing exchanges may have
different system architectures that may result in different cost
structures for the provision of market data.
The Exchange believes the proposed fees for the ToM and cToM data
feeds are reasonable when compared to fees for comparable products,
compared to which the Exchange's proposed fees are generally lower, as
well as other comparable data feeds priced significantly higher than
the Exchange's proposed fees for the ToM and cToM data feeds.
Internal Distribution Fees. The Exchange believes that it is
reasonable to charge fees to access the ToM and cToM data feeds for
Internal Distribution because of the value of such data to subscribers
in their profit-generating activities. The Exchange also believes that
the proposed monthly Internal Distribution fee for cToM is reasonable
as it is similar to the amount charged by at least one other exchange
of comparable size for comparable data products, and lower than the
fees charged by other exchange for comparable data products.\60\
---------------------------------------------------------------------------
\60\ See supra notes 33, 35, and 38.
---------------------------------------------------------------------------
External Distribution Fees. The Exchange believes that it is
reasonable to charge External Distribution fees for the ToM and cToM
data feeds because vendors receive value from redistributing the data
in their business products provided to their customers. The Exchange
believes that charging External Distribution fees is reasonable because
the vendors that would be charged such fees profit by re-transmitting
the Exchange's market data to their customers. These fees would be
charged only once per month to each vendor account that redistributes
any ToM and cToM data feeds, regardless of the number of customers to
which that vendor redistributes the data.
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the ToM and cToM data feeds are reasonable.
Equitable Allocation
Overall. The Exchange believes that its proposed fees are
reasonable, fair, and equitable, and not unfairly discriminatory
because they are designed to align fees with services provided. The
Exchange believes the proposed fees for the ToM and cToM data feeds are
allocated fairly and equitably among the various categories of users of
the feeds, and any differences among categories of users are justified
and appropriate.
The Exchange believes that the proposed fees are equitably
allocated because they will apply uniformly to all data recipients that
choose to subscribe to the ToM and cToM data feeds. Any subscriber or
vendor that chooses to subscribe to the ToM and cToM data feeds is
subject to the same Fee Schedule, regardless of what type of business
they operate, and the decision to subscribe to one or more ToM and cToM
data feeds is based on objective differences in usage of ToM and cToM
data feeds among different Members, which are still ultimately in the
control of any particular Member. The Exchange believes the proposed
pricing of the ToM and cToM data feeds is equitably allocated because
it is based, in part, upon the amount of information contained in each
data feed and the value of that information to market participants.
Internal Distribution Fees. The Exchange believes the proposed
monthly fees for Internal Distribution of the ToM and cToM data feeds
are equitably allocated and not unfairly discriminatory because they
would be charged on an equal basis to all data recipients that receive
the ToM and cToM data feeds for internal distribution, regardless of
what type of business they operate.
External Distribution Fees. The Exchange believes the proposed
monthly fees for External Distribution of the ToM and cToM data feeds
are equitably allocated and not unfairly discriminatory because they
would be charged on an equal basis to all data recipients that receive
the ToM and cToM data feeds that choose to redistribute the feeds
externally, regardless of what business they operate. The Exchange also
believes that the proposed monthly fees for External Distribution are
equitably allocated when compared to lower proposed fees for Internal
Distribution because data recipients that are externally distributing
ToM and cToM data feeds are able to monetize such distribution and
spread such costs amongst multiple third party data recipients, whereas
the Internal Distribution fee is applicable to use by a single data
recipient (and its affiliates).
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 ToM and cToM data feeds 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 decide 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'').\61\ 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.\62\ External
Distributors may distribute the Exchange's market data to persons who
are not officers, employees or affiliates of the External
Distributor,\63\ and may charge their own fees for the redistribution
of such market data. External Distributors may monetize their receipt
of the ToM and cToM data feeds by charging their customers fees for
receipt of the Exchange's cToM data. Internal Distributors do not have
the same ability to monetize the Exchange's ToM and cToM data feeds.
Accordingly, the Exchange believes it is fair,
[[Page 19928]]
reasonable and not unfairly discriminatory to assess External
Distributors a higher fee for the Exchange's ToM and cToM data feeds as
External Distributors have greater usage rights to commercialize such
market data and can adjust their own fee structures if necessary.
---------------------------------------------------------------------------
\61\ See Exchange Data Agreement, available at <a href="https://www.miaxglobal.com/markets/us-options/all-options/market-data-vendor-agreements">https://www.miaxglobal.com/markets/us-options/all-options/market-data-vendor-agreements</a>.
\62\ See id.
\63\ See id.
---------------------------------------------------------------------------
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.
For example, External Distributors have monthly reporting requirements
under the Exchange's Market Data Policies.\64\ Exchange staff must
then, in turn, process and review information reported by External
Distributors to ensure the External Distributors are redistributing
cToM data in compliance with the Exchange's Market Data Agreement and
Policies.
---------------------------------------------------------------------------
\64\ See Section 6 of the Exchange's Market Data Policies,
available at <a href="https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Exchange_Group_Market_Data_Policies_07202021.pdf">https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Exchange_Group_Market_Data_Policies_07202021.pdf</a>.
---------------------------------------------------------------------------
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 subscriber 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 decide not to subscribe to the data
feed, firms can discontinue their use of the cToM data.
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the ToM and cToM data feeds are equitably allocated.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with section 6(b)(8) of the Act,\65\ the Exchange
does not believe that the proposed rule change would impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of the Act.
---------------------------------------------------------------------------
\65\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
Intra-Market Competition
The Exchange does not believe that the proposed fees place certain
market participants at a relative disadvantage to other market
participants because, as noted above, the proposed fees are associated
with usage of the data feed by each market participant based on whether
the market participant internally or externally distributes the
Exchange data, which are still ultimately in the control of any
particular Member, and such fees do not impose a barrier to entry to
smaller participants. Accordingly, the proposed fees do not favor
certain categories of market participants in a manner that would impose
a burden on competition; rather, the allocation of the proposed fees
reflects the types of data consumed by various market participants and
their usage thereof.
Inter-Market Competition
The Exchange does not believe the proposed fees place an undue
burden on competition on other exchanges that is not necessary or
appropriate. In particular, market participants are not forced to
subscribe to either data feed, as described above. Additionally, other
exchanges have similar market data fees with comparable rates in place
for their participants.\66\ The proposed fees are based on actual costs
and are designed to enable the Exchange to recoup its applicable costs
with the possibility of a reasonable profit on its investment as
described in the Purpose and Statutory Basis sections. Competing
exchanges are free to adopt comparable fee structures subject to the
Commission's rule filing process. Allowing the Exchange, or any new
market entrant, to waive fees (as the Exchange did for cToM) for a
period of time to allow it to become established encourages market
entry and thereby ultimately promotes competition.
---------------------------------------------------------------------------
\66\ See supra notes 33, 35, and 38.
---------------------------------------------------------------------------
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,\67\ and Rule 19b-4(f)(2) \68\ 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.
---------------------------------------------------------------------------
\67\ 15 U.S.C. 78s(b)(3)(A)(ii).
\68\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#bdcfc8d1d890ded2d0d0d8d3c9cefdced8de93dad2cb"><span class="__cf_email__" data-cfemail="2153544d440c424e4c4c444f5552615244420f464e57">[email protected]</span></a>. Please include
file number SR-EMERALD-2024-09 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-2024-09. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number
[[Page 19929]]
SR-EMERALD-2024-09 and should be submitted on or before April 10, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\69\
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\69\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-05836 Filed 3-19-24; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on March 20, 2024.
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