Notice2024-07539
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX Pearl Equities Exchange Fee Schedule To Establish Market Data Fees
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 10, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 70 (Wednesday, April 10, 2024)</title>
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[Federal Register Volume 89, Number 70 (Wednesday, April 10, 2024)]
[Notices]
[Pages 25293-25308]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-07539]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99907; File No. SR-PEARL-2024-15]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
Pearl Equities Exchange Fee Schedule To Establish Market Data Fees
April 4, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 26, 2024, MIAX PEARL, LLC (``MIAX Pearl'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the MIAX Pearl Equities
Exchange Fee Schedule (the ``Fee Schedule'') to adopt fees for the
Exchange's proprietary market data feeds.\3\
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\3\ All references to the ``Exchange'' in this filing refer to
MIAX Pearl Equities. Any references to the options trading facility
of MIAX PEARL, LLC will specifically be referred to as ``MIAX Pearl
Options.''
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The text of the proposed rule change is available on the Exchange's
website at <a href="https://www.miaxoptions.com/rule-filings">https://www.miaxoptions.com/rule-filings</a>, at MIAX Pearl'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
MIAX Pearl Equities provided its proprietary market data for free
to subscribers for over three and half years since it commenced
operations in September 2020.\4\ Since that time, the Exchange has
solely and entirely absorbed all costs associated with compiling and
disseminating its proprietary market data. The Exchange offers two
standard proprietary market data products, the Top of Market (``ToM'')
feed and the Depth of Market (``DoM'') feed (collectively, the ``market
data feeds''). Each of these proprietary market data products are
described in Exchange Rule 2625.
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\4\ See Securities Exchange Act Release No. 90651 (December 11,
2020), 85 FR 81971 (December 17, 2020) (SR-PEARL-2020-33).
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Exchange Rule 2625(a) provides that the DoM feed is a data feed
that contains the displayed price and size of each order in an equity
security entered in the System,\5\ as well as order execution
information, order cancellations, order modifications, order
identification numbers, and administrative messages. Exchange Rule
2625(b) provides that the ToM feed is a data feed that contains the
price and aggregate size of displayed top of book quotations, order
execution information, and administrative messages for equity
securities entered into the System. Section 3 of the Fee Schedule
entitled, Market Data Fees, specifically provides that fees for both
the ToM and DoM feeds are waived for the Waiver Period.\6\ As described
in more detail below, the Exchange proposes to remove this waiver
language and adopt fees for the ToM and DoM feeds to recoup its ongoing
costs going forward.
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\5\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\6\ The term ``Waiver Period'' means, for each applicable fee,
the period of time from the initial effective date of the MIAX Pearl
Equities Fee Schedule until such time that MIAX Pearl has an
effective fee filing establishing the applicable fee. MIAX Pearl
Equities will issue a Regulatory Circular announcing the
establishment of an applicable fee that was subject to a Waiver
Period at least fifteen (15) days prior to the termination of the
Waiver Period and effective date of any such applicable fee. See the
Definitions section of the Fee Schedule.
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The Exchange notes that there is no requirement that any Equity
Member \7\ or market participant subscribe to the ToM or DoM feeds
offered by the Exchange. Instead, an Equity Member may choose to
maintain subscriptions to the ToM or DoM feeds based on their own
business needs and trading models. The proposed fees will not apply
differently based upon the size or type of firm, but rather based upon
the subscriptions that each firm elects to purchase.
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\7\ The term ``Equity Member'' is a Member authorized by the
Exchange to transact business on MIAX Pearl Equities. See Exchange
Rule 1901.
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The Exchange commenced operations in September 2020 and expressly
waived fees for both the ToM and DoM data feeds since that time to
incentivize market participants to subscribe and make the Exchange's
market data more widely available.\8\ In the three and a half years
since the Exchange launched operations, its market share has grown from
0% to approximately 2.0% for the month of March 2024.\9\ One of the
primary objectives of the Exchange is to provide competition and to
provide low
[[Page 25294]]
cost options to 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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\8\ See supra note 4.
\9\ See the ``Market Share'' section of the Exchange's website,
available at <a href="https://www.miaxglobal.com/">https://www.miaxglobal.com/</a>.
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The Exchange believes that exchanges, in setting fees of all types,
should meet very high standards of transparency to demonstrate why each
new fee or fee increase meets the requirements of the Act that fees be
reasonable, equitably allocated, not unfairly discriminatory, and not
create an undue burden on competition among Equity Members and markets.
The Exchange believes this high standard is especially important when
an exchange imposes various fees for market participants to access an
exchange's market data. The Exchange believes that it is important to
demonstrate that these fees are based on its costs and reasonable
business needs. Accordingly, the Exchange included a cost analysis
below in connection with the proposed market data fees and the costs
associated with compiling and providing the ToM and DoM feeds (``Cost
Analysis'').
The Exchange believes the proposed fees will allow the Exchange to
offset the expenses \10\ the Exchange has and will continue to incur
associated with compiling and disseminating the ToM and DoM feeds.
Further, the Exchange believes it provided sufficient transparency in
the Cost Analysis provided below, which provides a basis for how the
Exchange determined to charge such fees. The Exchange's proposal is
described below.
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\10\ For the avoidance of doubt, all references to expense or
costs in this filing, including the cost categories discussed below,
refer to costs incurred by MIAX Pearl Equities only and not MIAX
Pearl Options, the options trading facility.
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Definitions
The Exchange proposes to include a Definitions section at the
beginning of Section 3 of the Fee Schedule. The purpose of the
Definitions section is to provide market participants greater clarity
and transparency regarding the applicability of fees by defining
certain terms used in connection with market data feeds within the Fee
Schedule in a single location related to the Exchange's market data
products. The Exchange notes that other equities exchanges include
similar Definitions in their respective fee schedules,\11\ and that
each of the Exchange's proposed definitions are based on those
exchanges. The Exchange believes that including a Definitions section
for market data products makes the Fee Schedule more user-friendly and
comprehensive.
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\11\ See the market data sections of the fee schedules for the
Cboe BZX Exchange, Inc. (``Cboe BZX''); Cboe BYX Exchange, Inc.
(``Cboe BYX''); Cboe EDGA Exchange, Inc. (``Cboe EDGA''); and Cboe
EDGX Exchange, Inc. (``Cboe EDGX''). See also the market data
definition section of the MEMX LLC's (``MEMX'') fee schedule; and
Securities Exchange Act Release No. 97130 (March 13, 2023), 88 FR
16491 (March 17, 2023) (SR-MEMX-2023-04) (``MEMX Market Data Fee
Proposal'').
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The Exchange proposes to define the following terms in Section 3 of
the Fee Schedule:
<bullet> Distributor. Any entity that receives the Exchange data
product directly from the Exchange or indirectly through another entity
and then distributes it internally or externally to a third party.
<bullet> External Distributor. A Distributor that receives the
Exchange data product and then distributes that data to a third party
or one or more Users outside the Distributor's own entity.
<bullet> Internal Distributor. A Distributor that receives the
Exchange data product and then distributes that data to one or more
Users within the Distributor's own entity.
[cir] The Exchange notes that it proposes to use the phrase ``own
organization'' in the definition of Internal Distributor and External
Distributor because a subscriber would be permitted to share data
received from an exchange data product to other legal entities
affiliated with the subscriber's entity that have been disclosed to the
Exchange without such distribution being considered external to a third
party. For instance, if a company has multiple affiliated broker-
dealers under the same holding company, that company could have one of
the broker-dealers or a non-broker-dealer affiliate subscribe to an
exchange data product and then share the data with other affiliates
that have a need for the data. This sharing with affiliates would not
be considered external distribution to a third party but instead would
be considered internal distribution to data recipients within the
Distributor's own organization.
<bullet> Non-Display Usage. Any method of accessing an Exchange
data product that involves access or use by a machine or automated
device without access or use of a display by a natural person or
persons.
<bullet> Non-Professional User. A natural person or qualifying
trust that uses Exchange data only for personal purposes and not for
any commercial purpose and, for a natural person who works in the
United States, is not: (i) registered or qualified in any capacity with
the Securities and Exchange Commission, the Commodities Futures Trading
Commission, any state securities agency, any securities exchange or
association, or any commodities or futures contract market or
association; (ii) engaged as an ``investment adviser'' as that term is
defined in Section 202(a)(11) of the Investment Advisors Act of 1940
(whether or not registered or qualified under that Act); or (iii)
employed by a bank or other organization exempt from registration under
federal or state securities laws to perform functions that would
require registration or qualification if such functions were performed
for an organization not so exempt; or, for a natural person who works
outside of the United States, does not perform the same functions as
would disqualify such person as a Non-Professional User if he or she
worked in the United States.
<bullet> Professional User. Any User other than a Non-Professional
User.
<bullet> Trading Platform. Any execution platform operated as or by
a registered National Securities Exchange (as defined in Section
3(a)(1) of the Exchange Act), an Alternative Trading System (as defined
in Rule 300(a) of Regulation ATS), or an Electronic Communications
Network (as defined in Rule 600(b)(23) of Regulation NMS).
<bullet> User. A Professional User or Non-Professional User.
Proposed Market Data Pricing
As described above, the ToM feed is a data feed that contains the
price and aggregate size of displayed top of book quotations, order
execution information, and administrative messages for equity
securities entered into the System. The DoM feed is a data feed that
contains the displayed price and size of each order in an equity
security entered in the System, as well as order execution information,
order cancellations, order modifications, order identification numbers,
and administrative messages. The Exchange proposes to charge the below
fees for the ToM and DoM data feeds, which, the Exchange believes are
equal to or lower than market data fees charged by other similarly
situated equities exchanges. Each of the below capitalized terms are
defined above and would be included under the proposed Definitions
section under Section 3, Market Data Fees, of the Fee Schedule.
1. Internal Distributor Fee. The Exchange proposes to charge
Internal Distributors a monthly fee of $1,000.00 for the ToM feed and
$2,000.00 for the DoM feed. The proposed Internal Distributor fees
would only be charged once per month per subscriber.
2. External Distributor Fee. The Exchange proposes to charge
Internal Distributors a monthly fee of $2,000.00 for the ToM feed and
$2,500.00 for the DoM feed. The proposed External
[[Page 25295]]
Distributor fees would only be charged once per month per subscriber.
3. User Fees. For the ToM feed, the Exchange proposes to charge a
monthly fee of $2.00 for each Professional User and $0.10 for each Non-
Professional User. For the DoM feed, the Exchange proposes to charge a
monthly fee of $30.00 for each Professional User and $3.00 for each
Non-Professional User. The proposed User fees would apply to each
person that has access to the ToM or DoM feed that is provided by a
Distributor (either Internal or External) for displayed usage. Each
Distributor's User count would include every individual that accesses
the data regardless of the purpose for which the individual uses the
data. Distributors of the ToM or DoM feed would be required to report
all Professional and Non-Professional Users in accordance with the
following:
<bullet> In connection with a Distributor's distribution of the ToM
or DoM feed, the Distributor must count as one User each unique User
that the Distributor has entitled to have access to the ToM or DoM
feed.
<bullet> Distributors must report each unique individual person who
receives access through multiple devices or multiple methods (e.g., a
single User has multiple passwords and user identifications) as one
User.
<bullet> If a Distributor entitles one or more individuals to use
the same device, the Distributor must include only the individuals, and
not the device, in the count. Thus, Distributors would not be required
to report User device counts associated with a User's display use of
the data feed.
4. Enterprise Fee. As an alternative to User fees, Distributors may
purchase a monthly Enterprise license to receive ToM or DoM feeds for
distribution to an unlimited number of Professional and Non-
Professional Users. This provision would be codified under footnote
``a'' under the description of each the ToM and DoM feed in the Fee
Schedule. The Exchange proposes to establish a monthly Enterprise fee
of $15,000.00 for ToM and $25,000.00 for the DoM feed.
5. Non-Display Usage Fees. For both the ToM and DoM feeds, the
Exchange proposes to establish separate Non-Display Usage fees for
usage by Trading Platforms and other Users (i.e., not by Trading
Platforms).
<bullet> Non-Display Usage. For Non-Display Usage, the Exchange
proposes to establish a monthly fee of $1,000.00 for the ToM feed and
$2,500.00 for the DoM feed.\12\
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\12\ Non-Display Usage would include trading uses such as high
frequency or algorithmic trading as well as any trading in any asset
class, automated order or quote generation and/or order pegging,
price referencing for smart order routing, operations control
programs, investment analysis, order verification, surveillance
programs, risk management, compliance, and portfolio management.
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<bullet> Subscribers of Non-Display Usage for both the ToM and DoM
feed will only be subject to the Non-Display Usage fee for the DoM
feed. In other words, such subscribers would receive both the ToM and
DoM feeds but only be charged the Non-Display Usage fee of $2,500.00
for the DoM feed. This provision would be codified under footnote ``b''
under the description of each the ToM and DoM feed in the Fee Schedule.
<bullet> Non-Display Usage by Trading Platforms. For Non-Display
Usage by Trading Platforms, the Exchange proposes to establish a
monthly fee of $2,500 for the ToM and DoM feeds. The Non-Displayed
Usage by Trading Platform fee would only be charged per subscriber that
uses the data within a Trading Platform.
<bullet> Subscribers of Non-Display Usage by Trading Platforms for
both the ToM and DoM feed will only be subject to the Non-Display Usage
by Trading Platforms fee for the DoM feed. In other words, such
subscribers would receive both the ToM and DoM feeds but only be
charged the Non-Display Usage by Trading Platforms fee of $2,500.00 for
the DoM feed. This provision would be codified under footnote ``c''
under the description of each the ToM and DoM feed in the Fee Schedule.
<bullet> The fee would also represent the maximum charge per
subscriber regardless of the number of Trading Platforms operated by
the subscriber that receives the data for Non-Display Usage. This
provision would be codified under footnote ``d'' under the description
of each the ToM and DoM feed in the Fee Schedule.
<bullet> Miscellaneous. The proposed fees for Non-Display Usage
would only be charged once per category per subscriber. In other words,
with respect to Non-Display Usage Fees, a subscriber that uses the ToM
feed for: (i) non-display purposes but not to operate a Trading
Platform would pay $1,000 per month; (ii) a subscriber that uses the
ToM feed in connection with the operation of one or more Trading
Platforms (but not for other purposes) would pay $2,500 per month; and
(iii) a subscriber that uses the ToM feed for non-display purposes
other than operating a Trading Platform and for the operation of one or
more Trading Platforms would pay $3,500 per month.
Implementation
The Exchange issued an alert publicly announcing the proposed fees
on January 31, 2024.\13\ The Exchange issued a Regulatory Circular on
March 15, 2024 announcing the establishment of the proposed market data
fees to satisfy the required fifteen (15) day notice period, as
described in the Definitions Section of the Fee Schedule for
termination of the Waiver Period.\14\ The proposed fee changes will be
effective beginning April 1, 2024.
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\13\ See Fee Change Alert, MIAX Pearl Equities Exchange--April
1, 2024 Market Data Fee Changes, available at <a href="https://www.miaxglobal.com/alert/2024/01/31/miax-pearl-equities-exchange-april-1-2024-market-data-fee-changes">https://www.miaxglobal.com/alert/2024/01/31/miax-pearl-equities-exchange-april-1-2024-market-data-fee-changes</a>.
\14\ See MIAX Pearl Equities Regulatory Circular 2024-06,
Termination of Waiver Period for Market Data Fees and Establishment
of Fee Amounts, dated March 15, 2024, available at
Pearl_Equities_RC_2024_06.pdf (<a href="http://miaxglobal.com">miaxglobal.com</a>).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) \15\ of the Act in general, and
furthers the objectives of Section 6(b)(4) \16\ 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 Equity
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) \17\ 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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\15\ 15 U.S.C. 78f.
\16\ 15 U.S.C. 78f(b)(4).
\17\ 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'').\18\ 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
[[Page 25296]]
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.\19\
The Exchange provides sufficient evidence below to support the findings
that the proposed fees are constrained by competitive forces; the
market data feeds each have a reasonable substitute; and that the
proposed fees would not result in a supra-competitive profit.
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\18\ 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>.
\19\ Id.
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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 market 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.
There are currently 16 registered exchanges that trade equities.
For the month of March 2024, based on publicly available information,
no single equities exchange had more than approximately 16% of the
equities market share and the Exchange represented only approximately
2.0% of the equities market share.\20\ 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.'' \21\ 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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\20\ See the ``Market Share'' section of the Exchange's website,
available at <a href="https://www.miaxglobal.com/">https://www.miaxglobal.com/</a>.
\21\ 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'. . . .'' \22\
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\22\ 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.'' \23\
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\23\ 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.' '' \24\ As a
result, 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.'' \25\
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.'' \26\ 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.'' \27\ In this case, the Exchange provided the
below Cost Analysis.
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\24\ 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.'').
\25\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
\26\ Id.
\27\ See supra note 18.
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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 Equity Members--both generally and in relation to other
Equity 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 Equity Members and competition among Equity Members in general.
The Exchange does not believe it needs to otherwise address questions
about market competition in
[[Page 25297]]
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,\28\ and Rule 19b-4
thereunder,\29\ with respect to the types of information SROs should
provide when filing fee changes, and Section 6(b) of the Act,\30\ which
requires, among other things, that exchange fees be reasonable and
equitably allocated,\31\ not designed to permit unfair
discrimination,\32\ and that they not impose a burden on competition
not necessary or appropriate in furtherance of the purposes of the
Act.\33\ This proposal addresses those requirements, and the analysis
and data in this section are designed to clearly and comprehensively
show how they are met.
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\28\ 15 U.S.C. 78s(b)(1).
\29\ 17 CFR 240.19b-4.
\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(4).
\32\ 15 U.S.C. 78f(b)(5).
\33\ 15 U.S.C. 78f(b)(8).
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In 2020, the Exchange completed a study of its aggregate costs to
produce market data and connectivity, defined above as its Cost
Analysis.\34\ 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'').
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\34\ 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.
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As an initial step, the Exchange determined the total cost for the
Exchange and its affiliated markets \35\ 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,\36\ 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. MIAX PEARL, LLC further confirms that there is no double
counting of expenses between the options and equities platform of MIAX
PEARL, LLC. 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.
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\35\ The affiliated markets include Miami International
Securities Exchange, LLC (``MIAX''); separately, the options and
equities markets of MIAX Pearl; and MIAX Emerald, LLC (``MIAX
Emerald'').
\36\ 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, 60.1% of the
data center total expense amount is allocated to 10Gb ULL
connectivity), with smaller allocations to ToM and DoM (2.0% combined),
and the remainder to the provision of other connectivity, ports,
transaction execution, and membership services (37.9%). 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.
[[Page 25298]]
Accordingly, the Exchange must cover its expenses from these five
primary 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
Equity Members and parties that they sponsor to participate directly on
the Exchange may submit orders to the Exchange; many Equity 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 market data feeds, and, if
such expense did so relate, what portion (or percentage) of such
expense actually supports the provision of market data feeds, and thus
bears a relationship that is, ``in nature and closeness,'' directly
related to market 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 the market data feeds is $150,031
(the Exchange divided the annual cost for each of market data feed by
12 months, then added both numbers together), as further detailed
below.
Costs Related to Offering the Market Data Feeds
The following chart details the individual line-item (annual) costs
considered by the Exchange to be related to offering the market data
feeds to its Equity 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 8.9% of its overall Human Resources cost to offering the
market data feeds).
----------------------------------------------------------------------------------------------------------------
Allocated annual Allocated monthly
Cost drivers cost \a\ cost \b\ % of all
----------------------------------------------------------------------------------------------------------------
Human Resources........................................ $1,577,592 $131,466 8.9
Connectivity (external fees, cabling, switches, etc.).. 933 78 2.0
Internet Services and External Market Data............. 0.00 0.00 0.0
Data Center............................................ 42,717 3,560 2.0
Hardware and Software Maintenance & Licenses........... 25,921 2,160 2.0
Depreciation........................................... 25,542 2,129 0.5
Allocated Shared Expenses.............................. 127,655 10,638 2.0
--------------------------------------------------------
Total.............................................. 1,800,360 $150,031 5.1
----------------------------------------------------------------------------------------------------------------
\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 the market data
feeds. 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 markets, MIAX and MIAX Emerald, in their recent
proposed fee changes for options market data.\37\ 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, including that the Exchange, MIAX Pearl
Options, and its affiliates trade different asset classes.
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\37\ See Securities Exchange Act Release Nos. 99736 (March 14,
2024), 89 FR 19929 (March 20, 2024) (SR-MIAX-2024-13) and 99737
(March 14, 2024), 89 FR 19915 (March 20, 2024) (SR-EMERALD-2024-09).
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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 market data feeds and performance thereof
(primarily the Exchange's network
[[Page 25299]]
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 9.1% of each employee's
time from the above group to market 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 the
market data feeds 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 market data (8.8%, 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 the market data feeds, 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 the market 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 9.1% of each of their employee's time assigned to the
Exchange for the market data feeds, as stated above. Employees from
these departments perform numerous functions to support the market data
feeds, such as the configuration and maintenance of the hardware
necessary to support the market 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 market data feeds and design, and support the development
and on-going maintenance of internally-developed applications as well
as data capture and analysis, and Equity 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 market, 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 market data feeds 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.)
The Connectivity cost driver includes cabling and switches required
to generate and disseminate the market data feeds and operate the
Exchange. The Connectivity cost driver is more narrowly focused on
technology used to complete Equity Member subscriptions to the market
data feeds and the servers used at the Exchange's primary and back-up
data centers specifically for the market data feeds. Further, as
certain servers are only partially utilized to generate and disseminate
the market data feeds, only the percentage of such servers devoted to
generating and disseminating the market data feeds was included (i.e.,
the capacity of such servers allocated to the market data feeds).\38\
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\38\ 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.
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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 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 did not allocate any costs associated with internet
services or external market data to the market data feeds.
Data Center
Data Center costs includes an allocation of the costs the Exchange
incurs to provide the market data feeds 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 2.0% to the applicable Data Center costs for the market 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 market data feeds.\39\ Because the hardware and
software license fees are correlated to the servers used by the
Exchange, the Exchange again applied an allocation of 2.0% of its costs
for Hardware and Software Maintenance
[[Page 25300]]
and Licenses to the market data feeds. The Exchange notes that this
allocation may differ from its affiliates because MIAX Pearl Equities
maintains software licenses that are unique to its trading platform and
used only for the trading of equity securities. The cost for these
licenses cannot be shared with MIAX Pearl Equities' affiliated options
markets because each of those platforms trade only options, not
equities. MIAX Pearl Equities' affiliates are able to share the cost of
many of their software licenses among the multiple options platforms
(thus lowering the cost to each individual options platform), whereas
MIAX Pearl Equities cannot share such cost and, therefore, bears the
entire cost.
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\39\ This expense may differ from the Exchange's affiliated
markets. 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.
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Depreciation
All physical assets, software, and hardware used to provide the
market data feeds, 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
the market 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 market
data feeds. As noted above, the Exchange allocated 0.5% of its
allocated depreciation costs to providing the market data feeds.
The vast majority of the software the Exchange uses for its
operations to generate and disseminate the market 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 market 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 market 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
market 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 market data
feeds.
This allocation is also based on MIAX Pearl Equities being a newer
market and having newer physical assets and software subject to
depreciation than its affiliate options exchanges. The Exchange's
affiliate options exchanges are older markets that have more software
and equipment that have been fully depreciated when compared to the
newer software and hardware currently being depreciated by MIAX Pearl
Equities at higher rates.
Allocated Shared Expenses
Finally, as with other exchange products and services, a portion of
general shared expenses was allocated to the provision of the market
data feeds. These general shared costs are integral to exchange
operations, including its ability to provide the market data feeds.
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 shared expense cost driver.\40\
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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\40\ 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.
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The Exchange employed a process to determine a reasonable
percentage to allocate general shared expenses to the market data feeds
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., the market data feeds as sub-
categories of market data. In determining the percentage of general
shared expenses allocated to market data that ultimately apply to the
market data feeds, 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 the market data feeds. 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 the
market data feeds.
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 2.0% of the portion
allocated to market data. The Exchange believes this allocation
percentage is reasonable because, while the overall dollar amount may
be higher than other cost drivers, the 2.0% is based on and in line
with the percentage allocations of each of the Exchange's other cost
drivers. The percentage allocated to the market data feeds 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 the market data feeds are main contributors.
* * * * *
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
[[Page 25301]]
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 (9.1%) given their focus on
functions necessary to provide market data and the remaining 90.9% was
allocated to 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 8.8% for the market
data feeds of the cost associated with certain specified personnel who
work closely with and support network infrastructure personnel.
In total, the Exchange allocated 8.9% of its personnel costs (Human
Resources) to providing the market data feeds. In turn, the Exchange
allocated the remaining 91.1% of its Human Resources expense to
membership services, transaction services, connectivity services, and
port services. 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 purchased to operate and support the network. Without this
equipment, the Exchange would not be able to operate the network and
provide the market data feeds to its Equity Members and their
customers. However, the Exchange did not allocate all of the
depreciation and amortization expense toward the cost of providing the
market data feeds, but instead allocated approximately 0.5% of the
Exchange's overall depreciation and amortization expense to the market
data feeds combined. The Exchange allocated the remaining depreciation
and amortization expense (99.5%) toward the cost of providing
transaction services, membership services, connectivity services, and
port services.
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 the market data feeds, 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 \41\
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\41\ To estimate the potential number of subscribers and their
anticipated use after the proposed fees are implemented, the
Exchange surveyed and reviewed its current subscriber base,
considered the number of current potential subscribers who may
unsubscribe due to the proposed fees being implemented, and sought
informal feedback from Equity Members and other subscribers.
---------------------------------------------------------------------------
The proposed fees will allow the Exchange to cover certain costs
incurred by the Exchange associated with creating, generating, and
disseminating the market 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 the
market data feeds, 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
the market data feeds will equal $1,800,360. Based on projected
subscribers and Users, the Exchange would generate annual revenue of
approximately $1,980,000 for the market data feeds. The Exchange
believes this represents a modest profit of 9.1% when compared to the
cost of providing the market data feeds, which the Exchange believes is
fair and reasonable after taking into account the costs related to
creating, generating, and disseminating the market data feeds and the
fact that the Exchange will need to fund future expenditures (increased
costs, improvements, etc.).
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
[[Page 25302]]
that deviates from that of other exchanges or a supra-competitive
profit, when comparing the total expense of the Exchange associated
with providing the market data feeds versus the total projected revenue
also associated with those market data feeds.
The Exchange did not charge any fees for the market data feeds
since its inception in September 2020 and its allocation of costs to
the market data feeds 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 SRO, in their recent non-transaction fee filings
allocate the entire amount of that same cost to a single SRO. 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.\42\ 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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\42\ 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 its recent filing to adopt market
data fees. See Securities Exchange Act Release No. 97130 (March 13,
2023), 88 FR 16491 (March 17, 2023) (SR-MEMX-2023-04).
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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 market data feeds it will
receive additional revenue to offset future cost increases. However, if
use of market 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.
The Proposed Fees Are Reasonable and Comparable to the Fees Charged by
Other Exchanges for Similar Data Products
Overall. Among other things, the Exchange relying upon a cost-plus
model to determine a 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 market 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 the market data feeds with a reasonable mark-up. As
discussed above, the Exchange estimates this fee filing will result in
annual revenue of approximately $1,980,000, representing a potential
mark-up of just 9.1% over the cost of providing market data feeds.
Accordingly, the Exchange believes that this fee methodology is
reasonable because it allows the Exchange to recoup all of its expenses
for providing the market data feeds (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
[[Page 25303]]
they are generally less than the fees charged by competing equities
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 also believes the proposed fees are reasonable when
compared to fees charged for comparable products by other exchanges,
including comparable data feeds priced significantly higher than the
Exchange's proposed fees. Overall, the Exchange's proposed fees are
generally lower or similar to fees charged by other exchanges.\43\ For
this reason, the Exchange believes that the proposed fees are
consistent with the Act generally, and Section 6(b)(5) \44\ of the Act
in particular. The Exchange believes that denying it the 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 other 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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\43\ See MEMX Fee Schedule, available at, <a href="https://info.memxtrading.com/membership-fees/">https://info.memxtrading.com/membership-fees/</a> (``MEMX Fee Schedule''); Cboe
BYX Fee Schedule, available at, <a href="https://www.cboe.com/us/equities/membership/fee_schedule/byx/">https://www.cboe.com/us/equities/membership/fee_schedule/byx/</a>; Cboe BZX Fee Schedule, available at,
<a href="https://www.cboe.com/us/equities/membership/fee_schedule/bzx/">https://www.cboe.com/us/equities/membership/fee_schedule/bzx/</a>; Cboe
EDGA Fee Schedule, available at, <a href="https://www.cboe.com/us/equities/membership/fee_schedule/edga/">https://www.cboe.com/us/equities/membership/fee_schedule/edga/</a>; and Cboe EDGX Fee Schedule, available
at, <a href="https://www.cboe.com/us/equities/membership/fee_schedule/edgx/">https://www.cboe.com/us/equities/membership/fee_schedule/edgx/</a>.
\44\ 15 U.S.C. 78f(b)(5).
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Internal Distribution Fees. The Exchange believes that it is
reasonable to charge fees to access the market 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 fees are reasonable because they
are similar to the amount charged by other exchanges for comparable
data products. Specifically, the Exchange proposes to charge a monthly
fee of $1,000.00 to Internal Distributors for the ToM feed and
$2,000.00 for the DoM feed, both of which include last sale
information. MEMX, Cboe BZX, and Cboe EDGX each charge Internal
Distributors a monthly fee of $750.00 per month for their top-of-book
products and $1,500.00 for their depth-of-book products, and charges
separately for last sale information.\45\ The Exchange notes that while
its proposed fee for Internal Distributors may be slightly higher than
these other exchanges, its other proposed fees are either equal to or
significantly lower than other exchanges, as discussed below.
---------------------------------------------------------------------------
\45\ See MEMX Fee Schedule, supra note 43.
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External Distribution Fees. The Exchange believes that it is
reasonable to charge External Distribution fees for the market 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 of the market data feeds, regardless of the number of customers to
which that vendor redistributes the data.
The Exchange also believes that the proposed monthly External
Distribution fees are reasonable because they are equal to or lower
than the amount charged by other exchanges for comparable data
products. Specifically, the Exchange proposes to charge a monthly fee
of $2,000.00 to External Distributor for the ToM feed and $2,500.00 for
the DoM feed. The Exchange's proposed External Distribution fee for ToM
is equal to or lower than the fees charged by MEMX, Cboe BZX, and Cboe
EDGX to External Distributors of their depth-of-book products, who each
charge $2,000.00, $2,500.00, and $2,250.00, respectively.\46\
Meanwhile, the Exchange's proposed External Distribution fee for DoM is
equal to the fees charged by MEMX, Cboe BYX, Cboe EDGA, and Cboe EDGX
to External Distributors of their depth-of-book products.\47\
Meanwhile, the Exchange's proposed External Distribution fee for DoM is
lower than the $5,000.00 fee charged by Cboe BZX to External
Distributors of its depth-of-book product.\48\
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\46\ See MEMX Fee Schedule, Cboe BZX Fee Schedule, and Cboe EDGX
Fee Schedule, supra note 43.
\47\ See MEMX Fee Schedule, Cboe BYX Fee Schedule, Cboe EDGA Fee
Schedule, and Cboe EDGX Fee Schedule, id.
\48\ See Cboe BZX Fee Schedule, id.
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User Fees. The Exchange believes that having separate Professional
and Non-Professional User fees for the market data feeds is reasonable
because it will make the product more affordable and result in greater
availability to Professional and Non-Professional Users. Setting a
modest Non-Professional User fee is reasonable because it provides an
additional method for Non-Professional Users to access the market data
feeds by providing the same data that is available to Professional
Users. The proposed monthly Professional User and Non-Professional User
fees are reasonable because they equal to or are lower than the fees
charged by other exchanges for comparable data products. For example,
the Exchange's proposed Professional User fees of $2.00 for ToM and
$30.00 for DoM is lower than the same fee charged by Cboe BZX and Cboe
EDGX, who each charge $4.00 for their top-of-book products and $40.00
for their depth-of-book products.\49\ The Exchange's proposed Non-
Professional User fees of $0.10 for ToM is equal to the same fee
charged by Cboe BZX and Cboe EDGX.\50\
---------------------------------------------------------------------------
\49\ See Cboe BZX Fee Schedule and Cboe EDGX Fee Schedule, id.
\50\ Id.
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Meanwhile, the Exchange's proposed Non-Professional User fees of
$3.00 for DoM is equal to the same fee charged by MEMX and lower than
the same fee charged by Cboe BZX and Cboe EDGX, who each charge $5.00
for their depth-of-book products.\51\
---------------------------------------------------------------------------
\51\ See MEMX Fee Schedule, Cboe BZX Fee Schedule, and Cboe EDGX
Fee Schedule, supra note 43.
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The Exchange also believes that the proposal to require reporting
of individual Users, but not devices, is reasonable as this too will
eliminate unnecessary audit risk that can arise when recipients are
required to apply complex counting rules such as whether or not to
count devices or whether an individual accessing the same data through
multiple devices should be counted once or multiple times.
The Exchange also believes it is reasonable to adopt an Enterprise
Fee because this would allow a market participant to disseminate such
data feeds to an unlimited number of Users without the necessity of
counting such Users. As this is an optional subscription, a data
recipient is able to determine whether it prefers to count Users and
report such Users to the Exchange or not, and also whether it is more
economically advantageous to count and pay for specific Users or to
subscribe to the Enterprise Fee. The Exchange also notes that only a
market participant with a substantial number of Users would likely
choose to subscribe for and pay the Enterprise Fee.
The proposed monthly Enterprise fees are reasonable because they
equal to or are lower than the fees charged by other exchanges for
comparable data products. For example, the Exchange's proposed
Enterprise fee of $15,000.00 per month for ToM equals the same fee
[[Page 25304]]
charged by Cboe BZX and Cboe EDGX.\52\ However, the Exchange's proposed
Enterprise fee of $25,000.00 per month for DoM is much lower than the
same fee charged by Cboe BZX and Cboe EDGX, who each charge $100,000.00
per month.\53\
---------------------------------------------------------------------------
\52\ See Cboe BZX Fee Schedule and Cboe EDGX Fee Schedule, id.
\53\ Id.
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Non-Display Use Fees. The Exchange believes the proposed Non-
Display Usage fees are reasonable because they reflect the value of the
data to the data recipients in their profit-generating activities and
do not impose the burden of counting non-display devices.
The Exchange believes that the proposed Non-Display Usage fees
reflect the significant value of the non-display data use to data
recipients, whom purchase such data on a voluntary basis. Non-display
data can be used by data recipients for a wide variety of profit-
generating purposes, including proprietary and agency trading and smart
order routing, as well as by data recipients that operate Trading
Platforms that compete directly with the Exchange for order flow. The
data also can be used for a variety of non-trading purposes that
indirectly support trading, such as risk management and compliance.
Although some of these non-trading uses do not directly generate
revenues, they can nonetheless substantially reduce a recipient's costs
by automating such functions so that they can be carried out in a more
efficient and accurate manner and reduce errors and labor costs,
thereby benefiting recipients. The Exchange believes that charging for
non-trading uses is reasonable because data recipients can derive
substantial value from such uses, for example, by automating tasks so
that can be performed more quickly and accurately and less expensively
than if they were performed manually.
Previously, the non-display use data pricing policies of many
exchanges required customers to count, and the exchanges to audit the
count of, the number of non-display devices used by a customer. As non-
display use grew more prevalent and varied, however, exchanges received
an increasing number of complaints about the impracticality and
administrative burden associated with that approach. In response,
several exchanges developed a non-display use pricing structure that
does not require non-display devices to be counted or those counts to
be audited, and instead categorizes different types of use. The
Exchange proposes to distinguish between non-display use for the
operation of a Trading Platform and other non-display use, which is
similar to exchanges such as MEMX, BZX, and EDGX,\54\ while other
exchanges maintain additional categories and in many cases charge
multiple times for different types of non-display use or the operation
of multiple Trading Platforms.\55\
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\54\ See Cboe BZX Fee Schedule and Cboe EDGX Fee Schedule, id.
\55\ See NYSE Proprietary Market Data Pricing Guide, dated May
4, 2022, available at <a href="https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf">https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf</a>, and the Nasdaq Global Data Products
pricing list, available at <a href="https://nasdaqtrader.com/Trader.aspx?id=DPUSdata">https://nasdaqtrader.com/Trader.aspx?id=DPUSdata</a>.
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The Exchange believes that it is reasonable to segment the fee for
non-display use into these two categories. As noted above, the uses to
which customers can put the market data feeds are numerous and varied,
and the Exchange believes that charging separate fees for these
separate categories of use is reasonable because it reflects the actual
value the customer derives from the data, based upon how the customer
makes use of the data.
The Exchange believes that the proposed fees for Non-Display Usage
for ToM are reasonable because the Exchange's proposed fee of $1,000.00
per month is less than the amounts charged by several other exchanges
for comparable data products.\56\ The Exchange also believes that the
proposed fees for Non-Display Usage for DoM are reasonable because the
Exchange's proposed fee of $2,500.00 per month for DoM equals the same
fee charged by MEMX for its depth-of-book product.\57\ The proposed
fees are also significantly less than the amounts charged by several
other exchanges for comparable data products.\58\ In fact, the
Exchange's proposed fees for Non-Display Usage fee may be even lower
because the Exchange would allow subscribers to the DoM feed to also
receive the ToM feed for no additional charge. The Exchange believes
that the proposed fees directly and appropriately reflect the
significant value of using data on a non-display basis in a wide range
of computer-automated functions relating to both trading and non-
trading activities and that the number and range of these functions
continue to grow through innovation and technology developments.
Further, the Exchange benefits from other non-display use by market
participants (including the fact that the Exchange receives orders
resulting from algorithms and routers) and both the Exchange and other
participants benefit from other non-display use by market participants
when such use is to support more broadly beneficial functions such as
risk management and compliance.
---------------------------------------------------------------------------
\56\ Id.
\57\ See MEMX Fee Schedule, supra note 43.
\58\ See supra note 55.
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The Exchange believes that the proposed fees for Non-Display Usage
for ToM are reasonable because the Exchange's proposed fee of $2,500.00
per month is less than the amounts charged by several other exchanges
for comparable data products,\59\ which also charge per Trading
Platform operated by a data subscriber subject to a cap in most cases,
rather than charging per subscriber, as proposed by the Exchange.\60\
The Exchange also believes that it is reasonable to charge the proposed
fees for non-display use for operation of a Trading Platform of the DoM
feed because its proposed fee of $2,500.00 per month equals the same
fee charged by MEMX for its depth-of-book product.\61\ The proposed
fees are also significantly less than the amounts charged by Cboe BZX
and Cboe EDGA, who each charge $5,000.00 per month, for comparable data
products.\62\ In fact, the Exchange's proposed fees for Non-Display
Usage fee for Trading Platform may be even lower because the Exchange
would allow subscribers to the DoM feed to also receive the ToM feed
for no additional charge. The proposed fee is also significantly less
than the amounts charged by several other exchanges for comparable data
products, which also charge per Trading Platform operated by a data
subscriber subject to a cap in most cases, rather than charging per
subscriber, as proposed by the Exchange.\63\ With respect to
alternative trading systems, or ATSs, such platforms can utilize the
Exchange Data Feeds to form prices for trading on such platforms but
are not required to do so and can instead utilize SIP data. Currently,
no ATS approved to trade NMS stocks subscribes to the Exchange's market
data feeds.\64\ With respect to other exchanges, which may choose to
use the market data feeds for
[[Page 25305]]
Regulation NMS compliance and order routing, the Exchange notes that
several exchange competitors of the Exchange have not subscribed to any
of the market data feeds and instead utilize SIP data for such
purposes.\65\ Accordingly, both ATSs and other exchanges clearly have a
choice whether to subscribe to the Exchange's market data feeds.
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\59\ Id.
\60\ See supra note 55. The Exchange notes that MEMX also
charges per subscriber, as proposed herein. See MEMX Fee Schedule
supra note 43.
\61\ Id.
\62\ See Cboe BZX Fee Schedule and Cboe EDGX Fee Schedule, supra
note 43. See also supra note 55.
\63\ See supra note 55. The Exchange notes that MEMX also
charges per subscriber, as proposed herein. See MEMX Fee Schedule
supra note 43.
\64\ MIAX Pearl Equities internal data regarding non-display use
by Trading Platforms. As of March 15, 2024, there were currently 32
ATSs that had filed an effective Form ATS-N with the Commission to
trade NMS stocks. See <a href="https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm#ats-n">https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm#ats-n</a>.
\65\ See, e.g., BZX Rule 11.26, EDGA Rule 13.4, EDGX Rule 13.4,
and Long Term Stock Exchange, Inc. Rule 11.4010(a), each of which
discloses the data feeds used by each respective exchange and state
that SIP products are used with respect to MIAX Pearl Equities.
---------------------------------------------------------------------------
The proposed Non-Display Usage fees are also reasonable because
they take into account the extra value of receiving the data for Non-
Display Usage that includes a rich set of information including top of
book quotations, depth-of-book quotations, executions and other
information. The Exchange believes that the proposed fees directly and
appropriately reflect the significant value of using the market data
feeds on a non-display basis in a wide range of computer-automated
functions relating to both trading and non-trading activities and that
the number and range of these functions continue to grow through
innovation and technology developments.\66\
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\66\ See also Exchange Act Release No. 69157 (March 18, 2013),
78 FR 17946, 17949 (March 25, 2013) (SR-CTA/CQ-2013-01) (``[D]ata
feeds have become more valuable, as recipients now use them to
perform a far larger array of non-display functions. Some firms even
base their business models on the incorporation of data feeds into
black boxes and application programming interfaces that apply
trading algorithms to the data, but that do not require widespread
data access by the firm's employees. As a result, these firms pay
little for data usage beyond access fees, yet their data access and
usage is critical to their businesses.'').
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* * * * *
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the market data feeds are reasonable.
There Are Reasonable Substitutes for the Market Data Feeds
Each equities 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 the
securities information processors (``SIPs'') distributing consolidated
data pursuant to the CTA/CQ Plan and the UTP Plan.\67\ Accordingly,
market participants can substitute ToM data with feeds from other
exchanges and/or through the SIPs. Exchange top-of-book data is
therefore widely available today from a number of different sources.
---------------------------------------------------------------------------
\67\ 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 the SIPs.
---------------------------------------------------------------------------
The Exchange notes DoM is entirely optional. The Exchange is not
required to make the proprietary data products that are the subject of
this proposed rule change available or to offer any specific pricing
alternatives to any customers, nor is any firm or investor required to
purchase the Exchange's data products. Unlike some other data products
(e.g., the consolidated quotation and last-sale information feeds) that
firms are required to purchase in order to fulfil regulatory
obligations,\68\ a customer's decision whether to purchase any of the
Exchange's proprietary market data feeds is entirely discretionary.
Most firms that choose to subscribe to proprietary market data feeds
from the Exchange and its affiliates do so for the primary goals of
using them to increase their revenues, reduce their expenses, and in
some instances compete directly with the Exchange's trading services.
Such firms are able to determine for themselves whether or not the
products in question or any other similar products are attractively
priced. If market data feeds from the Exchange and its affiliates do
not provide sufficient value to firms based on the uses those firms may
have for it, such firms may simply choose to conduct their business
operations in ways that do not use the products.
---------------------------------------------------------------------------
\68\ The Exchange notes that broker-dealers are not required to
purchase proprietary market data to comply with their best execution
obligations. See In the Matter of the Application of Securities
Industry and Financial Markets Association for Review of Actions
Taken by Self-Regulatory Organizations, Release Nos. 34-72182; AP-3-
15350; AP-3-15351 (May 16, 2014). Similarly, there is no requirement
in Regulation NMS or any other rule that proprietary data be
utilized for order routing decisions, and some broker-dealers and
ATSs have chosen not to do so.
---------------------------------------------------------------------------
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 market 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 market data feeds. Any subscriber or vendor
that chooses to subscribe to the market 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 market data feeds is based
on objective differences in usage of market data feeds among different
Equity Members, which are still ultimately in the control of any
particular Equity Member. The Exchange believes the proposed pricing of
the market 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 Distributor Fees. The Exchange believes the proposed
monthly fees for Internal Distributors of the market data feeds are
equitably allocated because they would be charged on an equal basis to
all data recipients that receive the market data feeds for internal
distribution, regardless of what type of business they operate.
External Distributor Fees. The Exchange believes the proposed
monthly fees for External Distributors of the market 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
market 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 Distributors are equitably
allocated when compared to lower proposed fees for Internal
Distributors because data recipients that are externally distributing
market data feeds are able to monetize such distribution and spread
such costs amongst multiple third party data recipients, whereas the
Internal Distributor fee is applicable to use by a single data
recipient (and its affiliates).
The Exchange believes that it is reasonable and equitable
discriminatory to assess Internal Distributors fees that are less than
the fees assessed for External Distributors for subscriptions to the
market 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 Equity
Members and non-Equity Members that decide to receive any market data
feed of the Exchange must first execute, among other things, the MIAX
Exchange Group Exchange Data Agreement (the
[[Page 25306]]
``Exchange Data Agreement'').\69\ 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.\70\ External Distributors
may distribute the Exchange's market data to persons who are not
officers, employees or affiliates of the External Distributor,\71\ and
may charge their own fees for the redistribution of such market data.
External Distributors may monetize their receipt of the market data
feeds by charging their customers fees for receipt of the Exchange's
market data feeds. Internal Distributors do not have the same ability
to monetize the Exchange's market data feeds. Accordingly, the Exchange
believes it is fair, reasonable and not unfairly discriminatory to
assess External Distributors a higher fee for the Exchange's market
data feeds as External Distributors have greater usage rights to
commercialize such market data and can adjust their own fee structures
if necessary.
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\69\ See Exchange Data Agreement, available at <a href="https://www.miaxglobal.com/markets/us-equities/pearl-equities/market-data-vendor-agreements">https://www.miaxglobal.com/markets/us-equities/pearl-equities/market-data-vendor-agreements</a>.
\70\ See id.
\71\ See id.
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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.\72\ Exchange staff must
then, in turn, process and review information reported by External
Distributors to ensure the External Distributors are redistributing the
market data feeds in compliance with the Exchange's Market Data
Agreement and Policies.
---------------------------------------------------------------------------
\72\ See Section 6 of the Exchange's Market Data Agreement,
supra note 69.
---------------------------------------------------------------------------
The Exchange believes the proposed fees are equitable 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 market data feeds.
User Fees. The Exchange believes that the fee structure
differentiating Professional User fees from Non-Professional User fees
for display use is equitable. This structure has long been used by
other exchanges and the SIPs to reduce the price of data to Non-
Professional Users and make it more broadly available.\73\ Offering the
market data feeds to Non-Professional Users at a lower cost than
Professional Users results in greater equity among data recipients, as
Professional Users are categorized as such based on their employment
and participation in financial markets, and thus, are compensated to
participate in the markets. While Non-Professional Users too can
receive significant financial benefits through their participation in
the markets, the Exchange believes it is reasonable to charge more to
those Users who are more directly engaged in the markets.
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\73\ See, e.g., Securities Exchange Act Release No. 59544 (March
9, 2009), 74 FR 11162 (March 16, 2009) (SR-NYSE-2008-131)
(establishing the $15 Non-Professional User Fee (Per User) for NYSE
OpenBook); Securities Exchange Act Release No. 20002, File No. S7-
433 (July 22, 1983), 48 FR 34552 (July 29, 1983) (establishing Non-
Professional fees for CTA data); NASDAQ BX Equity 7 Pricing
Schedule, Section 123.
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The Exchange believes it is equitable to adopt User fees for the
DoM feed that are higher than the User fees for the ToM feed because,
as described above, DoM contains significantly more data than the ToM
feed. The Exchange believes it is equitable to have pricing based, in
part, upon the amount of information contained in each data feed and
the value of that information to market participants.
The Exchange also believes it is equitable to adopt an Enterprise
Fee because this would allow a market participant to disseminate such
data feeds to an unlimited number of Users without the necessity of
counting such Users. As this is an optional subscription, a data
recipient is able to determine whether it prefers to count Users and
report such Users to the Exchange or not, and also whether it is more
economically advantageous to count and pay for specific Users or to
subscribe to the Enterprise Fee.
Non-Display Use Fees. The Exchange believes the proposed Non-
Display Usage fees are equitably allocated because they would require
subscribers to pay fees only for the uses they actually make of the
data. As noted above, non-display data can be used by data recipients
for a wide variety of profit-generating purposes (including trading and
order routing) as well as purposes that do not directly generate
revenues (such as risk management and compliance) but nonetheless
substantially reduce the recipient's costs by automating certain
functions. The Exchange believes that it is equitable to charge non-
display data subscribers that use the market data feeds for purposes
other than operation of a Trading Platform as proposed because all such
subscribers would have the ability to use such data for as many non-
display uses as they wish for one low fee. As noted above, this
structure is comparable to that in place for the BZX Depth feed but
several other exchanges charge multiple non-display fees to the same
client to the extent they use a data feed in several different trading
platforms or for several types of non-display use.\74\
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\74\ See supra note 55.
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The Exchange further believes that the fees for non-display use for
operation of a Trading Platform and for non-display use other than
operation of a Trading Platform are equitable because the Exchange is
imposing the same flat fee for each category of non-display use.
The Exchange believes that it is equitable to charge a single fee
per subscriber rather than multiple fees for a subscriber that operates
more than one Trading Platform because operators of Trading Platforms
are many times viewed as a single competing venue or group, even if
there are multiple liquidity pools operated by the same competitor.
* * * * *
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the market data feeds are equitably allocated.
The Proposed Fees Are Not Unfairly Discriminatory
The Exchange believes the proposed fees are not unfairly
discriminatory because any differences in the application of the fees
are based on meaningful distinctions between customers, and those
meaningful distinctions are not unfairly discriminatory between
customers.
Overall. The Exchange believes that the proposed fees are not
unfairly discriminatory because they would apply to all data recipients
that choose to subscribe to the same market data feed(s). Any vendor or
subscriber that chooses to subscribe to the market data feeds is
subject to the same Fee
[[Page 25307]]
Schedule, regardless of what type of business they operate. Because the
proposed fees for DoM are higher, vendors and subscribers seeking lower
cost options may instead choose to receive data from the SIPs or
through the ToM feed for a lower cost. Alternatively, vendors and
subscribers can choose to pay for the DoM feed to receive data in a
single feed with depth-of-book information if such information is
valuable to such vendors or subscribers. The Exchange notes that
vendors or subscribers can also choose to subscribe to a combination of
data feeds for redundancy purposes or to use different feeds for
different purposes. In sum, each vendor or subscriber has the ability
to choose the best business solution for itself. The Exchange does not
believe it is unfairly discriminatory to base pricing upon the amount
of information contained in each data feed and the value of that
information to market participants. As described above, the ToM feed
can be utilized to trade on the Exchange but contain less information
than that is available on the DoM feed (i.e., even for a subscriber who
takes both feeds, such feeds do not contain depth-of-book information).
Thus, the Exchange believes it is not unfairly discriminatory for the
products to be priced as proposed, with ToM having the lowest price and
DoM a higher price.
Internal Distributor Fees. The Exchange believes the proposed
monthly fees for Internal Distributors are not unfairly discriminatory
because they would be charged on an equal basis to all data recipients
that receive the same market data feed(s) for internal distribution,
regardless of what type of business they operate.
External Distributor Fees. The Exchange believes the proposed
monthly fees for redistributing the market data feeds are not unfairly
discriminatory because they would be charged on an equal basis to all
data recipients that receive the same market data feed(s) that choose
to redistribute the feed(s) externally. The Exchange also believes that
having higher monthly fees for External Distributors than Internal
Distributors is not unfairly discriminatory because data recipients
that are externally distributing the market data feeds are able to
monetize such distribution and spread such costs amongst multiple third
party data recipients, whereas the Internal Distributor fee is
applicable to use by a single data recipient (and its affiliates).
User Fees. The Exchange believes that the fee structure
differentiating Professional User fees from Non-Professional User fees
for display use is not unfairly discriminatory. This structure has long
been used by other exchanges and the SIPs to reduce the price of data
to Non-Professional Users and make it more broadly available.\75\
Offering the market data feeds to Non-Professional Users with the same
data as is available to Professional Users, albeit at a lower cost,
results in greater equity among data recipients. These User fees would
be charged uniformly to all individuals that have access to the market
data feeds based on the category of User.
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\75\ See supra note 73.
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The Exchange also believes the proposed User fees for DoM are not
unfairly discriminatory, with higher fees for Professional Users than
Non-Professional Users, because Non-Professional Users may have less
ability to pay for such data than Professional Users as well as less
opportunity to profit from their usage of such data. The Exchange also
believes the proposed User fees for DoM are not unfairly
discriminatory, even though substantially higher than the proposed User
fees for ToM because, as described above, DoM has significantly more
information than ToM and is thus potentially more valuable to such
Users.
The Exchange further believes that its proposal to adopt an
Enterprise Fee is not unfairly discriminatory because this optional
alternatives to counting and paying for specific Users will provide
market participants the ability to provide information from the market
data feeds to large numbers of Users without counting and paying for
each individual User.
Non-Display Use Fees. The Exchange believes the proposed Non-
Display Usage fees are not unfairly discriminatory because they would
require subscribers for non-display use to pay fees depending on their
use of the data, either for operation of a Trading Platform or not, but
would not impose multiple fees to the extent a subscriber operates
multiple Trading Platforms or has multiple different types of non-
display use. As noted above, non-display data can be used by data
recipients for a wide variety of profit-generating purposes as well as
purposes that do not directly generate revenues but nonetheless
substantially reduce the recipient's costs by automating certain
functions. This segmented fee structure is not unfairly discriminatory
because no subscriber of non-display data would be charged a fee for a
category of use in which it did not actually engage.
The Exchange believes that it is not unreasonably discriminatory to
charge a single fee for an operator of Trading Platforms that operates
more than one Trading Platform because operators of Trading Platforms
are many times viewed as a single competing venue or group, even if
there a multiple liquidity pools operated by the same competitor. The
Exchange again notes that certain competitors to the Exchange charge
for non-display usage per Trading Platform,\76\ in contrast to the
Exchange's proposal. In turn, to the extent they subscribe to the
market data feeds, these same competitors will benefit from the
Exchange's pricing model to the extent they operate multiple Trading
Platforms (as most do) by paying a single fee rather than paying for
each Trading Platform that they operate that consumes the market data
feeds.
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\76\ See supra note 55.
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* * * * *
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the Exchange's market data feeds are not unfairly
discriminatory.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\77\ 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.
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\77\ 15 U.S.C. 78f(b)(8).
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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 Equity 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 SROs 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
[[Page 25308]]
with comparable rates in place for their participants.\78\ 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 for a period of
time to allow it to become established encourages market entry and
thereby ultimately promotes competition.
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\78\ See supra note 43.
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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,\79\ and Rule 19b-4(f)(2) \80\ thereunder.
At any time within 60 days of the filing of the proposed rule change,
the Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act. If the Commission takes such
action, the Commission shall institute proceedings to determine whether
the proposed rule should be approved or disapproved.
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\79\ 15 U.S.C. 78s(b)(3)(A)(ii).
\80\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="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#4e3c3b222b632d2123232b203a3d0e3d2b2d60292138"><span class="__cf_email__" data-cfemail="156760797038767a7878707b6166556670763b727a63">[email protected]</span></a>. Please include
file number SR-PEARL-2024-15 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-PEARL-2024-15. 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 SR-PEARL-2024-15 and should be
submitted on or before May 1, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\81\
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\81\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-07539 Filed 4-9-24; 8:45 am]
BILLING CODE 8011-01-P
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