Notice2024-09475
Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Increase Fees for the ToM Market Data Product and Establish Fees for the cToM Market Data Product
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 2, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 86 (Thursday, May 2, 2024)</title>
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[Federal Register Volume 89, Number 86 (Thursday, May 2, 2024)]
[Notices]
[Pages 35868-35879]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-09475]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100041; File No. SR-MIAX-2024-25]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Increase Fees for the ToM Market Data Product
and Establish Fees for the cToM Market Data Product
April 26, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 23, 2024, Miami International Securities Exchange, LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the MIAX Fee Schedule
(``Fee Schedule'') to: (i) amend the fees for the MIAX Top of Market
(``ToM'') data feed; and (ii) establish fees for the MIAX Complex Top
of Market (``cToM'') data feed. The text of the proposed rule change is
available on the Exchange's website at <a href="https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings">https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings</a>, at MIAX's
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to: (i) amend the fees for ToM; and (ii)
establish fees for cToM. The ToM data feed contains top of book
quotations based on options orders \3\ and quotes \4\ resting on the
Exchange's Simple Order Book \5\ as well as administrative messages.\6\
The cToM data feed includes the same types of information as ToM, but
for Complex Orders \7\ on the Exchange's Strategy Book.\8\ This
information includes the Exchange's best bid and offer for a complex
strategy,\9\ with aggregate size,
[[Page 35869]]
based on displayable orders in the complex strategy. The cToM data feed
also provides subscribers with the following information: (i) the
identification of the complex strategies currently trading on the
Exchange; (ii) complex strategy last sale information; and (iii) the
status of securities underlying the complex strategy (e.g., halted,
open, or resumed). ToM subscribers are not required to subscribe to
cToM, and cToM subscribers are not required to subscribe to ToM.
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\3\ The term ``order'' means a firm commitment to buy or sell
option contracts. See Exchange Rule 100.
\4\ The term ``quote'' or ``quotation'' means a bid or offer
entered by a Market Maker that is firm and may update the Market
Maker's previous quote, if any. The Rules of the Exchange provide
for the use of different types of quotes, including Standard quotes
and eQuotes, as more fully described in Exchange Rule 517. A Market
Maker may, at times, choose to have multiple types of quotes active
in an individual option. See Exchange Rule 100.
\5\ The term ``Simple Order Book'' means the Exchange's regular
electronic book of orders and quotes. See Exchange Rule 518(a)(17).
\6\ See Fee Schedule, Section 6)a).
\7\ In sum, a ``Complex Order'' is ``any order involving the
concurrent purchase and/or sale of two or more different options in
the same underlying security (the `legs' or `components' of the
complex order), for the same account . . . . '' See Exchange Rule
518(a)(5).
\8\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Exchange Rule 518(a)(19).
\9\ The term ``complex strategy'' means a particular combination
of components and their ratios to one another. New complex
strategies can be created as the result of the receipt of a complex
order or by the Exchange for a complex strategy that is not
currently in the System. The Exchange may limit the number of new
complex strategies that may be in the System at a particular time
and will communicate this limitation to Members via Regulatory
Circular. See Exchange Rule 518(a)(6).
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The Exchange notes that there is no requirement that any Member
\10\ or market participant subscribe to either the ToM or cToM data
feeds. Instead, a Member may choose to maintain subscriptions to ToM or
cToM based on their trading strategies and individual business
decisions. Moreover, persons (including broker-dealers) who subscribe
to any exchange proprietary data feed must also have equivalent access
to consolidated Options Information \11\ from the Options Price
Reporting Authority (``OPRA'') for the same classes or series of
options that are included in the proprietary data feed (including for
exclusively listed products), and proprietary data feeds cannot be used
to meet that particular requirement. The proposed fees described below
would not apply differently based upon the size or type of firm, but
rather based upon the type of subscription a firm has to ToM or cToM
and their use thereof, which are based upon factors deemed relevant by
each firm. The proposed pricing for ToM and cToM is set forth
below.\12\
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\10\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
\11\ The term ``consolidated Options Information'' means
``consolidated Last Sale Reports combined with either consolidated
Quotation Information or the BBO furnished by OPRA . . . '' Access
to consolidated Options Information is deemed ``equivalent'' if both
kinds of information are equally accessible on the same terminal or
work station. See Limited Liability Company Agreement of Options
Price Reporting Authority, LLC (``OPRA Plan''), Section 5.2(c)(iii).
The Exchange notes that this requirement under the OPRA Plan is also
reiterated under the Cboe Global Markets Global Data Agreement and
Cboe Global Markets North American Data Policies, which subscribers
to any exchange proprietary product must sign and are subject to,
respectively. Additionally, the Exchange's Data Order Form (used for
requesting the Exchange's market data products) requires
confirmation that the requesting market participant receives data
from OPRA.
\12\ The Exchange first filed the proposed fee change on
December 28, 2022. See Securities Exchange Act Release No. 96626
(January 10, 2023), 88 FR 2699 (January 17, 2023) (SR-MIAX-2022-49).
After several withdrawals and re-filings, the Commission Staff
suspended the proposed fees on August 3, 2023. See Securities
Exchange Act Release No. 98050 (August 3, 2023), 88 FR 53941 (August
9, 2023) (SR-MIAX-2023-23). On January 17, 2024, the Exchange
withdrew the suspended proposed fee change. See Securities Exchange
Act Release No. 99408 (January 22, 2024), 89 FR 5271 (January 26,
2024).
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ToM
The Exchange currently charges a monthly fee of $1,250 to Internal
Distributors \13\ and $1,750 to External Distributors. The Exchange
proposes to charge a monthly fee of $2,000 to Internal Distributors and
$3,000 to External Distributors. The proposed fee increases are
intended to cover the Exchange's increasing costs with compiling and
producing the ToM data feed described in the Exchange's Cost Analysis
detailed below. The Exchange does not currently charge, nor does it now
propose to charge any additional fees based on a Distributor's use of
the ToM and cToM data feeds (e.g., displayed versus non-displayed use),
redistribution fees, or individual per user fees.
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\13\ A ``Distributor'' of MIAX data is any entity that receives
a feed or file of data either directly from MIAX or indirectly
through another entity and then distributes it either internally
(within that entity) or externally (outside that entity). All
Distributors are required to execute a MIAX Distributor Agreement.
See Fee Schedule, Section 6)a).
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cToM
The Exchange previously adopted rules governing the trading of
Complex Orders in 2016.\14\ At that time, the Exchange also adopted the
cToM data feed and expressly waived fees over six years to incentivize
market participants to subscribe and make the Exchange's cToM data more
widely available.\15\ In the eight years since the Exchange adopted
Complex Order functionality, the Exchange has grown its monthly complex
market share from 0% to 11.47% of the total electronic complex non-
index volume executed on exchanges offering electronic complex
functionality based on the month of January 2024.\16\ During that same
period, the Exchange experienced a steady increase in the number of
cToM subscribers. Until the Exchange initially filed to adopt cToM fees
in July of 2021,\17\ the Exchange did not charge fees for subscriptions
to the cToM data feed. The objective of this approach was to eliminate
any fee-based barriers for Members when the Exchange first launched
Complex Order functionality, which the Exchange believed was necessary
to attract order flow as a relatively new exchange at that time. During
that time, the Exchange absorbed all costs associated with compiling
and disseminating the cToM data feed. The Exchange now proposes to
establish fees for the cToM data feed to recoup its ongoing costs going
forward, as described below.
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\14\ See Securities Exchange Act Release No. 79072 (October 7,
2016), 81 FR 71131 (October 14, 2016) (SR-MIAX-2016-26) (Order
Approving a Proposed Rule Change to Adopt New Rules to Govern the
Trading of Complex Orders).
\15\ See Securities Exchange Act Release No. 79146 (October 24,
2016), 81 FR 75171 (October 28, 2016) (SR-MIAX-2016-36) (providing a
complete description of the cToM data feed).
\16\ The Exchange notes that it receives complex market data for
all U.S. options exchanges that offer complex functionality from
direct feeds from OPRA.
\17\ See Securities Exchange Act Release Nos. 92359 (July 9,
2021), 86 FR 37393 (July 15, 2021) (SR-MIAX-2021-28); 98050 (August
3, 2023), 88 FR 53941 (August 9, 2023) (SR-MIAX-2023-23) (Suspension
of and Order Instituting Proceedings To Determine Whether To Approve
or Disapprove Proposed Rule Change To Increase Fees for the ToM
Market Data Product and Establish Fees for the cToM Market Data
Product).
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The Exchange proposes to charge a monthly fee of $2,000 to Internal
Distributors and $3,000 to External Distributors of the cToM data feed.
The proposed fees are identical to those proposed herein for the ToM
data feed. The Exchange proposes to assess Internal Distributors fees
that are less than the fees assessed for External Distributors because
External Distributors may monetize their receipt of the ToM and cToM
data feeds by charging their customers fees for receipt of the
Exchange's data. Internal Distributors do not have the same ability.
Like the ToM data feed, the Exchange does not propose to adopt separate
redistribution fees for the cToM data feed. However, the recipient of
cToM data would be required to become a Distributor and would be
subject to the applicable Distribution fees. Also like the ToM data
feed, the Exchange does not propose to charge individual per user fees
or any additional fees based on a subscriber's use of the cToM data
feed (e.g., displayed versus non-displayed use).
The Exchange proposes to assess cToM fees to Internal and External
Distributors in the same manner as it currently does for the ToM data
feed. Each Distributor would be charged for each month it is
credentialed to receive cToM in the Exchange's production environment.
Also, fees for cToM will be reduced for new mid-month Distributors for
the first month they subscribe. New mid-month cToM Distributors would
be assessed a pro-rata percentage of the applicable Distribution fee
based on the percentage of the number of trading days remaining in the
affected calendar month as of the
[[Page 35870]]
date on which they have been first credentialed to receive cToM in the
production environment, divided by the total number of trading days in
the affected calendar month.
Minor, Non-Substantive Changes
The Exchange also proposes to amend the paragraph below the table
of fees for ToM and cToM in Section 6)a) of the Fee Schedule to make a
minor, non-substantive correction by deleting the phrase ``(as
applicable)'' in the first sentence following the table of fees for ToM
and cToM. The purpose of this proposed change is to remove unnecessary
text from the Fee Schedule. This proposed change does not alter the
operation of either fee.
Implementation
The proposed fee changes are immediately effective.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) \18\ of the Act in general, and
furthers the objectives of Section 6(b)(4) \19\ of the Act, in
particular, in that it is designed to provide for the equitable
allocation of reasonable dues, fees and other charges among its Members
and other persons using its facilities. Additionally, the Exchange
believes that the proposed fees are consistent with the objectives of
Section 6(b)(5) \20\ of the Act in that they are designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to a free and open market and
national market system, and, in general, to protect investors and the
public interest, and, particularly, are not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
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\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(4).
\20\ 15 U.S.C. 78f(b)(5).
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In 2019, Commission staff published guidance suggesting the types
of information that self-regulatory organizations (``SROs'') may use to
demonstrate that their fee filings comply with the standards of the
Exchange Act (the ``Staff Guidance'').\21\ While the Exchange
understands that the Staff Guidance does not create new legal
obligations on SROs, the Staff Guidance is consistent with the
Exchange's view about the type and level of transparency that exchanges
should meet to demonstrate compliance with their existing obligations
when they seek to charge new fees. The Staff Guidance provides that in
assessing the reasonableness of a fee, the Staff would consider whether
the fee is constrained by significant competitive forces. To determine
whether a proposed fee is constrained by significant competitive
forces, the Staff Guidance further provides that the Staff would
consider whether the evidence provided by an SRO in a Fee Filing
proposal demonstrates (i) that there are reasonable substitutes for the
product or service that is the subject of a proposed fee; (ii) that
``platform'' competition constrains the fee; and/or (iii) that the
revenue and cost analysis provided by the SRO otherwise demonstrates
that the proposed fee would not result in the SRO taking supra-
competitive profits.\22\ The Exchange provides sufficient evidence
below to support the findings that the proposed fees are reasonable
because the projected revenue and cost analysis contained herein
demonstrates that the proposed fees would not result in the Exchange
taking supra-competitive profits.
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\21\ See Staff Guidance on SRO Rule Filings Relating to Fees
(May 21, 2019), available at <a href="https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees">https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees</a>.
\22\ Id.
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As noted above, the Exchange also adopted the cToM data feed and
expressly waived fees over six years to incentivize market participants
to subscribe and make the Exchange's cToM data more widely
available.\23\ In the eight years since the Exchange adopted Complex
Order functionality, the Exchange has grown its monthly complex market
share from 0% to 11.47% of the total electronic complex non-index
volume executed on U.S. options exchanges offering complex
functionality for the month of January 2024. One of the primary
objectives of the Exchange is to provide competition and to reduce
fixed costs imposed upon the industry. Consistent with this objective,
the Exchange believes that this proposal reflects a simple,
competitive, reasonable, and equitable pricing structure.
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\23\ See supra note 15.
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Cost Analysis
In general, the Exchange believes that exchanges, in setting fees
of all types, should meet high standards of transparency to demonstrate
why each new fee or fee increase meets the Exchange Act requirements
that fees be reasonable, equitably allocated, not unfairly
discriminatory, and not create an undue burden on competition among
members and markets. In particular, the Exchange believes that each
exchange should take extra care to be able to demonstrate that these
fees are based on its costs and reasonable business needs.
Accordingly, in proposing to charge fees for market data, the
Exchange is especially diligent in assessing those fees in a
transparent way against its own aggregate costs of providing the
related service, and in carefully and transparently assessing the
impact on Members--both generally and in relation to other Members--to
ensure the fees will not create a financial burden on any participant
and will not have an undue impact in particular on smaller Members and
competition among Members in general. The Exchange does not believe it
needs to otherwise address questions about market competition in the
context of this filing because the proposed fees are consistent with
the Act based on its Cost Analysis. The Exchange also believes that
this level of diligence and transparency is called for by the
requirements of Section 19(b)(1) under the Act,\24\ and Rule 19b-4
thereunder,\25\ with respect to the types of information SROs should
provide when filing fee changes, and Section 6(b) of the Act,\26\ which
requires, among other things, that exchange fees be reasonable and
equitably allocated,\27\ not designed to permit unfair
discrimination,\28\ and that they do not impose a burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.\29\ 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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\24\ 15 U.S.C. 78s(b)(1).
\25\ 17 CFR 240.19b-4.
\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78f(b)(4).
\28\ 15 U.S.C. 78f(b)(5).
\29\ 15 U.S.C. 78f(b)(8).
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In 2019, the Exchange completed a study of its aggregate costs to
produce market data and connectivity (the ``Cost Analysis'').\30\ 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
[[Page 35871]]
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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\30\ 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 \31\ 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,\32\ 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 cost drivers are the same at each
individual marketplace and dividing total cost by four (4) (evenly for
each marketplace). Rather, the Exchange's parent company determines an
accurate cost for each marketplace, which results in different
allocations and amounts across exchanges for the same cost drivers, due
to the unique factors of each marketplace as described above. This
allocation methodology also ensures that no cost would be allocated
twice or double-counted between the Exchange and its affiliated
markets. The Finance Team then consolidates the budget and sends it to
senior management, including the Chief Financial Officer and Chief
Executive Officer, for review and approval. Next, the budget is
presented to the Board of Directors and the Finance and Audit
Committees for each exchange for their approval. The above steps
encompass the first step of the cost allocation process.
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\31\ The affiliated markets include Miami International
Securities Exchange, LLC (``MIAX''); separately, the options and
equities markets of MIAX PEARL, LLC (``MIAX Pearl''); and MIAX
Emerald, LLC (``MIAX Emerald'').
\32\ 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.
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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, 59% of the data
center total expense amount is allocated to 10Gb ULL connectivity),
with smaller allocations to ToM and cToM (1.3% combined), and the
remainder to the provision of other connectivity, ports, transaction
execution, membership services and other market data services (39.7%).
This next level of the allocation methodology at the individual
exchange level also took into account factors similar to those set
forth under the first step of the allocation methodology process
described above, to determine the appropriate allocation to
connectivity or market data versus allocations for other services. This
allocation methodology was developed through an assessment of costs
with senior management intimately familiar with each area of the
Exchange's operations. After adopting this allocation methodology, the
Exchange then applied an allocation of each cost driver to each core
service, resulting in the cost allocations described below. Each of the
below cost allocations is unique to the Exchange and represents a
percentage of overall cost that was allocated to the Exchange pursuant
to the initial allocation described above.
By allocating segmented costs to each core service, the Exchange
was able to estimate by core service the potential margin it might earn
based on different fee models. The Exchange notes that as a non-listing
venue it has five primary sources of revenue that it can potentially
use to fund its operations: transaction fees, fees for connectivity and
port services, membership fees, regulatory fees, and market data fees.
Accordingly, the Exchange must cover its expenses from these five
primary sources of revenue. The Exchange also notes that as a general
matter each of these sources of revenue is based on services that are
interdependent. For instance, the Exchange's system for executing
transactions is dependent on physical hardware and connectivity; only
Members and parties that they sponsor to participate directly on the
Exchange may submit orders to the Exchange; many Members (but not all)
consume market data from the Exchange in order to trade on the
Exchange; and, the Exchange consumes market data from external sources
in order to comply with regulatory obligations. Accordingly, given this
interdependence, the allocation of costs to each service or revenue
source required judgment of the Exchange and was weighted based on
estimates of the Exchange that the Exchange believes are reasonable, as
set forth below. While there is no standardized and generally accepted
methodology for the allocation of an exchange's costs, the Exchange's
methodology is the result of an extensive review and analysis and will
be consistently applied going forward for any other cost-justified
potential fee proposals. In the absence of the Commission attempting to
specify a methodology for the allocation of exchanges' interdependent
costs, the Exchange will continue to be left with its best efforts to
attempt to conduct such an allocation in a thoughtful and reasonable
manner.
Through the Exchange's extensive Cost Analysis, which was again
recently further refined, the Exchange analyzed nearly every expense
item in the Exchange's general expense ledger to determine whether each
such expense relates to the provision of ToM and cToM data feeds, and,
if such expense did so relate, what portion (or percentage) of such
expense actually supports the provision of ToM and
[[Page 35872]]
cToM data feeds, and thus bears a relationship that is, ``in nature and
closeness,'' directly related to ToM and cToM data feeds. In turn, the
Exchange allocated certain costs more to physical connectivity and
others to ports, while certain costs were only allocated to such
services at a very low percentage or not at all, using consistent
allocation methodologies as described above. Based on this analysis,
the Exchange estimates that the aggregate monthly cost to provide ToM
and cToM data feeds is $74,789 (the Exchange divided the annual cost
for each of ToM and cToM by 12 months, then added both numbers
together), as further detailed below.
Costs Related to Offering ToM and cToM Data Feeds
The following chart details the individual line-item (annual) costs
considered by the Exchange to be related to offering the ToM and cToM
data feeds to its Members and other customers, as well as the
percentage of the Exchange's overall costs that such costs represent
for such area (e.g., as set forth below, the Exchange allocated
approximately 2.6% of its overall Human Resources cost to offering ToM
and cToM data feeds).
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Allocated Allocated
Cost drivers annual cost \a\ monthly cost \b\ % of all
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Human Resources................................................. $588,806 $49,067 2.6
Connectivity (external fees, cabling, switches, etc.)........... 1,205 101 1.3
Internet Services and External Market Data...................... 0.00 0.00 0.0
Data Center..................................................... 19,292 1,608 1.3
Hardware and Software Maintenance & Licenses.................... 26,386 2,199 1.3
Depreciation.................................................... 35,967 2,997 0.8
Allocated Shared Expenses....................................... 225,807 18,817 2.5
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Total....................................................... 897,463 74,789 2.2
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\a\ The Annual Cost includes figures rounded to the nearest dollar.
\b\ The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
rounding up or down to the nearest dollar.
Below are additional details regarding each of the line-item costs
considered by the Exchange to be related to offering ToM and cToM.
While some costs were attempted to be allocated as equally as possible
among the Exchange and its affiliated markets, the Exchange notes that
some of its cost allocation percentages for certain cost drivers differ
when compared to the same cost drivers for the Exchange's affiliated
market, MIAX Emerald, in its similar proposed fee change for ToM and
cToM. This is because the Exchange's cost allocation methodology
utilizes the actual projected costs of the Exchange (which are specific
to the Exchange and are independent of the costs projected and utilized
by the Exchange's affiliated markets) to determine its actual costs,
which may vary across the Exchange and its affiliated markets based on
factors that are unique to each marketplace. The Exchange provides
additional explanation below (including the reason for the deviation)
for the significant differences, if any.
The Exchange also notes that expenses included in its 2024 fiscal
year budget and this proposal are generally higher than its 2023 fiscal
year budget and Cost Analysis included in prior filings. This is due to
a number of factors, such as, critical vendors and suppliers increasing
costs they charge the Exchange, significant exchange staff headcount
increases, increased data center costs from the Exchange's data center
providers in multiple locations and facilities, higher technology and
communications costs, planned hardware refreshes, and system capacity
upgrades that increase depreciation expense. Specifically, with regard
to employee compensation, the 2024 fiscal year budget includes
additional expenses related to increased headcount and new hires that
are needed to support the Exchange as it continues to grow (the
Exchange and its affiliated companies are projected to hire over 60
additional staff in 2024). Hardware and software expenses have also
increased primarily due to price increases from critical vendors and
equipment suppliers. Further, the Exchange budgeted for additional
hardware and software needs to support the Exchange's continued growth
and expansion. Depreciation and amortization have likewise increased
due to recent and planned refreshes in Exchange hardware and software.
This new equipment and software then becomes depreciable, as described
below. Data center costs have also increased due the following: the
Exchange expanding its footprint within its data center; and the data
center vendor increasing the costs it charges the Exchange. Lastly,
allocated shared expenses have increased due to the overall budgeted
increase in costs from 2023 to 2024 necessary to operate and support
the Exchange as described below.
Human Resources
The Exchange notes that it and its affiliated markets anticipate
that by year-end 2024, there will be 289 employees (excluding employees
at non-options/equities exchange subsidiaries of Miami International
Holdings, Inc. (``MIH''), the holding company of the Exchange and its
affiliated markets), and each department leader has direct knowledge of
the time spent by each employee with respect to the various tasks
necessary to operate the Exchange. Specifically, twice a year, and as
needed with additional new hires and new project initiatives, in
consultation with employees as needed, managers and department heads
assign a percentage of time to every employee and then allocate that
time amongst the Exchange and its affiliated markets to determine each
market's individual Human Resources expense. Then, managers and
department heads assign a percentage of each employee's time allocated
to the Exchange into buckets including network connectivity, ports,
market data, and other exchange services. This process ensures that
every employee is 100% allocated, ensuring there is no double counting
between the Exchange and its affiliated markets.
For personnel costs (Human Resources), the Exchange calculated an
allocation of employee time for employees whose functions include
providing and maintaining ToM and cToM data feeds and performance
thereof (primarily the Exchange's network infrastructure team, which
spends a portion of their time performing functions necessary to
provide market data). As described more
[[Page 35873]]
fully above, the Exchange's parent company allocates costs to the
Exchange and its affiliated markets and then a portion of the Human
Resources costs allocated to the Exchange is then allocated to market
data. From that portion allocated to the Exchange that applied to
market data, the Exchange then allocated a weighted average of 2.6% of
each employee's time from the above group to ToM and cToM data feeds
(which excludes an allocation for the recently hired Head of Data
Services for the Exchange and its affiliates).
The Exchange also allocated Human Resources costs to provide ToM
and cToM to a limited subset of personnel with ancillary functions
related to establishing and maintaining such market data feeds (such as
information security, sales, membership, and finance personnel). The
Exchange allocated cost on an employee-by-employee basis (i.e., only
including those personnel who support functions related to providing
market data feeds) and then applied a smaller allocation to such
employees' time to ToM and cToM (less than 1.7%, which includes an
allocation for the Head of Data Services). This other group of
personnel with a smaller allocation of Human Resources costs also have
a direct nexus to providing ToM and cToM, whether it is a sales person
selling a market data feed, finance personnel billing for market data
feeds or providing budget analysis, or information security ensuring
that such market data feeds are secure and adequately defended from an
outside intrusion.
The estimates of Human Resources cost were therefore determined by
consulting with such department leaders, determining which employees
are involved in tasks related to providing market data feeds, and
confirming that the proposed allocations were reasonable based on an
understanding of the percentage of time such employees devote to those
tasks. This includes personnel from the Exchange departments that are
predominately involved in providing ToM and cToM data feeds: Business
Systems Development, Trading Systems Development, Systems Operations
and Network Monitoring, Network and Data Center Operations, Listings,
Trading Operations, and Project Management. Again, the Exchange
allocated 2.6% of each of their employee's time assigned to the
Exchange for ToM and cToM, as stated above. Employees from these
departments perform numerous functions to support ToM and cToM data
feeds, such as the configuration and maintenance of the hardware
necessary to support the ToM and cToM data feeds. This hardware
includes servers, routers, switches, firewalls, and monitoring devices.
These employees also perform software upgrades, vulnerability
assessments, remediation and patch installs, equipment configuration
and hardening, as well as performance and capacity management. These
employees also engage in research and development analysis for
equipment and software supporting ToM and cToM data feeds and design,
and support the development and on-going maintenance of internally-
developed applications as well as data capture and analysis, and Member
and internal Exchange reports related to network and system
performance. The above list of employee functions is not exhaustive of
all the functions performed by Exchange employees to support ToM and
cToM, but illustrates the breath of functions those employees perform
in support of the above cost and time allocations.
Lastly, the Exchange notes that senior level executives' time was
only allocated to the ToM and cToM related Human Resources costs to the
extent that they are involved in overseeing tasks related to providing
market data. The Human Resources cost was calculated using a blended
rate of compensation reflecting salary, equity and bonus compensation,
benefits, payroll taxes, and 401(k) matching contributions.
Connectivity (External Fees, Cabling, Switches, Etc.) \33\
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\33\ This cost driver was titled ``Network Infrastructure'' in
prior proposals. The Exchange has updated this section to now be in
line with its similar cost analysis and cost driver descriptions for
other non-transaction fee filings. See, e.g., Securities Exchange
Act Release No. 99476 (February 5, 2024), 89 FR 9194 (February 9,
2024) (SR-MIAX-2024-06).
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The Connectivity cost driver includes cabling and switches required
to generate and disseminate the ToM and cToM data feeds and operate the
Exchange. The Connectivity cost driver is more narrowly focused on
technology used to complete Member subscriptions to ToM and cToM and
the servers used at the Exchange's primary and back-up data centers
specifically for the ToM and cToM data feeds. Further, as certain
servers are only partially utilized to generate and disseminate the ToM
and cToM data feeds, only the percentage of such servers devoted to
generating and disseminating the ToM and cToM data feeds was included
(i.e., the capacity of such servers allocated to the ToM and cToM data
feeds).\34\
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\34\ 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 ToM and cToM data feeds.
Data Center
Data Center costs includes an allocation of the costs the Exchange
incurs to provide ToM and cToM in the third-party data centers where it
maintains its equipment (such as dedicated space, security services,
cooling and power). The Exchange does not own the primary data center
or the secondary data center, but instead leases space in data centers
operated by third parties. As the Data Center costs are primarily for
space, power, and cooling of servers, the Exchange allocated 1.3% to
the applicable Data Center costs for the ToM and cToM data feeds. The
Exchange believes it is reasonable to apply the same proportionate
percentage of Data Center costs to that of the Connectivity cost
driver.
Hardware and Software Maintenance and Licenses
Hardware and Software Maintenance and Licenses includes hardware
and software licenses used to operate and monitor physical assets
necessary to offer the ToM and cToM data feeds.\35\ Because the
hardware and software license fees are correlated to the servers
[[Page 35874]]
used by the Exchange, the Exchange again applied an allocation of 1.3%
of its costs for Hardware and Software Maintenance and Licenses to the
ToM and cToM data feeds. The Exchange notes that this allocation is
more than MIAX Emerald as MIAX allocated 1.3% of its Hardware and
Software Maintenance and License expense to ToM and cToM, while MIAX
Emerald allocated 1.1% of its Hardware and Software Maintenance and
License expense to ToM and cToM. MIAX's allocation results in a
slightly higher dollar amount of $8,000 per year (or approximately $667
per month, when dividing the annual cost difference by 12 months and
rounding to the nearest dollar) compared to the annual cost of MIAX
Emerald for its Hardware and Software Maintenance and License cost
driver. This is because MIAX is in the process of replacing and
upgrading various hardware and software used to operate its options
trading platform in order to maintain premium network performance,
including dissemination of ToM and cToM. At the time of this filing,
MIAX is undergoing a major hardware refresh, replacing older hardware
with new hardware. This hardware includes servers, network switches,
cables, optics, protocol data units, and cabinets, to maintain a state-
of-the-art technology platform. Because of the timing of the hardware
refresh with the timing of this filing, MIAX has a slightly higher
expense than MIAX Emerald.
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\35\ This expense may be more than the Exchange's affiliated
markets, specifically MIAX Emerald. 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 ToM and
cToM, which also includes assets used for testing and monitoring of
Exchange infrastructure to provide market data, were valued at cost,
and depreciated or leased over periods ranging from three to five
years. Thus, the depreciation cost primarily relates to servers
necessary to operate the Exchange, some of which are owned by the
Exchange and some of which are leased by the Exchange in order to allow
efficient periodic technology refreshes. The vast majority of the
software the Exchange uses for its operations to generate and
disseminate the ToM and cToM data feeds has been developed in-house
over an extended period. This software development also requires
quality assurance and thorough testing to ensure the software works as
intended. The Exchange also included in the Depreciation cost driver
certain budgeted improvements that the Exchange intends to capitalize
and depreciate with respect to ToM and cToM in the near-term. As with
the other allocated costs in the Exchange's updated Cost Analysis, the
Depreciation cost was therefore narrowly tailored to depreciation
related to ToM and cToM. As noted above, the Exchange allocated 0.8% of
its allocated depreciation costs to providing ToM and cToM.
The Exchange notes that this allocation differs from its affiliated
market, MIAX Emerald, due to a number of factors, such as the age of
physical assets and software (e.g., older physical assets and software
were previously depreciated and removed from the allocation), or
certain system enhancements that required new physical assets and
software, thus providing a higher contribution to the depreciated cost.
For example, the Exchange notes that the percentages it and its
affiliate, MIAX Emerald, allocated to the depreciation of software and
hardware used to generate and disseminate their respective ToM and cToM
data feeds are similar (0.8% for MIAX and 0.5% for MIAX Emerald).
However, MIAX's dollar amount is greater than that of MIAX Emerald by
approximately $17,000 per year (albeit a relatively small amount of
approximately $1,415 per month, when rounding to the nearest dollar).
This is due to two primary factors. First, the Exchange has undergone a
technology refresh since the time MIAX Emerald launched in February
2019, leading to it having more hardware and software that is subject
to depreciation. Second, the Exchange maintains 24 matching engines
while MIAX Emerald maintains only 12 matching engines. This also
results in more of the Exchange's hardware and software being subject
to depreciation than MIAX Emerald's hardware and software due to the
greater amount of equipment and software necessary to support the
greater number of matching engines on the Exchange.
Allocated Shared Expenses
Finally, as with other exchange products and services, a portion of
general shared expenses was allocated to the provision of ToM and cToM
data feeds. These general shared costs are integral to exchange
operations, including its ability to provide ToM and cToM. Costs
included in general shared expenses include office space and office
expenses (e.g., occupancy and overhead expenses), utilities, recruiting
and training, marketing and advertising costs, professional fees for
legal, tax and accounting services (including external and internal
audit expenses), and telecommunications. Similarly, the cost of paying
directors to serve on the Exchange's Board of Directors is also
included in the Exchange's general shared expense cost driver.\36\
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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\36\ 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 ToM and cToM pursuant
to its multi-layered allocation process. First, general expenses were
allocated among the Exchange and affiliated markets as described above.
Then, the general shared expense assigned to the Exchange was allocated
across core services of the Exchange, including market data. Then,
these costs were further allocated to sub-categories within the final
categories, i.e., ToM and cToM as sub-categories of market data. In
determining the percentage of general shared expenses allocated to
market data that ultimately apply to ToM and cToM, the Exchange looked
at the percentage allocations of each of the cost drivers and
determined a reasonable allocation percentage. The Exchange also held
meetings with senior management, department heads, and the Finance Team
to determine the proper amount of the shared general expense to
allocate to ToM and cToM. The Exchange, therefore, believes it is
reasonable to assign an allocation, in the range of allocations for
other cost drivers, while continuing to ensure that this expense is
only allocated once. Again, the general shared expenses are incurred by
the Exchange's parent company as a result of operating the Exchange and
its affiliated markets and it is therefore reasonable to allocate a
percentage of those expenses to the Exchange and ultimately to specific
product offerings such as ToM and cToM.
Again, a portion of all shared expenses were allocated to the
Exchange (and its affiliated markets) which, in turn, allocated a
portion of that overall allocation to all market data products offered
by the Exchange. The Exchange then allocated 2.5% of the portion
allocated to market data to ToM and cToM. The Exchange believes this
allocation percentage is reasonable because, while the overall dollar
amount may be higher than other cost drivers, the 2.5% is based on and
in line with the percentage allocations of each
[[Page 35875]]
of the Exchange's other cost drivers. The percentage allocated to ToM
and cToM also reflects its importance to the Exchange's strategy and
necessity towards the nature of the Exchange's overall operations,
which is to provide a resilient, highly deterministic trading system
that relies on faster market data feeds than the Exchange's competitors
to maintain premium performance. This allocation reflects the
Exchange's focus on providing and maintaining high performance market
data services, of which ToM and cToM are main contributors.
The Exchange notes that this allocation differs from its affiliated
market, MIAX Emerald, due to a number of factors, such as the increase
in overall headcount, thus providing a higher contribution to the
depreciated cost. The Exchange notes that the percentages it and its
affiliate, MIAX Emerald, allocated to this cost driver are similar
(2.5% for MIAX and 2.1% for MIAX Emerald). However, MIAX's dollar
amount is greater than that of MIAX Emerald by $38,096 per year (albeit
a relatively small amount of approximately $3,174 per month, when
rounding to the nearest dollar). This is due primarily to significant
exchange staff headcount increases.\37\ As mentioned above, the 2024
fiscal year budget includes additional expenses related to increased
headcount and new hires that are needed to support the Exchange as it
continues to grow (with a projected 60 additional staff in 2024).
Lastly, allocated shared expenses have increased due to the overall
budgeted increase in costs from 2023 to 2024 necessary to operate and
support the Exchange and its affiliated markets.
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\37\ The Exchange notes that this reference to increased
headcount is used here to explain why MIAX's dollar amount of its
allocated shared expense is greater than that of MIAX Emerald. A
similar reference is not included in the above discussion of the
Human Resources cost driver because the description of that cost
driver does not include a similar comparison.
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* * * * *
Approximate Cost for ToM and cToM per Month
After determining the approximate allocated monthly cost related to
ToM and cToM combined, the total monthly cost for ToM and cToM of
$74,789 was divided by the number of total subscribers to ToM and cToM
that the Exchange maintained in August 2023 (33 Internal Distributors +
7 External Distributors = 40 total Distributors),\38\ to arrive at a
cost of approximately $1,870 per month per subscription (rounded to the
nearest dollar). Due to the nature of this particular cost, this
allocation methodology results in an allocation among the Exchange and
its affiliated markets based on set quantifiable criteria, i.e., actual
number of ToM and cToM subscribers.
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\38\ The Exchange used August 2023 subscription data because
that was the last full month the fees proposed herein for ToM and
cToM were charged, before the Exchange's prior filing to adopt the
same fees was suspended by the Commission. See supra note 12. While
there has been no material overall change to the number of
subscriptions since August 2023, the Exchange notes that the number
of subscriptions may fluctuate and demand may change when fees are
removed and reinstated. Accordingly, the Exchange believes that, in
order to obtain an accurate measure of actual demand for fee-liable
subscriptions, the Exchange looked to the last month that the fees
were in place prior to suspension, which was August 2023.
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Cost Analysis--Additional Discussion
In conducting its Cost Analysis, the Exchange did not allocate any
of its expenses in full to any core service (including market data) and
did not double-count any expenses. Instead, as described above, the
Exchange allocated applicable cost drivers across its core services and
used the same Cost Analysis to form the basis of this proposal and the
filings the Exchange recently submitted proposing fees for certain
connectivity and ports offered by the Exchange. For instance, in
calculating the Human Resources expenses to be allocated to market data
based upon the above described methodology, the Exchange has a team of
employees dedicated to network infrastructure and with respect to such
employees the Exchange allocated network infrastructure personnel with
a commensurate percentage of the cost of such personnel (6.1%) given
their focus on functions necessary to provide market data. The salaries
of those same personnel were allocated only 2.6% to ToM and cToM and
the remaining 97.4% was allocated to other market data products offered
by the Exchange (MOR, AIS, etc.), connectivity services, port services,
transaction services, and membership services. The Exchange did not
allocate any other Human Resources expense for providing market data to
any other employee group, outside of a smaller allocation of 1.7% for
ToM and cToM of the cost associated with certain specified personnel
who work closely with and support network infrastructure personnel.
In total, the Exchange allocated 2.6% of its personnel costs (Human
Resources) to providing ToM and cToM. In turn, the Exchange allocated
the remaining 97.4% of its Human Resources expense to membership
services, transaction services, connectivity services, port services
and other market data products. Thus, again, the Exchange's allocations
of cost across core services were based on real costs of operating the
Exchange and were not double-counted across the core services or their
associated revenue streams.
As another example, the Exchange allocated depreciation expense to
all core services, including market data, but in different amounts. The
Exchange believes it is reasonable to allocate the identified portion
of such expense because such expense includes the actual cost of the
computer equipment, such as dedicated servers, computers, laptops,
monitors, information security appliances and storage, and network
switching infrastructure equipment, including switches and taps that
were purchased to operate and support the network. Without this
equipment, the Exchange would not be able to operate the network and
provide ToM and cToM data feeds to its Members and their customers.
However, the Exchange did not allocate all of the depreciation and
amortization expense toward the cost of providing ToM and cToM, but
instead allocated approximately 0.8% of the Exchange's overall
depreciation and amortization expense to ToM and cToM combined. The
Exchange allocated the remaining depreciation and amortization expense
(99.2%) toward the cost of providing transaction services, membership
services, connectivity services, port services, and other market data
products.
The Exchange notes that its revenue estimates are based on
projections across all potential revenue streams and will only be
realized to the extent such revenue streams actually produce the
revenue estimated. The Exchange does not yet know whether such
expectations will be realized. For instance, in order to generate the
revenue expected from ToM and cToM, the Exchange will have to be
successful in retaining existing clients that wish to maintain
subscriptions to those market data feeds or in obtaining new clients
that will purchase such services. Similarly, the Exchange will have to
be successful in retaining a positive net capture on transaction fees
in order to realize the anticipated revenue from transaction pricing.
The Exchange notes that the Cost Analysis is based on the
Exchange's 2024 fiscal year of operations and projections. It is
possible, however, that actual costs may be higher or lower. To the
extent the Exchange sees growth in use of market data services it will
receive additional revenue to offset future cost increases. However, if
use of market data services is static or decreases, the Exchange might
not realize the revenue that it anticipates or
[[Page 35876]]
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 \39\
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\39\ For purposes of calculating projected annualized 2024
revenue for ToM and cToM, the Exchange used monthly revenues for
August 2023, the last month the Exchange billed at the proposed
rates before the Commission suspended the earlier filing. Id.
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The proposed fees will allow the Exchange to cover certain costs
incurred by the Exchange associated with creating, generating, and
disseminating the ToM and cToM data feeds and the fact that the
Exchange will need to fund future expenditures (increased costs,
improvements, etc.). The Exchange routinely works to improve the
performance of the network's hardware and software. The costs
associated with maintaining and enhancing a state-of-the-art exchange
network is a significant expense for the Exchange, and thus the
Exchange believes that it is reasonable and appropriate to help offset
those costs by amending fees for market data subscribers. Subscribers,
particularly those of ToM and cToM, expect the Exchange to provide this
level of support so they continue to receive the performance they
expect. This differentiates the Exchange from its competitors. As
detailed above, the Exchange has five primary sources of revenue that
it can potentially use to fund its operations: transaction fees, fees
for connectivity services, membership and regulatory fees, and market
data fees. Accordingly, the Exchange must cover its expenses from these
five primary sources of revenue.
The Exchange's Cost Analysis estimates the annual cost to provide
ToM and cToM will equal $897,463. Based on current ToM and cToM
subscribers, the Exchange would generate annual revenue of
approximately $1,040,880 for ToM and cToM combined.\40\ The Exchange
believes this represents a modest profit of 13.8% when compared to the
cost of providing ToM and cToM data feeds.
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\40\ The Exchange notes that the total revenue number of
$1,040,880 does not equal the full monthly fee multiplied by the
total number of Distributors, due to a new Distributor first
purchasing a ToM and cToM data feed mid-month and having their first
month's fee(s) pro-rated for External Distribution, pursuant to
Section 6)a) of the Exchange Fee Schedule.
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Based on the above discussion, the Exchange believes that even if
the Exchange earns the above revenue or incrementally more or less, the
proposed fees are fair and reasonable because they will not result in
pricing that deviates from that of other exchanges or a supra-
competitive profit, when comparing the total expense of the Exchange
associated with providing ToM and cToM data feeds versus the total
projected revenue of the Exchange associated with ToM and cToM.
The Exchange also notes that the resultant profit margin differs
slightly from the profit margins set forth in a similar fee filing by
its affiliated market, MIAX Emerald. This is not atypical among
exchanges and is due to a number of factors that differ between these
two markets, including: different market models, market structures, and
product offerings (price-time, pro-rata, simple, and complex);
different pricing models; different number of market participants and
connectivity subscribers; different maintenance and operations costs,
as described in the cost allocation methodology above; different
technical architecture (e.g., the number of matching engines per
exchange, i.e., MIAX maintains 24 matching engines while MIAX Emerald
maintains only 12 matching engines); and different maturity phase of
MIAX and its affiliated markets (i.e., start-up versus growth versus
more mature). All of these factors contribute to a unique and differing
level of profit margin per exchange.
Further, MIAX and MIAX Emerald propose to charge the same rates for
their respective ToM and cToM data feeds, which are comparable to, or
lower than, similar fees for similar products charged by competing
exchanges. For example, for Internal Distributors of ToM and cToM, the
Exchange proposes a lower fee than the fee charged by ISE for ISE's Top
Quote Feed ($2,000 for the Exchange vs. $3,000 for ISE).\41\ NYSE Arca
charges even higher fees for the NYSE Arca Options Top Feed than the
Exchange's proposed fees ($2,000 for the Exchange vs. $3,000 per month
plus an additional $2,000 for redistribution on NYSE Arca).\42\
Accordingly, the Exchange believes that comparable and competitive
pricing are key factors in determining whether a proposed fee meets the
requirements of the Act, regardless of whether that same fee across the
Exchange's affiliated markets leads to slightly different profit
margins due to factors outside of the Exchange's control (i.e., more
subscribers to ToM and/or cToM on MIAX or MIAX Emerald and vice versa).
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\41\ See ISE Options 7 Pricing Schedule, Section 10, H.,
available at <a href="https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207">https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207</a> (assessing Professional internal and external
distributors $3,000 per month, plus $20 per month per controlled
device for ISE's Top Quote Feed).
\42\ Fees for the NYSE Arca Options Top Feed, which is the
comparable product to ToM, are $3,000 per month for access (internal
use) and an additional $2,000 per month for redistribution (external
distribution), compared to the Exchange's proposed fees of $2,000
and $3,000 for Internal and External Distributors, respectively. In
addition, for its NYSE Arca Options Top Feed, NYSE Arca charges for
three different categories of non-display usage, and user fees, both
of which the Exchange does not propose to charge, causing the
overall cost of NYSE Arca Options Top Feed to far exceed the
Exchange's proposed rates. See NYSE Arca Options Proprietary Market
Data Fees, available at: <a href="https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf">https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf</a>.
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The Exchange also reiterates that prior to July of 2021, the month
in which it first proposed to adopt fees for cToM, the Exchange did not
charge any fees for cToM and its allocation of costs to cToM was part
of a holistic allocation that also allocated costs to other core
services without double-counting any expenses. The Exchange is owned by
a holding company that is the parent company of four exchange markets
and, therefore, the Exchange and its affiliated markets must allocate
shared costs across all of those markets accordingly, pursuant to the
above-described allocation methodology. In contrast, IEX and MEMX,
which are currently each operating only one exchange, in their recent
non-transaction fee filings allocate the entire amount of that same
cost to a single exchange. This can result in lower profit margins for
the non-transaction fees proposed by IEX and MEMX because the single
allocated
[[Page 35877]]
cost does not experience the efficiencies and synergies that result
from sharing costs across multiple platforms.\43\ 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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\43\ The Exchange acknowledges that IEX included in its proposal
to adopt market data fees after offering market data for free an
analysis of what its projected revenue would be if all of its
existing customers continued to subscribe versus what its projected
revenue would be if a limited number of customers subscribed due to
the new fees. See Securities Exchange Act Release No. 94630 (April
7, 2022), 87 FR 21945 (April 13, 2022) (SR-IEX-2022-02). MEMX did
not include a similar analysis in either of its recent non-
transaction fee proposals. See, e.g., supra note 34. The Exchange
does not believe a similar analysis would be useful here because it
is amending existing fees, not proposing to charge a new fee where
existing subscribers may terminate connections because they are no
longer enjoying the service at no cost.
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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.
Reasonableness
Overall. With regard to reasonableness, the Exchange understands
that the Commission has traditionally taken a market-based approach to
examine whether the exchange making the fee proposal was subject to
significant competitive forces in setting the terms of the proposal.
The Exchange understands that in general the analysis considers whether
the exchange has demonstrated in its filing that (i) there are
reasonable substitutes for the product or service; (ii) ``platform''
competition constrains the ability to set the fee; and/or (iii) revenue
and cost analysis shows the fee would not result in the exchange taking
supra-competitive profits. If the exchange demonstrates that the fee is
subject to significant competitive forces, the Exchange understands
that in general the analysis will next consider whether there is any
substantial countervailing basis to suggest the fee's terms fail to
meet one or more standards under the Exchange Act. The Exchange further
understands that if the filing fails to demonstrate that the fee is
constrained by competitive forces, the exchange must provide a
substantial basis, other than competition, to show that it is
consistent with the Exchange Act, which may include production of
relevant revenue and cost data pertaining to the product or service.
The Exchange has not determined its proposed overall market data
fees based on assumptions about market competition, instead relying
upon a cost-plus model to determine a reasonable fee structure that is
informed by the Exchange's understanding of different uses of the
products by different types of participants. In this context, the
Exchange believes the proposed fees overall are fair and reasonable as
a form of cost recovery plus the possibility of a reasonable return for
the Exchange's aggregate costs of offering the ToM and cToM data feeds.
The Exchange believes the proposed fees are reasonable because they are
designed to generate annual revenue to recoup some or all of Exchange's
annual costs of providing ToM and cToM data with a reasonable mark-up.
As discussed in the Purpose section, the Exchange estimates this fee
filing will result in annual revenue of approximately $1,040,880,
representing a potential mark-up of just 13.8% over the cost of
providing ToM and cToM data. Accordingly, the Exchange believes that
this fee methodology is reasonable because it allows the Exchange to
recoup all of its expenses for providing the ToM and cToM data products
(with any additional revenue representing no more than what the
Exchange believes to be a reasonable rate of return). The Exchange also
believes that the proposed fees are reasonable because they are
generally less than the fees charged by competing options exchanges for
comparable market data products, notwithstanding that the competing
exchanges may have different system architectures that may result in
different cost structures for the provision of market data.
The Exchange believes the proposed fees for the ToM and cToM data
feeds are reasonable when compared to fees for comparable products,
compared to which the Exchange's proposed fees are generally lower, as
well as other comparable data feeds priced significantly higher than
the Exchange's proposed fees for the ToM and cToM data feeds.
Internal Distribution Fees. The Exchange believes that it is
reasonable to charge fees to access the ToM and cToM data feeds for
Internal Distribution because of the value of such data to subscribers
in their profit-generating activities. The Exchange also believes that
the proposed monthly Internal Distribution fee for cToM is reasonable
as it is similar to the amount charged by at least one other exchange
of comparable size for comparable data products, and lower than the
fees charged by other exchanges for comparable data products.\44\
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\44\ See supra notes 41 and 42.
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External Distribution Fees. The Exchange believes that it is
reasonable to charge External Distribution fees for the ToM and cToM
data feeds because vendors receive value from redistributing the data
in their business products provided to their customers. The Exchange
believes that charging External Distribution fees is reasonable
[[Page 35878]]
because the vendors that would be charged such fees profit by re-
transmitting the Exchange's market data to their customers. These fees
would be charged only once per month to each vendor account that
redistributes any ToM and cToM data feeds, regardless of the number of
customers to which that vendor redistributes the data. For all of the
foregoing reasons, the Exchange believes that the proposed fees for the
ToM and cToM data feeds are reasonable.
Equitable Allocation
Overall. The Exchange believes that its proposed fees are
reasonable, fair, and equitable, and not unfairly discriminatory
because they are designed to align fees with services provided. The
Exchange believes the proposed fees for the ToM and cToM data feeds are
allocated fairly and equitably among the various categories of users of
the feeds, and any differences among categories of users are justified
and appropriate.
The Exchange believes that the proposed fees are equitably
allocated because they will apply uniformly to all data recipients that
choose to subscribe to the ToM and cToM data feeds. Any subscriber or
vendor that chooses to subscribe to the ToM and cToM data feeds is
subject to the same Fee Schedule, regardless of what type of business
they operate, and the decision to subscribe to one or more ToM and cToM
data feeds is based on objective differences in usage of ToM and cToM
data feeds among different Members, which are still ultimately in the
control of any particular Member. The Exchange believes the proposed
pricing of the ToM and cToM data feeds is equitably allocated because
it is based, in part, upon the amount of information contained in each
data feed and the value of that information to market participants.
Internal Distribution Fees. The Exchange believes the proposed
monthly fees for Internal Distribution of the ToM and cToM data feeds
are equitably allocated and not unfairly discriminatory because they
would be charged on an equal basis to all data recipients that receive
the ToM and cToM data feeds for internal distribution, regardless of
what type of business they operate.
External Distribution Fees. The Exchange believes the proposed
monthly fees for External Distribution of the ToM and cToM data feeds
are equitably allocated and not unfairly discriminatory because they
would be charged on an equal basis to all data recipients that receive
the ToM and cToM data feeds that choose to redistribute the feeds
externally, regardless of what business they operate. The Exchange also
believes that the proposed monthly fees for External Distribution are
equitably allocated when compared to lower proposed fees for Internal
Distribution because data recipients that are externally distributing
ToM and cToM data feeds are able to monetize such distribution and
spread such costs amongst multiple third party data recipients, whereas
the Internal Distribution fee is applicable to use by a single data
recipient (and its affiliates).
The Exchange believes that it is reasonable, equitable and not
unfairly discriminatory to assess Internal Distributors fees that are
less than the fees assessed for External Distributors for subscriptions
to the ToM and cToM data feeds because Internal Distributors have
limited, restricted usage rights to the market data, as compared to
External Distributors, which have more expansive usage rights. All
Members and non-Members that decide to receive any market data feed of
the Exchange (or its affiliates, MIAX Pearl and MIAX Emerald), must
first execute, among other things, the MIAX Exchange Group Exchange
Data Agreement (the ``Exchange Data Agreement'').\45\ 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.\46\ External
Distributors may distribute the Exchange's market data to persons who
are not officers, employees or affiliates of the External
Distributor,\47\ and may charge their own fees for the redistribution
of such market data. External Distributors may monetize their receipt
of the ToM and cToM data feeds by charging their customers fees for
receipt of the Exchange's ToM and cToM data. Internal Distributors do
not have the same ability to monetize the Exchange's ToM and cToM data
feeds. Accordingly, the Exchange believes it is fair, reasonable and
not unfairly discriminatory to assess External Distributors a higher
fee for the Exchange's ToM and cToM data feeds as External Distributors
have greater usage rights to commercialize such market data and can
adjust their own fee structures if necessary.
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\45\ See Exchange Data Agreement, available at <a href="https://www.miaxglobal.com/markets/us-options/all-options/market-data-vendor-agreements">https://www.miaxglobal.com/markets/us-options/all-options/market-data-vendor-agreements</a>.
\46\ See id.
\47\ 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.\48\ Exchange staff must
then, in turn, process and review information reported by External
Distributors to ensure the External Distributors are redistributing
cToM data in compliance with the Exchange's Market Data Agreement and
Policies.
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\48\ See Section 6 of the Exchange's Market Data Policies,
available at <a href="https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Exchange_Group_Market_Data_Policies_07202021.pdf">https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Exchange_Group_Market_Data_Policies_07202021.pdf</a>.
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The Exchange believes the proposed cToM fees are equitable and not
unfairly discriminatory because the fee level results in a reasonable
and equitable allocation of fees amongst subscribers for similar
services, depending on whether the subscriber is an Internal or
External Distributor. Moreover, the decision as to whether or not to
purchase market data is entirely optional to all market participants.
Potential purchasers are not required to purchase the market data, and
the Exchange is not required to make the market data available.
Purchasers may request the data at any time or may decline to purchase
such data. The allocation of fees among users is fair and reasonable
because, if market participants decide not to subscribe to the data
feed, firms can discontinue their use of the cToM data.
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the ToM and cToM data feeds are equitably allocated.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\49\ 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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\49\ 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
[[Page 35879]]
internally or externally distributes the Exchange data, which are still
ultimately in the control of any particular Member, and such fees do
not impose a barrier to entry to smaller participants. Accordingly, the
proposed fees do not favor certain categories of market participants in
a manner that would impose a burden on competition; rather, the
allocation of the proposed fees reflects the types of data consumed by
various market participants and their usage thereof.
Inter-Market Competition
The Exchange does not believe the proposed fees place an undue
burden on competition on other exchanges that is not necessary or
appropriate. In particular, market participants are not forced to
subscribe to either data feed, as described above. Additionally, other
exchanges have similar market data fees with comparable rates in place
for their participants.\50\ The proposed fees are based on actual costs
and are designed to enable the Exchange to recoup its applicable costs
with the possibility of a reasonable profit on its investment as
described in the Purpose and Statutory Basis sections. Competing
exchanges are free to adopt comparable fee structures subject to the
Commission's rule filing process. Allowing the Exchange, or any new
market entrant, to waive fees (as the Exchange did for cToM) for a
period of time to allow it to become established encourages market
entry and thereby ultimately promotes competition.
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\50\ See supra notes 41 and 42.
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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,\51\ and Rule 19b-4(f)(2) \52\ 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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\51\ 15 U.S.C. 78s(b)(3)(A)(ii).
\52\ 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#1e6c6b727b337d7173737b706a6d5e6d7b7d30797168"><span class="__cf_email__" data-cfemail="3143445d541c525e5c5c545f4542714254521f565e47">[email protected]</span></a>. Please include
file number SR-MIAX-2024-25 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-MIAX-2024-25. 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-MIAX-2024-25 and should be
submitted on or before May 23, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\53\
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\53\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-09475 Filed 5-1-24; 8:45 am]
BILLING CODE 8011-01-P
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