Notice2024-08808
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule Regarding Options Market Data Products
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 26, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 82 (Friday, April 26, 2024)</title>
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[Federal Register Volume 89, Number 82 (Friday, April 26, 2024)]
[Notices]
[Pages 32507-32514]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-08808]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99998; File No. SR-MEMX-2024-14]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule Regarding Options Market Data Products
April 19, 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 April 15, 2024, MEMX LLC (``MEMX'' or the ``Exchange'') filed
with the Securities and Exchange Commission (the ``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 with the Commission a proposed rule change
to amend the Market Data section of its fee schedule applicable to its
equity options platform (``MEMX Options'') to adopt fees for certain of
its market data products, which are currently offered free of charge,
pursuant to MEMX Rules 15.1(a) and (c). The Exchange proposes to
implement the changes to the Fee Schedule pursuant to this proposal
immediately. The text of the proposed rule change is provided in
Exhibit 5.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Market Data
section of the Exchange's fee schedule applicable to MEMX Options
(``MEMX Options Fee Schedule'') to adopt fees for certain of its
options market data products which are currently offered free of
charge, namely MEMOIR Options Depth and MEMOIR Options Top
(collectively, the ``Options Data Feeds''). As set forth below, the
Exchange believes that the proposed fees are fair and reasonable and
has based its proposal on the fact that competitive forces exist with
respect to Options Data Feeds, the fact that Options Data Feeds are
optional data products for which there are substitutes, a comparison to
competitor pricing, and a detailed cost analysis. The Exchange is
proposing to implement the proposed fees on April 15, 2024. The
Exchange previously filed this proposal on March 28, 2024 (SR-MEMX-
2024-11) (the ``Initial Proposal''). The Exchange has withdrawn the
Initial Proposal and replaced the proposal with the current filing (SR-
MEMX-2024-14).
Before setting forth the additional details regarding the proposal
as well as the cost analysis conducted by the Exchange, immediately
below is a description of the proposed fees.
Proposed Market Data Pricing
MEMX Options offers two separate data feeds to subscribers--MEMOIR
Options Depth and MEMOIR Options Top. The Exchange notes that there is
no requirement that any subscribing entity (``Firm'') subscribe to a
particular Options Data Feed or any Options Data Feed whatsoever, but
instead, a Firm may choose to maintain subscriptions to those Options
Data Feeds they deem appropriate based on their business model. The
proposed fee will not apply differently based upon the size or type of
Firm, but rather based upon the subscriptions a Firm has to Options
Data Feeds. The proposed pricing for each of the Options Data Feeds is
set forth below.
MEMOIR Options Depth
The MEMOIR Options Depth feed is a MEMX-only market data feed that
contains depth of book quotations and execution information based on
options orders entered in the System.\3\ For the
[[Page 32508]]
receipt of access to the MEMOIR Options Depth feed, the Exchange
proposes to charge $1,500 per month. This proposed access fee would be
charged to any data recipient that receives a data feed of the MEMOIR
Options Depth feed for purposes of internal distribution (i.e., an
``Internal Distributor''), for external redistribution (i.e. an
``External Distributor''), or both. The Exchange proposes to define an
Internal Distributor as ``a Distributor that receives an Exchange Data
product and then distributes that data to one or more data recipients
within the Distributor's own organization,'' \4\ and an External
Distributor as ``a Distributor that receives an Exchange Data product
and then distributes that data to a third party or one or more data
recipients outside the Distributor's own organization.'' \5\ The
proposed access fee will be charged only once per month per Firm
regardless of whether the Firm uses the MEMOIR Options Depth feed for
internal distribution, external distribution, or both.\6\
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\3\ See MEMX Rule 21.15(b)(1).
\4\ See Market Data Definitions under the proposed MEMX Options
Fee Schedule. The Exchange also proposes to adopt a definition for
``Distributor'', which would mean any entity that receives an
Exchange Data product directly from the Exchange or indirectly
through another entity and then distributes internally or externally
to a third party.
\5\ See Market Data Definitions under the proposed MEMX Options
Fee Schedule.
\6\ The proposed definitions of Internal Distributor and
External Distributor are the same definitions used in the Exchange's
Equities Fee Schedule.
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MEMOIR Options Top
The MEMOIR Options Top feed is a MEMX-only market data feed that
contains top of book quotations and executions based on options orders
entered into the System.\7\ For the receipt of access to the MEMOIR
Options Top feed, the Exchange proposes to charge $750 per month. This
proposed access fee would be charged to any data recipient that
receives a data feed of the MEMOIR Options Top feed for purposes of
internal distribution (i.e., an Internal Distributor), external
redistribution (i.e. an External Distributor), or both. The proposed
access fee for internal and external distribution will be charged only
once per month per Firm regardless of whether the Firm uses the MEMOIR
Options Top feed for internal distribution, external distribution, or
both.
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\7\ See MEMX Rule 21.15(b)(2).
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Billing Process
The Exchange proposes to bill for the Options Data Feeds in the
same manner as it does for the market data products it provides for its
equities Exchange, (the ``Equities Data Feeds''), and to make this
clear on the Fee Schedule. Specifically, the Fee Schedule would state
that ``[f]ees for Market Data products are assessed based on each
active product at the close of business on the first day of each
month,'' and that ``[i]f a product is cancelled by a subscriber's
submission of a written request or via the MEMX User Portal prior to
such fee being assessed, then the subscriber will not be obligated to
pay the applicable product fee. MEMX does not return pro rated fees if
a product is not used for an entire month.'' The Exchange believes that
this billing methodology has been efficient with respect to the
Equities Data Feeds and is well understood by market participants.
Additional Discussion--Background
The Exchange launched MEMX Options on September 27, 2023. As a new
entrant in the equity options trading space, MEMX has not yet charged
fees for options market data provided by the Exchange. The objective of
this approach was to eliminate any fee-based barriers for Members to
join the Exchange, which the Exchange believes has been helpful in its
ability to attract order flow as a new options exchange. Further, the
Exchange did not initially charge for options market data because MEMX
believes that any exchange should first deliver meaningful value to
Members and other market participants before charging fees for its
products and services.
The Exchange also did not begin charging for the Equities Data
Feeds until 2022, nearly two years after it launched as a national
securities exchange in 2020. In connection with the adoption of fees
for the Equities Data Feeds, the Exchange conducted an extensive cost
analysis (the ``2022 Cost Analysis''),\8\ and the Exchange's proposal
herein to adopt fees for Options Data Feeds stems from the same cost
analysis, which it has reviewed and updated for 2024 (the ``2024 Cost
Analysis''). As discussed more fully below, the Exchange recently
calculated its annual aggregate costs for providing market data for
both its equities and options trading platforms (i.e. the ``Exchange
Data Feeds'') at approximately $3.6 million.\9\ In order to establish
fees that are designed to recover the aggregate costs of providing the
Exchange Data Feeds with a reasonable profit margin, the Exchange is
proposing to modify its Fee Schedule, as described above. In addition
to the 2024 Cost Analysis, described below, the Exchange believes that
its proposed approach to market data fees is reasonable based on a
comparison to competitors.
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\8\ See Securities Exchange Act Release No. 97130 (March 13,
2023), 88 FR 16491 (March 17, 2023) (SR-MEMX-2023-04).
\9\ As described more fully below, the Exchange's Cost Analysis
combines costs and revenues for Equities and Options in order to not
double count any allocations, among other reasons.
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Additional Discussion--Comparison With Other Exchanges
The proposed fee structure for the Options Data Feeds is not novel
but is instead comparable to the fee structure currently in place for
the options exchanges operated by MIAX, in particular, MIAX Pearl
Options (``MIAX Pearl''),\10\ and the options exchanges operated by
Nasdaq, in particular, Nasdaq BX Options (``BX Options'').\11\ The
Exchange is proposing fees for its Options Data Feeds that are similar
in structure to MIAX Pearl and BX Options and rates that are equal to,
or lower than, than the rates data recipients pay for comparable data
feeds from those exchanges, in a more simplified fashion.\12\ The
Exchange notes that other competitors maintain fees applicable to
options market data that are considerably higher than those proposed by
the Exchange, including Cboe BZX Options (``BZX Options''), NYSE Arca
Options and NYSE American Options.\13\ However, the
[[Page 32509]]
Exchange has focused its comparison on MIAX Pearl and BX Options
because their similar market data products are offered at prices lower
than several other incumbent exchanges, which is a similar approach to
that proposed by the Exchange.\14\
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\10\ See MIAX Pearl Options Fee Schedule, available at: <a href="https://www.miaxglobal.com/markets/us-options/pearl-options/fees">https://www.miaxglobal.com/markets/us-options/pearl-options/fees</a> (the ``MIAX
Pearl Fee Schedule'').
\11\ See the Nasdaq BX Options Fee Schedule, available at:
<a href="https://listingcenter.nasdaq.com/rulebook/bx/rules/bx-options-7">https://listingcenter.nasdaq.com/rulebook/bx/rules/bx-options-7</a>.
\12\ As noted below, based on its review of MIAX Pearl's Fee
Schedule, the Exchange believes that MIAX Pearl charges separate
fees for Internal and External Distribution of its options data
feeds, and while its External Distribution fees are identical to the
Exchange's proposed flat fee for all uses for both comparable
products, its Internal Distribution Fees are slightly lower than
what the Exchange is proposing for access to the Exchange's Options
Data Feeds. Nevertheless, given that the Exchange allows both
Internal and External Distribution for a single fee for a single
data feed, the Exchange believes its proposed fees remain comparable
and competitive with MIAX Pearl.
\13\ Fees for BZX Options Depth, which is the comparable product
to MEMOIR Options Depth, are $3,000 for internal distribution and
$2,000 for external distribution compared to the Exchange's proposed
fee of $1,500 for all uses. In addition, BZX Options charges
professional user fees of $30 per month and non-professional user
fees of $1.00 per month for each entity to which it distributes the
feed (alternatively, it offers distributors an option to purchase a
monthly Enterprise Fee of $3,500 to distribute to an unlimited
number of users), which the Exchange is not proposing to charge.
Fees for BZX Options Top, which is the comparable product to MEMOIR
Options Top, are $3,000 for internal distribution, $2,000 for
external distribution, with Professional User Fees of $5 per month,
Non-Professional Fees of $0.10 per month per user, or an Enterprise
Fee ranging anywhere from $20,000 to $60,000 per month depending on
the number of users to which the distributer plans to distribute the
feed. Again, the Exchange is not proposing any additional User Fees
for MEMOIR Options Top, but rather, a flat fee of $750 for all uses.
See the BZX Options Fee Schedule, available at: <a href="https://www.cboe.com/us/options/membership/fee_schedule/bzx/">https://www.cboe.com/us/options/membership/fee_schedule/bzx/</a>. Fees for NYSE
Arca Options Deep and NYSE American Options Deep, which are the
comparable products to MEMOIR Options Depth, are $3,000 for access
(internal use) and $2,000 for redistribution (external
distribution), and $5,000 for non-display use, compared to the
Exchange's proposed fee of $1,500 for all uses. NYSE Arca Options
and NYSE American Options also charge professional user fees of $50
per User, and Non-Professional User Fees of $1.00 per user, capped
at $5,000 per month. Again, the Exchange does not require any
counting of users and has instead proposed a flat fee of $1,500 for
all uses. Fees for the NYSE Arca Options Top and NYSE American
Options Top, which are the comparable products to MEMOIR Options Top
are the same as above ($3,000 for internal, $2,000 for external and
$5,000 for non-display, with the additional Professional and Non-
Professional User Fees), compared to the Exchange's proposed fee of
$750 for all uses. See NYSE Proprietary Market Data Pricing Guide,
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>.
\14\ See supra notes 10-11.
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The fees for the MIAX Pearl Liquidity Feed--which like the MEMOIR
Options Depth feed, includes top of book, depth of book, trades, and
administrative messages--consist of an internal distributor access fee
of $1,250 per month and an external distributor access fee of $1,500
per month. As such, the Exchange's proposed rate for all uses of $1,500
per month is equal to what MIAX Pearl charges for external
distribution, and $250 higher than what it charges for internal
distribution only.\15\
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\15\ See MIAX Pearl Options Fee Schedule, supra note 10.
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The fees for the MIAX Pearl Top of Market Feed--which is the
comparable product to MEMOIR Options Top, consist of an internal
distributor access fee of $500 per month and an external distributor
access fee of $750. Again, the Exchange's proposed rate for all uses of
$750 per month is identical to what MIAX Pearl charges for external
distribution, and $250 higher than what it charges for internal
distribution.
While the Exchange's proposed fee is slightly higher than what MIAX
Pearl charges for internal distribution of its similar products, the
Exchange believes that the simplicity of a single fee is preferable,
specifically by reducing audit risk and simplifying reporting, both for
the Exchange and its customers. Further, to the extent MIAX Pearl
assesses both fees for both uses, it would cost more overall to receive
and provide both internal and external distribution of MIAX Pearl's
comparable options data feeds than it does to receive and provide both
internal and external distribution of the Exchange's Options Data
Feeds.
As an additional cost comparison, the fees for both Nasdaq BX
Options Depth of Market Feed (``BX Depth'') and Top of Market Feed
(``BX Top'') are $1,500 per month for internal distribution and $2,000
for external distribution, with an added $2,500 fee for a non-Display
Enterprise License.\16\ While one distributor fee allows access to both
BX Top and BX Depth, (for example, $1,500 per month would allow a BX
Options customer internal distribution of both BX Top and BX Depth) if
a BX Options Customer wanted the same access provided under the
Exchange's proposed fees, (i.e. for all uses) it would need to pay an
additional $2,000 for external distribution and $2,500 per month for a
non-display enterprise license fee. In addition, BX Options charges
monthly per subscriber fees for professional or non-professional use
\17\ which the Exchange will not charge for its similar market data
products.
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\16\ See Nasdaq BX Options Fee Schedule, supra note 11.
\17\ Id.
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Additional Discussion--Cost Analysis
In general, 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 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 Options Data Feeds, the Exchange has
sought to be especially diligent in assessing those fees in a
transparent way against its own aggregate costs of providing the
related service, and also carefully and transparently assessing the
impact on Members--both generally and in relation to other Members,
i.e., to assure the fee will not create a financial burden on any
participant and will not have an undue impact in particular on smaller
Members and competition among Members in general. The Exchange does not
believe it needs to otherwise address questions about market
competition in the context of this filing because the proposed fees are
so clearly consistent with the Act based on its 2024 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,\18\
and Rule 19b-4 thereunder,\19\ with respect to the types of information
self-regulatory organizations (``SROs'') should provide when filing fee
changes, and Section 6(b) of the Act,\20\ which requires, among other
things, that exchange fees be reasonable and equitably allocated,\21\
not designed to permit unfair discrimination,\22\ and that they not
impose a burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.\23\ This rule change proposal
addresses those requirements, and the analysis and data in this section
are designed to clearly and comprehensively show how they are met.\24\
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\18\ 15 U.S.C. 78s(b)(1).
\19\ 17 CFR 240.19b-4.
\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(4).
\22\ 15 U.S.C. 78f(b)(5).
\23\ 15 U.S.C. 78f(b)(8).
\24\ In 2019, Commission staff published guidance suggesting the
types of information that SROs may use to demonstrate that their fee
filings comply with the standards of the Exchange Act (``Fee
Guidance''). While MEMX understands that the Fee Guidance does not
create new legal obligations on SROs, the Fee Guidance is consistent
with MEMX's view about the type and level of transparency that
exchanges should meet to demonstrate compliance with their existing
obligations when they seek to charge new fees. See Staff Guidance on
SRO Rule Filings Relating to Fees (May 21, 2019) available at
<a href="https://www.sec.gov/tm/staff-guidancesro-rule-filings-fees">https://www.sec.gov/tm/staff-guidancesro-rule-filings-fees</a> [sic].
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As noted above, MEMX has conducted and recently updated a study of
its aggregate costs to produce the Exchange Data Feeds--the 2024 Cost
Analysis. The 2024 Cost Analysis required a detailed analysis of MEMX's
aggregate baseline costs, including a determination and allocation of
costs for core services provided by the Exchange--transaction
execution, market data, membership services and trading permits,
regulatory services, physical connectivity, and application sessions
(which provide order entry, cancellation and modification
functionality, risk functionality, ability to receive drop copies, and
other functionality). MEMX 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''). Next,
MEMX adopted an allocation methodology with various principles to guide
how much of a particular cost should be allocated to
[[Page 32510]]
each core service. 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 (80%),
with smaller allocations to logical ports (11%), and the remainder to
the provision of transaction execution, regulatory services, and market
data services (9%). The allocation methodology was decided through
conversations with senior management familiar with each area of the
Exchange's operations. After adopting this allocation methodology, the
Exchange then applied an estimated allocation of each cost driver to
each core service, resulting in the cost allocations described below.
By allocating segmented costs to each core service, MEMX 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 four 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 generally must cover its expenses from these four primary
sources of revenue.
Through the Exchange's extensive 2024 Cost Analysis, the Exchange
analyzed every expense item in the Exchange's general expense ledger to
determine whether each such expense relates to the provision of the
Exchange Data Feeds, and, if such expense did so relate, what portion
(or percentage) of such expense actually supports the provision of the
Exchange Data Feeds, and thus bears a relationship that is, ``in nature
and closeness,'' directly related to the Exchange Data Feeds. Based on
its analysis, MEMX calculated its aggregate annual costs for providing
the Exchange Data Feeds, at $3,683,375. This results in an estimated
monthly cost for providing Exchange Data Feeds of $306,948. The
Exchange notes that it utilized the same principles to generate the
Cost Analysis in 2022 applicable to the Equities Data Feeds only, and
at that time, the estimated annual aggregate cost to provide the
Equities Data fees was $3,014,348. The differences between such
estimated costs and the overall analysis are primarily based on: (1)
the addition of MEMX Options, (ii) increased, and in some cases
decreased, costs projected by the Exchange, (iii) and changes made to
reallocate certain costs into categories that more closely align the
Exchange's audited financial statements, as further described below.
Costs Related to Offering Exchange Data Feeds
The following chart details the individual line-item (annual) costs
considered by MEMX to be related to offering the Exchange Data Feeds to
its Members and other customers as well as the percentage of the
Exchange's overall costs that such costs represent for such area (e.g.,
as set forth below, the Exchange allocated approximately 8% of its
overall Human Resources cost to offering Exchange Data Feeds).
[GRAPHIC] [TIFF OMITTED] TN26AP24.086
Human Resources
In allocating personnel (Human Resources) costs, in order to not
double count any allocations, the Exchange first excluded any employee
time allocated towards options regulation in order to recoup costs via
the Options Regulatory Fee (``ORF'').\25\ Of the remaining employee
time left over, MEMX then calculated an allocation of employee time for
employees whose functions include directly providing services necessary
to offer the Exchange Data Feeds, including performance thereof, as
well as personnel with ancillary functions related to establishing and
providing such services (such as information security and finance
personnel). The Exchange notes that it has fewer than 100 employees 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. 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 the Exchange
Data Feeds, and confirming that the proposed allocations were
reasonable based on an understanding of the percentage of their time
such employees devote to tasks related to providing the Exchange Data
Feeds. The Exchange notes that senior level executives were allocated
Human Resources costs to the extent the Exchange believed they are
involved in overseeing tasks related to providing the Exchange Data
Feeds. 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.
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\25\ See Securities Exchange Act Release No. 99259 (January 2,
2024), 89 FR 965 (January 8, 2024) (SR-MEMX-2023-38).
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In 2022, 6.9% of the Exchange's Human Resources costs were
allocated towards the provision of the Equities Data Feeds, which is
slightly lower than the 8% allocation in the 2024 Cost Analysis. The
Exchange notes this increase is due to additional hiring necessary to
support the launch of MEMX Options and the Options Data Feeds.
Data Center
Data Center costs includes an allocation of the costs the Exchange
incurs to provide the Exchange Data Feeds in the third-party data
centers where the Exchange maintains its equipment as well as related
costs (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
approximately 2% of the Data Center costs for the Exchange Data Feeds.
This is a lower allocation than the 2022 Cost Analysis due to the fact
that a greater portion of the Exchange's Data Center costs are now
being allocated to the provision of Connectivity, as can be seen in the
Exchange's recent proposal to adopt
[[Page 32511]]
Options Connectivity Fees (the ``Options Connectivity Filing'').\26\
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\26\ See Securities Exchange Act Release No. 99635 (February 29,
2024), 89 FR 16049 (March 6, 2024) (SR-MEMX-2024-06).
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Technology
The Technology category includes the Exchange's network
infrastructure, other hardware, software, and software licenses used to
operate and monitor physical assets necessary to provide the Exchange
Data Feeds. Of note, certain of these costs were included in separate
Network Infrastructure and Hardware and Software Licenses categories in
the 2022 Cost Analysis; however, in order to align more closely with
the Exchange's audited financial statements, these costs were combined
into the broader Technology category. The Exchange allocated
approximately 7% of its Technology costs to the Exchange Data Feeds in
2024.
Depreciation
The vast majority of the software the Exchange uses with respect to
its operations, including the software used to generate and disseminate
the Exchange Data Feeds has been developed in-house and the cost of
such development is depreciated over time. Accordingly, the Exchange
included Depreciation costs related to depreciated software used to
generate and disseminate the Exchange 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
Exchange Data Feeds in the near-term, as well as the servers used at
the Exchange's primary and back-up data centers specifically used for
the Exchange Data Feeds. 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 Exchange Data Feeds.
In the 2022 Cost Analysis, the Exchange allocated approximately 18% of
its Depreciation costs towards the provision of the Equities Data
Feeds, which is higher than the 5% allocated herein. This decrease is
due to the overall reallocation of Depreciation to other revenue
streams.
Allocated Shared Expenses
Finally, a limited portion of general shared expenses were
allocated to the Exchange Data Feeds. The costs included in general
shared expenses allocated to the Exchange Data Feeds 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 costs.
The cost of paying individuals to serve on the Exchange's Board of
Directors or any committee was not allocated to providing Exchange Data
Feeds. The Exchange allocated 4% of its Allocated Shared Expenses to
the Exchange Data Feeds in 2024, which is slightly higher than the 1.8%
allocated in 2022. This is due to the general increase in the costs
included in this category overall, resulting in a higher allocation.
Cost Analysis--Additional Discussion
In conducting its Cost Analysis, the Exchange did not allocate any
of its expenses in full to any core service and did not double-count
any expenses. Instead, as described above, the Exchange identified and
allocated applicable cost drivers across its core services and used the
same approach to analyzing costs to form the basis of the Options
Connectivity Filing \27\ and this filing proposing fees for the Options
Data Feeds. Thus, 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.
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\27\ See supra note 26.
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The Exchange anticipates that the projected 2024 revenue for
Options Data Feeds ($34,675), in addition to what the Exchange
anticipates it will collect for the Equities Data Feeds ($305,305),
will generate approximately $339,980 monthly ($4,079,762 annually). The
Exchange's method of revenue projection is in part based on its
experience in charging for Equities Data Feeds (i.e. the Exchange
anticipates that certain Firms may discontinue current subscriptions
immediately upon the Exchange charging for Options Data Feeds, or
sometime thereafter, as was the case when it began charging for
Equities Data Feeds). The proposed fees for Exchange Data Feeds are
designed to permit the Exchange to cover the costs allocated to
providing Exchange Data Feeds with a profit margin that the Exchange
believes is modest (approximately 9.7%),\28\ which the Exchange
believes is fair and reasonable after taking into account the costs
related to creating, generating, and disseminating the Exchange Data
Feeds and the fact that the Exchange will need to fund future
expenditures (increased costs, improvements, etc.).
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\28\ The Exchange calculated this profit margin by dividing the
annual projected profit of $396,387 by the annual projected revenue
of $4,079,762 and multiplying by 100.
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The Exchange like other exchanges is, after all, a for-profit
business. Accordingly, while the Exchange believes in transparency
around costs and potential margins, 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 supra-competitive profits, and the
Exchange believes its Cost Analysis and related projections demonstrate
this fact.
As a general matter, the Exchange believes that its costs will
remain relatively similar in future years. It is possible however that
such costs will either decrease or increase. To the extent the Exchange
sees growth in use of Exchange Data Feeds it will receive additional
revenue to offset future cost increases. However, if use of Exchange
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 with a reasonable profit margin.\29\
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 margin, or decrease fees in the
event that revenue or the profit margin 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
[[Page 32512]]
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.
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\29\ The Exchange notes that it does not believe that a 9.7%
profit margin is necessarily competitive, and instead that this is
likely significantly below the mark-up many businesses place on
their products and services.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) \30\ of the Act in general, and
furthers the objectives of Section 6(b)(4) \31\ of the Act, in
particular, in that it is designed to provide for the equitable
allocation of reasonable dues, fees and other charges among its Members
and other persons using its facilities. Additionally, the Exchange
believes that the proposed fees are consistent with the objectives of
Section 6(b)(5) \32\ 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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\30\ 15 U.S.C. 78f.
\31\ 15 U.S.C. 78f(b)(4).
\32\ 15 U.S.C. 78f(b)(5).
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The Exchange notes prior to addressing the specific reasons the
Exchange believes the proposed fees and fee structure are reasonable,
equitably allocated and not unreasonably discriminatory, that the
proposed definitions and fee structure described above are consistent
with the definitions and fee structure used by most U.S. options
exchanges, MIAX Pearl and BX Options in particular. As such, the
Exchange believes it is adopting a model that is easily understood by
Members and non-Members, most of which also subscribe to market data
products from other exchanges. For this reason, the Exchange believes
that the proposed definitions and fee structure described above are
consistent with the Act generally, and Section 6(b)(5) \33\ of the Act
in particular.
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\33\ 15 U.S.C. 78f(b)(5).
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One of the primary objectives of MEMX is to provide competition and
to reduce fixed costs imposed upon the industry. Consistent with this
objective, the Exchange believes that this proposal reflects a simple,
competitive, reasonable, and equitable pricing structure, with fees
that are discounted when compared to comparable data products and
services offered by competitors.\34\
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\34\ See supra note 13.
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Reasonableness
Overall. With regard to reasonableness, the Exchange understands
that the Commission has traditionally taken a market-based approach to
examine whether the SRO making the fee proposal was subject to
significant competitive forces in setting the terms of the proposal.
The Exchange understands that in general the analysis considers whether
the SRO has demonstrated in its filing that (i) there are reasonable
substitutes for the product or service; (ii) ``platform'' competition
constrains the ability to set the fee; and/or (iii) revenue and cost
analysis shows the fee would not result in the SRO taking
supracompetitive profits. If the SRO demonstrates that the fee is
subject to significant competitive forces, the Exchange understands
that in general the analysis will next consider whether there is any
substantial countervailing basis to suggest the fee's terms fail to
meet one or more standards under the Exchange Act. The Exchange further
understands that if the filing fails to demonstrate that the fee is
constrained by competitive forces, the SRO must provide a substantial
basis, other than competition, to show that it is consistent with the
Exchange Act, which may include production of relevant revenue and cost
data pertaining to the product or service.
The Exchange has not determined its proposed overall market data
fees based on assumptions about market competition, instead relying
upon a cost-plus model to determine a 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 Exchange 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 market data in both Equities and Options with
a reasonable profit margin. The Exchange also believes that performing
the Cost Analysis by combining costs and revenues for Equities and
Options is reasonable because in this manner the Exchange is able to
ensure that it does not double count any allocations. The Exchange
believes that this holistic approach is reasonable due to the fact that
many of the costs associated with providing the Options Data Feeds are
the same as those associated with providing the Equities Data Feeds,
and the Exchange believes that separately analyzing them could
potentially result in double-counting. As discussed in the Purpose
section, the Exchange estimates that the fees proposed herein related
to Options Data Feeds, coupled with the fees it already charges for
Equities Data Feeds, will result in annual revenue of approximately $4
million, representing a profit margin of approximately 9.7% for the
provision of market data on its platforms. Accordingly, the Exchange
believes that this fee methodology is reasonable because it allows the
Exchange to recoup some or all of its expenses for providing market
data products (with any additional revenue representing no more than
what the Exchange believes to be a reasonable rate of return). The
Exchange also believes that the proposed fees are reasonable because
they are generally less than the fees charged by competing options
exchanges for comparable market data products, notwithstanding that the
competing exchanges may have different system architectures that may
result in different cost structures for the provision of market data.
The Exchange believes the proposed fees for the Options Data Feeds
are reasonable when compared to fees for comparable products, such as
the MIAX Pearl Top of Market Feed, the MIAX Pearl Liquidity Feed, and
the BX Options Top and Depth Feeds, compared to which the Exchange's
proposed fees are equivalent or lower, as well as other comparable data
feeds priced significantly higher than the Exchange's proposed fees for
the Exchange Data Feeds.\35\ Additionally, the Exchange's single flat
fee for each of its Options Data Feeds, regardless of use type, offers
a more simplistic approach to market data pricing. Specifically with
respect to the MEMOIR Options Depth feed, the Exchange believes that
the proposed fee for such feed is reasonable because it represents not
only the value of the data available from the MEMOIR Options Top feed,
which has a lower proposed fee, but also the value of receiving the
depth-of-book data on an order-by-order basis. The Exchange believes it
is reasonable 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 MEMOIR Options Top feed, as
described above,
[[Page 32513]]
can be utilized to trade on the Exchange but contains less information
than that is available on the MEMOIR Options Depth feed. Thus, the
Exchange believes it reasonable for the products to be priced as
proposed, with MEMOIR Options Depth having a higher price than MEMOIR
Options Top.
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\35\ Id.
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For all of the foregoing reasons, the Exchange believes that the
proposed fees for the Options Data Feeds are reasonable.
Equitable Allocation
Overall. The Exchange believes that its proposed fees are
reasonable, fair, and equitable, and not unfairly discriminatory
because they are designed to align fees with services provided. The
Exchange believes that the proposed fees are equitably allocated
because they will apply uniformly to all data recipients that choose to
subscribe to the Options Data Feeds. Any Firm that chooses to subscribe
to one or both of the Options 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 both of the Options Data Feeds is based
on objective differences in usage of Options Data Feeds among different
Firms, which are still ultimately in the control of any particular
Firm. The Exchange believes the proposed pricing between Options 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. The MEMOIR Options Top feed, as
described above, can be utilized to trade on the Exchange but contains
less information than that is available on the MEMOIR Options Depth
feed. Thus, the Exchange believes it is an equitable allocation of fees
for the products to be priced as proposed, with MEMOIR Options Top
having the lower price of the two Options Data Feeds.
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the Exchange Data Feeds are equitably allocated.
The Proposed Fees Are Not Unfairly Discriminatory
The Exchange believes the proposed fees for the Options Data Feeds
are not unfairly discriminatory because any differences in the
application of the fees are based on meaningful distinctions between
the feeds themselves.
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 Options Data Feed(s). Any Firm
that chooses to subscribe to the Options Data Feeds is subject to the
same Fee Schedule, regardless of what type of business they operate.
Because the proposed fee for MEMOIR Options Depth is higher, Firms
seeking lower cost options may instead choose to receive data through
the MEMOIR Options Top feed for a lower cost. Alternatively, Firms can
choose to receive data solely from the Options Price Reporting
Authority (``OPRA'') for a lower cost. The Exchange notes that Firms
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 Firm 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, which may have additional value to a market participant. As
described above, the MEMOIR Options Top feed can be utilized to trade
on the Exchange but contains less information than that is available on
the MEMOIR Options Depth feed. Thus, the Exchange believes it is not
unfairly discriminatory for the products to be priced as proposed, with
MEMOIR Options Top having a lower price than MEMOIR Options Depth.
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the Exchange 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,\36\ 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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\36\ 15 U.S.C. 78f(b)(8).
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Intra-Market Competition
The Exchange does not believe that the proposed fees for Options
Data Feeds place certain market participants at a relative disadvantage
to other market participants because, as noted above, the proposed fees
are associated with usage of Options Data Feeds by each market
participant based on the type of business they operate, and the
decision to subscribe to one or both Options Data Feeds is based on
objective differences in usage of Options Data Feeds among different
Firms, which are still ultimately in the control of any particular
Firm, and such fees do not impose a barrier to entry to smaller
participants. Accordingly, the proposed fees for Options Data Feeds 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 Options Data Feeds consumed by
various market participants.
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 any of the Options Data Feeds, as described above.
Additionally, other exchanges have similar market data fees in place
for their participants, but with comparable and in many cases higher
rates for options market data feeds.\37\ 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 options exchanges are free to adopt comparable fee structures
subject to the SEC rule filing process.
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\37\ See supra note 13.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
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 \38\ and Rule 19b-4(f)(2) \39\ thereunder.
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\38\ 15 U.S.C. 78s(b)(3)(A)(ii).
\39\ 17 CFR 240.19b-4(f)(2).
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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 change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing,
[[Page 32514]]
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#592b2c353c743a3634343c372d2a192a3c3a773e362f"><span class="__cf_email__" data-cfemail="354740595018565a5858505b4146754650561b525a43">[email protected]</span></a>. Please include
file number SR-MEMX-2024-14 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-MEMX-2024-14. 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-MEMX-2024-14 and should be
submitted on or before May 17, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-08808 Filed 4-25-24; 8:45 am]
BILLING CODE 8011-01-P
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