Notice2024-18790
Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule
Primary source
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Published
August 22, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 163 (Thursday, August 22, 2024)</title>
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[Federal Register Volume 89, Number 163 (Thursday, August 22, 2024)]
[Notices]
[Pages 67986-67999]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-18790]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100752; File No. SR-SAPPHIRE-2024-20]
Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule
August 16, 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 August 8, 2024, MIAX Sapphire, LLC (``MIAX Sapphire'' 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 proposes to amend the MIAX Sapphire Options Exchange
Fee Schedule \3\ (the ``Fee Schedule'') to establish: (1) one-time
membership application fees for new MIAX Sapphire Members \4\; (2)
monthly Trading Permit \5\
[[Page 67987]]
fees for Members; (3) per-instance Application Programming Interface
(``API'') testing and certification fees for Members and non-Members;
and (4) per-instance network connectivity testing and certification
fees for Members and non-Members.
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\3\ The Exchange previously submitted a rule filing pursuant to
Section 19(b)(3)(A) of the Exchange Act (15 U.S.C. 78s(b)(3)(A)) and
Rule 19b-4(f)(2) (17 CFR 240.19b-4(f)(2)) thereunder to establish,
among other things, the initial structure of the Fee Schedule,
including a section for Definitions of terms used throughout the Fee
Schedule, which the Exchange cites to in this filing for certain
capitalized terms. See SR-SAPPHIRE-2024-13 (not yet noticed by the
Commission at the time of this filing).
\4\ The term ``Member'' means an individual or organization that
is registered with the Exchange pursuant to Chapter II of Exchange
Rules for purposes of trading on the Exchange as an ``Electronic
Exchange Member'' or ``Market Maker.'' Members are deemed
``members'' under the Exchange Act. See the Definitions Section of
the Fee Schedule and Exchange Rule 100.
\5\ The term ``Trading Permit'' means a permit issued by the
Exchange that confers the ability to transact on the Exchange. See
Exchange Rule 100.
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While changes to the Fee Schedule pursuant to this proposal are
effective upon filing, the Exchange has designated these changes to be
operative on August 12, 2024.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://www.miaxglobal.com/markets/us-options/miax-options/rule-filings">https://www.miaxglobal.com/markets/us-options/miax-options/rule-filings</a>, at MIAX Sapphire's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to establish: (1)
one-time membership application fees for new Members; (2) monthly
Trading Permit fees for Members; (3) per-instance API testing and
certification fees for Members and non-Members; and (4) per-instance
network connectivity testing and certification fees for Members and
non-Members. The Exchange proposes to waive all of the above-mentioned
fees during the Initial Waiver Period,\6\ which will be stated in the
respective sections for each proposed fee in the Fee Schedule.
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\6\ The term ``Initial Waiver Period'' means, for each
applicable fee, the period of time from the initial effective date
of the MIAX Sapphire Fee Schedule plus an additional six (6) full
calendar months after the completion of the partial month of the
Exchange launch. See the Definitions Section of the Fee Schedule.
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On July 15, 2024, the Commission approved the Exchange's Form 1
application and corresponding rules for registration as a national
securities exchange under Section 6 of the Act.\7\ MIAX Sapphire then
issued an alert that it intended to commence electronic trading in
equity options on August 12, 2024.\8\ The Exchange issued an alert
publicly announcing the proposed fees on July 23, 2024.\9\
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\7\ See Securities Exchange Act Release No. 100539 (July 15,
2024) (File No. 10-240) (In the Matter of the Application of MIAX
Sapphire, LLC for Registration as a National Securities Exchange;
Findings, Opinion, and Order of the Commission).
\8\ See Press Release, Miami International Holdings Announces
SEC Approval of MIAX Sapphire Exchange (July 17, 2024), available at
<a href="https://www.miaxglobal.com/sites/default/files/press_release-files/MIAX_Press_Release_07172024.pdf">https://www.miaxglobal.com/sites/default/files/press_release-files/MIAX_Press_Release_07172024.pdf</a>.
\9\ See Fee Change Alert, MIAX Sapphire Options Exchange--
Summary of Proposed Non-Transaction Fees (July 23, 2024), available
at <a href="https://www.miaxglobal.com/alert/2024/07/23/miax-sapphire-options-exchange-summary-proposed-non-transaction-fees?nav=all">https://www.miaxglobal.com/alert/2024/07/23/miax-sapphire-options-exchange-summary-proposed-non-transaction-fees?nav=all</a>.
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Membership Fees
One-Time Membership Application Fee
The Exchange proposes to establish Section 3) of the Fee Schedule,
Membership Fees, pursuant to which the Exchange will have separate
subheadings for different types of membership fees. First, the
Exchanges proposes to establish Section 3)a), Application for MIAX
Sapphire Membership (One-Time Fee), in order to assess a one-time
membership application fee based upon the applicant's status as either
an Electronic Exchange Member (``EEM'') \10\ or Market Maker.\11\ The
Exchange proposes that applicants for MIAX Sapphire membership as an
EEM will be assessed a one-time application fee of $500 and applicants
for MIAX Sapphire membership as a Market Maker will be assessed a one-
time application fee of $1,000.
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\10\ The term ``Electronic Exchange Member'' or ``EEM'' means
the holder of a Trading Permit who is a Member representing as agent
Public Customer Orders or Non-Customer Orders on the Exchange and
those non-Market Maker Members conducting proprietary trading.
Electronic Exchange Members are deemed ``members'' under the
Exchange Act. See Exchange Rule 100.
\11\ The term ``Market Maker'' or ``MM'' means a Member
registered with the Exchange for the purpose of making markets in
options contracts traded on the Exchange and that is vested with the
rights and responsibilities specified in Chapter VI of the
Exchange's Rules. See Exchange Rule 100. The Exchange offers one
type of Market Maker membership. See, generally, Chapter VI of the
Exchange's Rules.
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The Exchange proposes to state in the Fee Schedule that MIAX
Sapphire will assess the one-time membership application fee to
prospective Members on the earlier of (i) the date the applicant is
certified in the membership system, or (ii) once an application for
MIAX Sapphire membership is finally denied. The difference in the
proposed one-time membership application fee to be charged to EEMs and
Market Makers is because of the anticipated additional review and
resources involved in processing a Market Maker's application, as
Market Makers will have greater and more complex obligations with
respect to doing business on the Exchange.\12\
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\12\ See generally, Chapter VI of the Exchange's Rules.
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The Exchange proposes to waive the one-time membership application
fee for EEMs and Market Makers during the Initial Waiver Period.\13\
The Exchange believes that this will provide an incentive for market
participants interested in becoming Members of the Exchange to submit
early applications, which should result in increased potential order
flow and liquidity as MIAX Sapphire begins electronic trading. Waiving
certain fees is how exchanges have historically attracted membership
and competed for order flow soon after launching operations.\14\ Even
though the Exchange proposes to waive these particular fees during the
Initial Waiver Period, the Exchange believes that it is appropriate to
provide market participants with the overall structure of the fees by
outlining the structure and amounts in the Fee Schedule so that there
is general awareness that the Exchange intends to assess such fees upon
expiration of the defined term of the Initial Waiver Period. MIAX
Sapphire's proposed one-time membership application fees for EEMs and
Market Makers are lower than, or similar to, the one-time application
fees in place at the
[[Page 67988]]
Exchange's affiliates \15\ and other competing equity options
exchanges.\16\
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\13\ See supra note 6. Upon the expiration of the defined term
of the Initial Waiver Period, which depends upon the month in which
the Exchange commences operations, the Exchange will submit separate
rule filings to remove the waiver language from the Fee Schedule for
each applicable fee that was waived during the Initial Waiver
Period.
\14\ See, e.g., Securities Exchange Act Release Nos. 85393
(March 21, 2019), 84 FR 11599 (March 27, 2019) (SR-EMERALD-2019-15)
(waiving one-time membership application fees, trading permit fees,
and testing and certification fees, among others, for an initial
waiver period in order to attract membership and order flow upon
launching operations) and 97893 (July 13, 2023), 88 FR 46285 (July
19, 2023) (SR-MEMX-2023-13) (waiving membership fees for an initial
waiver period of approximately six months upon launch of MEMX's
options exchange).
\15\ See Miami International Securities Exchange, LLC (``MIAX'')
Fee Schedule, Section 3)a) (assessing a one-time membership
application fee of $2,500 for an EEM and $3,000 for a MIAX Market
Maker); MIAX Emerald, LLC (``MIAX Emerald'') Fee Schedule, Section
3)a) (assessing a one-time membership application fee of $2,500 for
an EEM and $3,000 for a MIAX Emerald Market Maker); and MIAX PEARL,
LLC (``MIAX Pearl'') Fee Schedule, Section 3)a) (assessing a one-
time membership application fee of $500 for an EEM and $1,500 for a
MIAX Pearl Options Market Maker). All references to ``MIAX Pearl''
in this filing are to the options trading facility of MIAX Pearl.
\16\ See Cboe Exchange, Inc. (``Cboe'') Options Fee Schedule,
Trading Permit Holder Application Fees section, page 12 (assessing
an application fee of $3,000 for an individual trading permit holder
and $5,000 for an organization); BOX Exchange LLC (``BOX'') Fee
Schedule, Section I. Participant Fees, A. Initiation Fee (assessing
new members a one-time fee of $2,500); and Nasdaq ISE, LLC (``Nasdaq
ISE''), Options Rules, Options 7, Pricing Schedule, Section 9. Legal
and Regulatory A. Application (assessing an application fee of
$7,500 per firm for a primary market maker, $5,500 per firm for a
competitive market maker, and $3,500 per firm for an electronic
access member).
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Trading Permit Fees
Next, the Exchange proposes to establish Section 3)b), Monthly
Trading Permit Fees, which confer the ability to transact on MIAX
Sapphire. Trading Permits will be issued to EEMs and Market Makers. The
Exchange proposes that Members receiving Trading Permits during a
particular calendar month will be assessed monthly Trading Permit fees
as set forth in the Fee Schedule.
The Exchange proposes to assess a monthly Trading Permit fee to
EEMs (other than clearing firms) in any month the EEM is certified in
the membership system and the EEM is credentialed to use one or more
FIX Ports \17\ in the production environment. Further, the Exchange
proposes that monthly Trading Permit fees will be assessed with respect
to EEM Clearing Firms \18\ in any month the clearing firm is certified
in the membership system to clear transactions on the Exchange. The
Exchange proposes to assess EEMs a monthly Trading Permit fee of $500.
The Exchange notes that its affiliates, MIAX, MIAX Pearl, and MIAX
Emerald, charge Trading Permit fees to their Members. The Exchange's
proposed Trading Permit fee structure for EEMs is based on the flat
rate structure currently in place for MIAX and MIAX Emerald, and MIAX
Sapphire's proposed Trading Permit fee for EEMs is lower than that of
MIAX and MIAX Emerald.\19\
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\17\ The term ``FIX Port'' means a FIX port that allows Members
to send orders and other messages using the FIX protocol. See the
Definitions section of the Fee Schedule. The term ``FIX Interface''
means the Financial Information Exchange interface used for
submitting certain order types (as set forth in Rule 516) to the
MIAX Sapphire System. See Exchange Rule 100.
\18\ The term ``EEM Clearing Firm'' means an EEM that solely
clears transactions on the Exchange and does not connect to the
Exchange via either the FIX Interface or MEO Interface. See the
Definitions section of the Fee Schedule.
\19\ See MIAX Fee Schedule, Section 3)b) and MIAX Emerald Fee
Schedule, Section 3)b).
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The Exchange proposes that monthly Trading Permit fees will be
assessed with respect to Market Makers in any month the Market Maker is
certified in the membership system, is credentialed to use one or more
MEO \20\ Ports in the production environment and is registered to quote
in one or more classes. Notwithstanding the foregoing, the Exchange
proposes that the calculation of the monthly Trading Permit fees for
EEMs and Market Makers will be pro-rated based on the number of trading
days during which the Trading Permit was in effect divided by the total
number of trading days in that particular month multiplied by the
monthly rate.
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\20\ The term ``MEO Interface'' means a binary order interface
used for submitting certain order types (as set forth in Rule 516
and Rule 518) to the MIAX Sapphire System. See the Definitions
Section of the Fee Schedule and Exchange Rule 100. Market Makers may
connect to the System via the MEO Interface using a proprietary
binary protocol (i.e., MEO Port) for the transmission of orders and
other messages to and from the Exchange. See MIAX Sapphire Options
Exchange User Manual, Section 5.01, Architecture, available at
<a href="https://www.miaxglobal.com/sites/default/files/job-files/MIAX_Sapphire_User_Manual_v1.0.0_2024_06_18.pdf">https://www.miaxglobal.com/sites/default/files/job-files/MIAX_Sapphire_User_Manual_v1.0.0_2024_06_18.pdf</a>.
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For the calculation of the monthly Market Maker Trading Permits
fees, the Exchange proposes that the applicable fee rate will be the
lesser of either the per class basis or percentage of total national
average daily volume (``ADV'') measurement. The amount of the monthly
Market Maker Trading Permit fee will be based upon the number of
classes in which the Market Maker was registered to quote on any given
day within the calendar month, or upon the class volume percentages set
forth in the table in proposed Section 3)b) of the Fee Schedule. A
Market Maker will be determined to be registered in a class if that
Market Maker has been registered in one or more series in that
class.\21\ The Exchange proposes to assess Market Makers the monthly
Market Maker Trading Permit fee based on the greatest number of classes
listed on MIAX Sapphire that the Market Maker registered to quote in on
any given day within a calendar month. The class volume percentage is
based on the total national ADV in classes listed on MIAX Sapphire in
the prior calendar quarter. Newly listed option classes will be
excluded from the calculation of the monthly Market Maker Trading
Permit fee until the calendar quarter following their listing, at which
time the newly listed option classes will be included in both the per
class count and the percentage of total national average daily volume.
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\21\ Market Makers self-select the series of options classes to
make markets in each trading day. The Exchange does not appoint
Market Makers to specific series of options classes. See Exchange
Rule 602(a)-(b).
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The Exchange proposes to adopt the following monthly Trading Permit
fees for Market Makers: (i) $2,000 for Market Maker registrations in up
to 10 option classes or up to 20% of option classes by national ADV;
(ii) $4,000 for Market Maker registrations in up to 40 option classes
or up to 35% of option classes by ADV; (iii) $6,000 for Market Maker
registrations in up to 100 option classes or up to 50% of option
classes by ADV; and (iv) $8,000 for Market Maker registrations in over
100 option classes or over 50% of option classes by ADV up to all
option classes listed on MIAX Sapphire.\22\ The Exchange notes that the
proposed monthly Market Maker Trading Permit fee structure is the same
as the Trading Permit fee structures in place at MIAX, MIAX Pearl and
MIAX Emerald, and MIAX Sapphire's proposed Trading Permit fees are
lower than the comparable Trading Permit fees by class or national ADV
in place at the Exchange's affiliates.\23\ The Exchange also notes that
other options exchanges assess certain of their membership fees at
different rates, based upon a member's participation in classes on that
exchange (as described in the table below), and, as such, this concept
is not new or novel.
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\22\ For example, if ``Market Maker 1'' elects to quote the top
40 option classes which consist of 58% of the total national ADV in
the prior calendar quarter, the Exchange would assess $4,000 to
``Market Maker 1'' for the month which is the lesser of `up to 40
classes' and `over 50% of classes by volume up to all classes listed
on MIAX Sapphire.
\23\ See MIAX Fee Schedule, Section 3)b) (assessing monthly
market maker trading permit fees of $7,000 up to $22,000); MIAX
Pearl Fee Schedule, Section 3)b) (assessing monthly market maker
trading permit fees of $3,000 up to $9,000); and MIAX Emerald Fee
Schedule, Section 3)b) (assessing monthly market maker trading
permit fees of $7,000 up to $22,000).
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The Exchange also proposes to adopt an alternative lower monthly
Trading Permit fee for Market Makers who fall within the 3rd and 4th
levels of the Market Maker Trading Permit fee table, which would apply
to: (i) Market Maker registrations in up to 100 option classes or up to
50% of option classes by volume; and (ii) Market Maker registrations in
over 100 option classes or over 50% of option classes by volume up to
all option classes listed on MIAX Sapphire. In particular, the Exchange
proposes to adopt footnote ``a'' following the Market Maker Trading
[[Page 67989]]
Permit fee table for these monthly Trading Permit levels. Proposed
footnote ``a'' will provide that if the Market Maker's total monthly
executed volume during the relevant month is less than 0.015% of the
total monthly executed volume reported by the Options Clearing
Corporation (``OCC'') in the Market Maker account type for MIAX
Sapphire-listed option classes for that month, then the monthly Trading
Permit fee will be $5,000 instead of the fee otherwise applicable to
such level (i.e., $6,000 or $8,000).
The purpose of the alternative lower fee designated in proposed
footnote ``a'' is to provide a lower fixed cost to those Market Makers
who are quoting the entire Exchange market (or substantial amount of
the Exchange market), as objectively measured by either number of
classes registered or national ADV, but who do not otherwise execute a
significant amount of volume on the Exchange. The Exchange believes
that, by offering lower fixed costs to Market Makers that execute less
volume, the Exchange will retain and attract smaller-scale Market
Makers, which are an integral component of the option marketplace, but
have been decreasing in number in recent years, due to industry
consolidation and lower market maker profitability. Since these
smaller-scale Market Makers utilize less Exchange capacity due to lower
overall volume executed, the Exchange believes it is reasonable and
equitable to offer such Market Makers a lower fixed cost. The
Exchange's affiliates, MIAX, MIAX Pearl, and MIAX Emerald, also provide
lower Trading Permit fees for Market Makers who quote the entire
markets of those exchanges (or substantial amount of those markets), as
objectively measured by either number of classes assigned/registered or
national ADV, but who do not otherwise execute a significant amount of
volume on MIAX, MIAX Pearl, or MIAX Emerald.\24\
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\24\ See MIAX Fee Schedule, Section 3)b), note ``*''; MIAX Pearl
Options Fee Schedule, Section 3)b), note ``**''; and MIAX Emerald
Fee Schedule, Section 3)b), note `` [ssquf]''.
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As illustrated by the table below, the Exchange's proposed Trading
Permit fees are comparable to, or less than, the similar trading permit
and monthly membership fees charged by competing options exchanges to
their members. The Exchange believes other exchanges' membership and
trading permit fees are useful examples of alternative approaches to
providing and charging for membership and provides the table for
comparison purposes only to show how the Exchange's proposed fees
compare to fees currently charged by other options exchanges for
similar membership and trading permits.
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Monthly membership/trading permit
Exchange fee
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MIAX Sapphire (as proposed)....... Market Maker Trading Permit fees:
--Tier1: $2,000 for Market Maker
Assignments in up to 10 option
classes or up to 20% of option
classes by national ADV.
--Tier 2: $4,000 for Market Maker
Assignments in up to 40 option
classes or up to 35% of option
classes by ADV.
--Tier 3: $6,000 for Market Maker
Assignments in up to 100 option
classes or up to 50% of option
classes by ADV.
--Tier 4: $8,000 for Market Maker
Assignments in over 100 option
classes or over 50% of option
classes by ADV up to all option
classes listed on MIAX Sapphire.
--Alternative lower rate of $5,000
for Tiers 3 and 4 if the Market
Maker's total monthly executed
volume during the relevant month is
less than 0.015% of the total
monthly executed volume reported by
OCC in the Market Maker account
type for MIAX Sapphire-listed
option classes.
BOX Options Exchange LLC (``BOX'') Electronic Market Maker Trading
\a\. Permit Fees:
--Up to and including 10 classes:
$4,000.
--Up to and including 40 classes:
$6,000.
--Up to and including 100 classes:
$8,000.
--Over 100 classes: $10,000.
NYSE Arca, Inc. (``NYSE Arca'') Options Trading Permits (``OTP'')
\b\. for Market Makers:
--1st OTP: $8,000 for up to 60
option issues plus the bottom 45%
of option issues.
--2nd OTP: additional $6,000 for up
to 150 option issues plus the
bottom 45% of option issues.
--3rd OTP: additional $5,000 for up
to 500 option issues plus the
bottom 45% of option issues.
--4th OTP: additional $4,000 for up
to 1,100 option issues plus the
bottom 45% of option issues.
--5th OTP: additional $3,000 for all
option issues.
--6th--9th OTP: additional $2,000
for all option issues.
--10th or more OTPs: $500 for all
options issues.
NYSE American, LLC (``NYSE ATP Trading Permits for Market
American'') \c\. Makers:
--1st ATP: $8,000 for up to 60
option issues plus the bottom 45%
of option issues.
--2nd ATP: additional $6,000 for up
to 150 option issues plus the
bottom 45% of option issues.
--3rd ATP: additional $5,000 for up
to 500 option issues plus the
bottom 45% of option issues.
--4th ATP: additional $4,000 for up
to 1,100 option issues plus the
bottom 45% of option issues.
--5th ATP: additional $3,000 for all
option issues.
--6th--9th ATP: additional $2,000
for all option issues.
--10th or more ATPs: additional $500
for all option issues.
Order Flow Provider ATP fee: $1,000.
Clearing Member ATP fee: $1,000.
Nasdaq PHLX LLC (``Nasdaq PHLX'') Streaming Quote Trader Permit Fees:
\d\. --Tier 1 (up to 200 option classes):
$0.00.
--Tier 2 (up to 400 option classes):
$2,200.
--Tier 3 (up to 600 option classes):
$3,200.
--Tier 4 (up to 800 option classes):
$4,200.
--Tier 5 (up to 1,000 option
classes): $5,200.
--Tier 6 (up to 1,200 option
classes): $6,200.
--Tier 7 (all option classes):
$7,200.
Remote Market Maker Organization
Permit Fees:
--Tier 1 (less than 100 option
classes): $5,000.
--Tier 2 (more than 100 and less
than 999 option classes): $8,000.
[[Page 67990]]
--Tier 3 (1,000 or more option
classes): $11,000.
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\a\ See BOX Fee Schedule, Section 1.C., Electronic Market Maker Trading
Permit Fees.
\b\ See NYSE Arca Options Fees and Charges, OTP Trading Participant
Rights, p.1. Under this fee structure, it effectively costs a Market
Maker $26,000 per month to trade all options issues on NYSE Arca
Options.
\c\ See NYSE American Options Fee Schedule, Section III.A., Monthly
Trading Permit, Rights, Floor Access and Premium Product Fees, p. 23.
Under this fee structure, it effectively costs a Market Maker $26,000
per month to trade all options issues on NYSE American Options.
\d\ See Nasdaq PHLX Options 7 Pricing Schedule, Section 8. Membership
Fees, B-C, Streaming Quote Trader (``SQT'') and Remote Market Maker
Organization Fees.
The Exchange proposes to waive all monthly Trading Permit fees for
EEMs and Market Makers during the Initial Waiver Period. The Exchange
believes that this will provide an incentive for market participants to
become Members of the Exchange sooner, which should result in increased
potential order flow and liquidity as MIAX Sapphire begins electronic
trading. Even though the Exchange proposes to waive these particular
fees during the Initial Waiver Period, the Exchange believes that is
appropriate to provide market participants with the overall structure
of the fees by outlining the structure and amounts in the Fee Schedule
so that there is general awareness that the Exchange intends to assess
such fees upon expiration of the defined term of the Initial Waiver
Period.
Testing and Certification Fees
Next, the Exchange proposes to establish Section (4), Testing and
Certification Fees, applicable to Members and non-Members.
API Testing and Certification Fees--Members
The Exchange proposes to establish Section 4)a), Member Application
Programming Interface (``API'') Testing and Certification Fee, pursuant
to which the Exchange proposes to assess an API testing and
certification fee to all Members. An API makes it possible for a
Member's software to communicate with MIAX Sapphire software
applications, and is subject to Member testing with, and certification
by, MIAX Sapphire. The Exchange proposes to offer four types of ports:
(i) the FIX Port; \25\ (ii) the MEO Port; \26\ (iii) the FIX Drop Copy
(``FXD'') Port; \27\ and (iv) the Clearing Trade Drop (``CTD'')
Port.\28\
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\25\ See supra note 17.
\26\ See supra note 20.
\27\ The term ``FXD'' or ``FIX Drop Copy Port'' means a
messaging interface that provides a copy of real-time trade
execution, trade correction and trade cancellation information to
FIX Drop Copy Port users who subscribe to the service. FXD Port
users are those users who are designated by an EEM to receive the
information and the information is restricted for use by the EEM
only. See the Definitions Section of the Fee Schedule.
\28\ A ``CTD Port'' or ``Clearing Trade Drop Port'' provides an
Exchange Member with a real-time clearing trade updates. The updates
include the Member's clearing trade messages on a low latency, real-
time basis. The trade messages are routed to a Member's connection
containing certain information. The information includes, among
other things, the following: (i) trade date and time; (ii) symbol
information; (iii) trade price/size information; (iv) Member type
(for example, and without limitation, Market Maker, Electronic
Exchange Member, Broker-Dealer); and (v) Exchange MPID for each side
of the transaction, including Clearing Member MPID. See the
Definitions Section of the Fee Schedule.
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The Exchange proposes to assess API testing and certification fees
for EEMs (other than clearing firms) (i) initially per API for FIX, FXD
and CTD in the month the EEM has been credentialed to use one or more
ports in the production environment for the tested API, and (ii) each
time an EEM initiates a change to its system that requires testing and
certification. The Exchange proposes to assess API testing and
certification fees for EEM Clearing Firms (i) initially per API in the
month the EEM Clearing Firm has been credentialed to use one or more
CTD ports in the production environment, and (ii) each time an EEM
Clearing Firm initiates a change to its system that requires testing
and certification. The Exchange proposes to assess API testing and
certification fees for Market Makers (i) initially per API for CTD and
MEO in the month the Market Maker has been credentialed to use one or
more ports in the production environment for the tested API and the
Market Maker has been registered to quote in one or more classes, and
(ii) each time a Market Maker initiates a change to its system that
requires testing and certification.
In particular, the Exchange proposes to assess EEMs a per-instance
API testing and certification fee of $1,000 and Market Makers a per-
instance API testing and certification fee of $2,500. The proposed fees
represent anticipated costs to be incurred by the Exchange as it works
with each Member for testing and certifying that the Member's software
systems communicate properly with MIAX Sapphire's interfaces.
The proposed API testing and certification fees for Members are the
same as the API testing and certification fees for Members of the
Exchange's affiliates, MIAX and MIAX Emerald, including the Exchange's
proposed amounts for EEMs and Market Makers and the structure of the
proposed fees.\29\ In order to provide an incentive to prospective
Members to apply early for membership and to engage in API testing and
certification such that they will be able to trade options on MIAX
Sapphire as soon as possible, the Exchange proposes to waive the API
testing and certification fees assessable to Members for all ports
during the Initial Waiver Period. Even though the Exchange proposes to
waive this particular fee during the Initial Waiver Period, the
Exchange believes that is appropriate to provide market participants
with the overall structure of the fees by outlining the structure and
amounts in the Fee Schedule so that there is general awareness that the
Exchange intends to assess such fees upon expiration of the defined
term of the Initial Waiver Period.
---------------------------------------------------------------------------
\29\ See MIAX Fee Schedule, Section 4)a) and MIAX Emerald Fee
Schedule, Section 4)a).
---------------------------------------------------------------------------
API Testing and Certification Fees--Non-Members
The Exchange proposes to establish Section 4)b), Non-Member API
Testing and Certification Fee, pursuant to which the Exchange proposes
to assess an API testing and certification fee to all non-Members,
including Third Party Vendors,\30\ Service Bureaus,\31\ and Extranet
Providers,\32\ whose software interfaces with MIAX Sapphire software.
As with Members, an API makes it possible for the software of Third
Party Vendors, Service Bureaus, Extranet Providers and other non-
Members to communicate with MIAX Sapphire software applications, and is
[[Page 67991]]
subject to testing with, and certification by, MIAX Sapphire.
---------------------------------------------------------------------------
\30\ The term ``Third Party Vendor'' means a subscriber of MIAX
Sapphire's market and other data feeds, which they in turn use for
redistribution purposes. See the Definitions Section of the Fee
Schedule.
\31\ The term ``Service Bureau'' means a technology provider
that offers and supplies technology and technology services to a
trading firm that does not have its own proprietary system. See the
Definitions Section of the Fee Schedule.
\32\ The term ``Extranet Provider'' means a technology provider
that connects with MIAX Sapphire systems and in turn provides such
connectivity to MIAX Sapphire participants that do not connect
directly with MIAX Sapphire. See the Definitions Section of the Fee
Schedule.
---------------------------------------------------------------------------
The Exchange proposes to assess API testing and certification fees
for all non-Members: (i) initially per API for FIX, MEO, FXD, and CTD
in the month the non-Member has been credentialed to use one or more
ports in the production environment for the tested API, and (ii) each
time a non-Member initiates a change to its system that requires
testing and certification. The Exchange proposes that API testing and
certification fees will not be assessed in situations where the
Exchange initiates a mandatory change to the Exchange's system that
requires testing and certification. In particular, the Exchange
proposes to assess all non-Members a per-instance API testing and
certification fee of $1,200. The proposed fee represents anticipated
costs to be incurred by the Exchange as it works with each non-Member
for testing and certifying that the non-Member's software systems
communicate properly with MIAX Sapphire's interfaces.
The proposed API testing and certification fee for non-Members is
the same as the API testing and certification fee for non-Members of
the Exchange's affiliates, MIAX and MIAX Emerald, including the
proposed amount and the structure of the proposed fee.\33\ In order to
provide an incentive to prospective non-Members to engage in API
testing and certification such that they will be able to trade options
on MIAX Sapphire as soon as possible, the Exchange proposes to waive
the API testing and certification fee assessable to non-Members for all
ports during the Initial Waiver Period. Even though the Exchange
proposes to waive this particular fee during the Initial Waiver Period,
the Exchange believes that it is appropriate to provide market
participants with the overall structure of the fee by outlining the
structure and amount in the Fee Schedule so that there is general
awareness that the Exchange intends to assess such fee upon expiration
of the defined term of the Initial Waiver Period.
---------------------------------------------------------------------------
\33\ See MIAX Fee Schedule, Section 4)b) and MIAX Emerald Fee
Schedule, Section 4)b).
---------------------------------------------------------------------------
The Exchange believes it is necessary to charge an API testing and
certification fee to Members and non-Members because of the anticipated
time and resources spent to ensure that Member and non-Member APIs
function correctly to prevent any system malfunction. The price
differential in API testing and certification fees for EEMs and non-
Members is because, in the experience of the Exchange's affiliates, EEM
testing takes less time than non-Member testing as EEMs have more
experience testing these systems with exchanges, resulting generally in
fewer questions and issues arising during the testing and certification
process. Likewise, the price differential in API testing and
certification fees for Market Makers compared to EEMs and non-Members
is because, in the experience of the Exchange's affiliates, testing and
certification of APIs for Market Makers requires more Exchange
resources as Market Makers have greater and more complex obligations
with respect to doing business on the Exchange.\34\
---------------------------------------------------------------------------
\34\ See supra note 12.
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Network Connectivity Testing and Certification Fee--Members
The Exchange proposes to establish Section 4)c), Member Network
Connectivity Testing and Certification Fee, pursuant to which MIAX
Sapphire will assess a fee for Members to establish electronic
connections with the Exchange. The Exchange proposes to assess Members
a network connectivity testing and certification fee: (i) initially per
connection in the month the Member has been credentialed to use any API
or market data feeds in the production environment utilizing the tested
network connection; and (ii) each time a Member initiates a change to
its system that requires network connectivity testing and
certification. The Exchange proposes that network connectivity testing
and certification fees will not be assessed in situations where the
Exchange initiates a mandatory change to the Exchange's system that
requires testing and certification. The Exchange also proposes that
Member network connectivity testing and certification fees will not be
assessed for testing and certification of connectivity to the
Exchange's disaster recovery facility. The Exchange notes that Members
utilizing a single, shared 1 Gigabit (``Gb'') cross-connect to connect
to the trading platforms, market data systems, test systems, and
disaster recovery facilities of the Exchange, MIAX, MIAX Pearl, and
MIAX Emerald will only be assessed one network connectivity testing and
certification fee per connection tested, regardless of the trading
platforms, market data systems, test systems, and disaster recovery
facilities accessed via such connection. The Exchange proposes to
assess Members a network connectivity testing and certification fee of
$1,000 per Member per 1Gb connection tested and $4,000 per Member per
10Gb ultra-low latency (``ULL'') connection tested.
The proposed fee amounts are the same as the fees currently
assessed for the same services at the Exchanges' affiliates, MIAX, MIAX
Pearl, and MIAX Emerald.\35\ In order to provide an incentive to
prospective Members to engage in network connectivity testing and
certification such that they will be able to trade options on MIAX
Sapphire as soon as possible, the Exchange proposes to waive the
network connectivity testing and certification fees assessable to
Members for all connections during the Initial Waiver Period. Even
though the Exchange proposes to waive this particular fee during the
Initial Waiver Period, the Exchange believes that it is appropriate to
provide market participants with the overall structure of the fees by
outlining the structure and amounts in the Fee Schedule so that there
is general awareness that the Exchange intends to assess such fees upon
expiration of the defined term of the Initial Waiver Period.
---------------------------------------------------------------------------
\35\ See MIAX Fee Schedule, Section 4)c); MIAX Pearl Options Fee
Schedule, Section 4)c); and MIAX Emerald Fee Schedule, Section 4)c).
---------------------------------------------------------------------------
Network Connectivity Testing and Certification Fee--Non-Members
The Exchange proposes to establish Section 4)d), Non-Member Network
Connectivity Testing and Certification Fee, pursuant to which MIAX will
assess a fee for non-Members to establish electronic connections with
the Exchange. The Exchange proposes to assess non-Member network
connectivity testing and certification fees: (i) initially per
connection in the month the non-Member has been credentialed to use any
API or market data feeds in the production environment utilizing the
tested network connection; and (ii) each time a non-Member initiates a
change to its system that requires network connectivity testing and
certification. The Exchange proposes that network connectivity testing
and certification fees will not be assessed in situations where the
Exchange initiates a mandatory change to the Exchange's system that
requires testing and certification. The Exchange also proposes that
non-Member network connectivity testing and certification fees will not
be assessed for testing and certification of connectivity to the
Exchange's disaster recovery facility. The Exchange notes that non-
Members utilizing a single, shared 1Gb cross-connect to connect to the
trading platforms, market data systems, test systems, and disaster
recovery facilities of the Exchange, MIAX, MIAX Pearl,
[[Page 67992]]
and MIAX Emerald will only be assessed one network connectivity testing
and certification fee per connection tested, regardless of the trading
platforms, market data systems, test systems, and disaster recovery
facilities accessed via such connection. The Exchange proposes to
assess non-Members a network connectivity testing and certification fee
of $1,200 per non-Member per 1Gb connection tested and $4,200 per non-
Member per 10Gb ULL connection tested.
The proposed fee amounts are the same as the fees currently
assessed for the same services at the Exchanges' affiliates, MIAX, MIAX
Pearl, and MIAX Emerald.\36\ In order to provide an incentive to
prospective non-Members to engage in network connectivity testing and
certification such that they will be able to trade options on MIAX
Sapphire as soon as possible, the Exchange proposes to waive the
network connectivity testing and certification fees assessable to non-
Members for all connections during the Initial Waiver Period. Even
though the Exchange proposes to waive this particular fee during the
Initial Waiver Period, the Exchange believes that it is appropriate to
provide market participants with the overall structure of the fee by
outlining the structure and amounts in the Fee Schedule so that there
is general awareness that the Exchange intends to assess such fees upon
expiration of the defined term of the Initial Waiver Period.
---------------------------------------------------------------------------
\36\ See MIAX Fee Schedule, Section 4)d); MIAX Pearl Fee
Schedule, Section 4)d); and MIAX Emerald Fee Schedule, Section 4)d).
---------------------------------------------------------------------------
The Member and non-Member network connectivity testing and
certification fees represent expected installation and support costs to
be incurred by the Exchange as it works with each Member and non-Member
to make sure there are appropriate electronic communication connections
with MIAX Sapphire. The Exchange's affiliates, MIAX, MIAX Pearl, and
MIAX Emerald, charge the same fees for the same services for their
Members and non-Members.\37\ The Exchange proposes to assess a higher
network connectivity testing and certification fee to non-Members than
to Members, similar to how MIAX, MIAX Pearl, and MIAX Emerald assess
such fees to their Members and non-Members. The proposed higher fees
charged to non-Members reflects the anticipated greater amount of time
to be spent by MIAX Sapphire employees testing and certifying non-
Members. In the experience of the Exchange's affiliates, Member network
connectivity testing and certification takes less time than non-Member
network connectivity testing and certification because Members have
more experience testing these systems with exchanges and generally have
fewer questions and issues arise during the testing and certification
process.
---------------------------------------------------------------------------
\37\ See supra notes 35 and 36.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal to amend the Fee Schedule
is consistent with Section 6(b) of the Act \38\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \39\ in
particular, in that it is an equitable allocation of reasonable dues,
fees and other charges among its Members and issuers and other persons
using its facilities. The Exchange also believes the proposal furthers
the objectives of Section 6(b)(5) of the Act in that it is designed to
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general protects investors and the public
interest and is not designed to permit unfair discrimination between
customers, issuers, brokers and dealers.
---------------------------------------------------------------------------
\38\ 15 U.S.C. 78f(b).
\39\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
Membership Application Fees (One-Time Fee)
The Exchange believes that the proposed one-time membership
application fees for EEMs and Market Makers are consistent with the
provisions of Section 6 of the Act,\40\ in general, and with Sections
6(b)(4) and 6(b)(5) of the Act,\41\ in particular, in that they provide
for the equitable allocation of reasonable dues, fees and other charges
among Members and other persons using its facilities and are not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers, as further discussed below.
---------------------------------------------------------------------------
\40\ 15 U.S.C. 78f.
\41\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange believes the proposed one-time membership application
fees are reasonable, equitable and not unfairly discriminatory because
they are one-time fees that are reasonably related to (and designed to
recover) the Exchange's anticipated cost associated with reviewing and
approving membership applications, which consists primarily of the time
and resources of Exchange personnel to process the membership
application and conduct the new Member on-boarding process. The
Exchange's process for reviewing and approving potential new Members
will involve several steps and participation from personnel in multiple
Exchange departments, as follows: (i) reviewing prospective Member
information provided in various membership forms, including, when
necessary, consulting with the Financial Industry Regulatory Authority
(``FINRA'') pursuant to the Exchange's regulatory services agreement;
\42\ (ii) the on-boarding process, where Exchange personnel contacts
the firm for an introductory meeting with the Exchange's Business Team
to discuss goals, answer questions and schedule the technical on-
boarding meeting; (iii) the technical on-boarding meeting, where the
Exchange's on-boarding team and Trading Operations Team guides the firm
through the on-boarding process with Exchange personnel available to
discuss network connectivity, APIs, Exchange functionality and
operational issues; and (iv) follow-ups with the Trading Operations
Team to coordinate testing, as necessary, until the firm is active in
the Exchange's live trading environment.\43\
---------------------------------------------------------------------------
\42\ See Securities Exchange Act Release No. 98746 (October 13,
2023), 88 FR 72116 (October 19, 2012) (File No. 10-240), Exhibit L
(describing the Exchange's proposed regulatory program, including
regulatory services agreement with FINRA).
\43\ See, generally, the Exchange's Membership and Technical
Onboarding process and forms, available at <a href="https://www.miaxglobal.com/markets/us-options/sapphire-options/membership">https://www.miaxglobal.com/markets/us-options/sapphire-options/membership</a>.
---------------------------------------------------------------------------
As a self-regulatory organization, MIAX Sapphire's Membership Team
will review applicants to ensure that each applicant for membership
meets the Exchange's qualification criteria prior to approval. The
Membership Team, in conjunction with the regulatory department, reviews
the registration and qualification of an applicant's associated
persons, the applicant's financial health, the validity of its clearing
relationship, and its disciplinary history. The Membership Team also
provides ongoing support to Members with respect to membership changes,
registration, and other questions that commonly arise from Members
regarding such matters. The Exchange believes that it is consistent
with the Act to charge the one-time membership application fees to EEMs
and Market Makers as it is reasonable to cover anticipated costs of
administering its membership program.
The Exchange believes that competitive forces constrain what the
Exchange can charge as one-time membership application fees because if
the Exchange proposes to charge a membership application fee that
market
[[Page 67993]]
participants deem to be excessive, market participants would simply not
become Members of the Exchange. The Exchange believes that the proposed
one-time membership application fees for EEMs and Market Makers are
reasonable because the proposed fees are lower than, or similar to, the
one-time application fees in place at the Exchange's affiliates \44\
and other competing equity options exchanges.\45\
---------------------------------------------------------------------------
\44\ See supra note 15.
\45\ See supra note 16.
---------------------------------------------------------------------------
The Exchange believes the difference in the proposed one-time
membership application fee to be charged to EEMs and Market Makers is
an equitable allocation of reasonable dues and fees pursuant to Section
6(b)(4) of the Act \46\ because of the anticipated additional review
and resources involved in processing a Market Maker's application as
opposed to an EEM's application, as Market Makers will have greater and
more complex obligations with respect to doing business on the
Exchange.\47\
---------------------------------------------------------------------------
\46\ 15 U.S.C. 78f(b)(4).
\47\ See supra note 12.
---------------------------------------------------------------------------
The Exchange believes it is reasonable to waive the one-time
membership application fees for EEMs and Market Makers for the Initial
Waiver Period to provide an incentive for market participants to apply
for Exchange membership in connection with the launch of MIAX Sapphire.
The Exchange believes waiving the one-time membership application fee
is reasonable, equitable and not unfairly discriminatory because the
waiver will apply uniformly to all new Members of the Exchange.
The Exchange believes it is reasonable, equitable and not unfairly
discriminatory to waive all one-time membership application fees during
the Initial Waiver Period in order to provide an incentive for market
participants interested in becoming Members of the Exchange to submit
early applications, which should result in increased potential order
flow and liquidity as MIAX Sapphire begins electronic trading.
At launch and for a limited time, the Exchange anticipates having a
smaller number of market participants than the Exchange's affiliated
markets, which are more established having launched years ago, as well
as several competing options exchanges.\48\ The Exchange also notes
that it will not seek to recoup any of the actual costs associated with
reviewing membership applications that will take place from the launch
of operations through the expiration of the Initial Waiver Period,
which will be in excess of six months. By the completion of the Initial
Waiver Period, the Exchange anticipates the majority of market
participants will have already completed their membership applications
and on-boarding as new Members of the Exchange, all of whom will not
pay the one-time membership application fee.\49\ This means that the
Exchange will likely not collect the majority of membership application
fees for its Members. The Exchange believes it will assume
approximately 100% of the anticipated costs associated with processing
membership applications for the majority of Member firms approved by
the Exchange (similar to MIAX, MIAX Pearl, and MIAX Emerald).\50\
Accordingly, the Exchange believes that it is reasonable, equitable,
and not unfairly discriminatory to waive the one-time membership
application fees during the Initial Waiver Period to attract market
participants to the Exchange. The proposed one-time membership
application fees are not designed to be a profit center for the
Exchange; rather, the proposed fees are simply to recover some of the
anticipated costs and employee time with reviewing new member
applications for EEMs and Market Makers once the Exchange has already
on-boarded the majority of its anticipated Members.
---------------------------------------------------------------------------
\48\ See, e.g., MIAX Membership Directory (last visited July 15,
2024), available at <a href="https://www.miaxglobal.com/miax_options_exchange_members.pdf">https://www.miaxglobal.com/miax_options_exchange_members.pdf</a> (providing a list of 47 MIAX
members); MIAX Emerald Membership Director (last visited July 15,
2024), available at <a href="https://www.miaxglobal.com/miax_emerald_options_exchange_members.pdf">https://www.miaxglobal.com/miax_emerald_options_exchange_members.pdf</a> (providing a list of 37
MIAX Emerald members); MIAX Pearl Membership Directory (last visited
July 15, 2024), available at <a href="https://www.miaxglobal.com/miax_pearl_options_exchange_members.pdf">https://www.miaxglobal.com/miax_pearl_options_exchange_members.pdf</a> (providing a list of 41 MIAX
Pearl members); NYSE American Options Membership Directory (last
visited July 15, 2024), available at <a href="https://www.nyse.com/markets/american-options/membership#directory">https://www.nyse.com/markets/american-options/membership#directory</a> (providing a list of 74 NYSE
American members); and Nasdaq ISE Membership (last visited July 15,
2024), available at <a href="https://www.nasdaqtrader.com/Trader.aspx?id=Membership">https://www.nasdaqtrader.com/Trader.aspx?id=Membership</a> (providing a list of 76 Nasdaq ISE
members).
\49\ As noted by the Exchange's affiliate when it filed to
introduce a one-time membership application fee, MIAX Emerald had 35
members that became members during the period of time that the one-
time membership application fee was waived, which are fees MIAX
Emerald will not be able to recoup. See Securities Exchange Act
Release No. 91030 (February 1, 2021), 86 FR 8465 (February 5, 2021)
(SR-EMERALD-2021-01) (``[MIAX Emerald] currently has 35 Members, all
of whom did not pay the one-time membership application fee, as it
was waived for the Waiver Period when these firms all became Members
of the Exchange. Further, the majority of firms that are Members of
the Exchange's affiliate options exchanges, MIAX and MIAX PEARL,
also became Members of those exchanges during similar Waiver Periods
for the MIAX and MIAX PEARL one-time membership application fees.
Accordingly, the Exchange (and MIAX and MIAX PEARL) have assumed
approximately 100% of the costs associated with processing
membership applications for the majority of Member firms approved by
the Exchange, MIAX, and MIAX PEARL.'') (footnote omitted).
\50\ See id.
---------------------------------------------------------------------------
Although the Exchange proposes to waive the one-time membership
application fees for the Initial Waiver Period, the Exchange proposes
to include the proposed fee structure and amounts in the Fee Schedule
in order to communicate its intent to charge the one-time membership
application fee to EEMs and Market Makers upon the expiration of the
defined term of the Initial Waiver Period. As a new exchange entrant,
the Exchange chooses not to charge for new Members to join the Exchange
until the expiration of the Initial Waiver Period to encourage market
participants to trade on the Exchange and experience the quality of the
Exchange's technology and trading functionality. This practice is not
uncommon. New exchanges often do not charge fees or charge lower fees
for certain services such as memberships/trading permits to attract
order flow to an exchange, and later, once there is sufficient depth
and breadth of liquidity, amend their fees to reflect the true value of
those services, absorbing all costs to provide those services in the
meantime. Allowing new exchange entrants time to build and sustain
market share through various pricing incentives, before establishing
membership fees, encourages market entry and promotes competition. It
also enables new exchanges to mature their markets and allow market
participants to trade on the new exchanges without membership fees
serving as a potential barrier to attracting memberships and order
flow. The waiver is also a protection to new Members. If new Members
join the Exchange in order to participate on MIAX Sapphire and
subsequently decide that they do not want to continue trading on MIAX
Sapphire prior to expiration of the Initial Waiver Period, they can
cancel their membership without incurring the one-time membership
application fee.
Trading Permit Fees
The Exchange plans to commence operations on August 12, 2024 \51\
and waive monthly Trading Permit fees for Market Makers and EEMs to
trade on the Exchange during the Initial Waiver Period.\52\ Although
the Exchange proposes to waive the Trading Permit fees during the
Initial Waiver Period, the Exchange proposes to establish an initial
fee structure to communicate the Exchange's intent to charge Trading
[[Page 67994]]
Permit fees upon the expiration of the Initial Waiver Period. As a new
exchange entrant, the Exchange chooses to offer Trading Permits for
free to encourage market participants to trade on the Exchange and
experience, among other things, the quality of the Exchange's
technology and trading functionality. This practice is not uncommon.
New exchanges often do not charge fees or charge lower fees for certain
services such as memberships and trading permits to attract order flow
to an exchange, and later amend their fees to reflect the true value of
those services, absorbing all costs to provide those services in the
meantime. Allowing new exchange entrants time to build and sustain
market share through various pricing incentives before increasing
certain fees encourages market entry and promotes competition. It also
enables new exchanges to mature their markets and allow market
participants to trade on the new exchanges without fees serving as a
potential barrier to attracting memberships and order flow.\53\
---------------------------------------------------------------------------
\51\ See supra note 8.
\52\ See supra note 6.
\53\ See e.g., Securities Exchange Act Release Nos. 94894 (May
11, 2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (stating,
``[t]he Exchange established this lower (when compared to other
options exchanges in the industry) Participant Fee in order to
encourage market participants to become Participants of BOX . . .'')
and 90076 (October 2, 2020), 85 FR 63620 (October 8, 2020) (SR-MEMX-
2020-10) (``MEMX Membership Fee Proposal'') (proposing to adopt the
initial fee schedule and stating that ``[u]nder the initial proposed
Fee Schedule, the Exchange proposes to make clear that it does not
charge any fees for membership, market data products, physical
connectivity or application sessions.''). MEMX has seen its market
share increase and subsequently proposed to adopt a membership fee
and fees for connectivity. See Securities Exchange Act Release Nos.
93927 (January 7, 2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-
2021-19) (proposing to adopt membership fees); and 95299 (July 15,
2022), 87 FR 43563 (July 21, 2022) (SR-MEMX-2022-17) (proposing to
adopt fees for connectivity). See also, e.g., Securities Exchange
Act Release No. 88211 (February 14, 2020), 85 FR 9847 (February 20,
2020) (SR-NYSENAT-2020-05).
---------------------------------------------------------------------------
The Exchange believes its proposed Trading Permit fees are
reasonable and not unfairly discriminatory because the proposed Trading
Permit fees are lower than comparable membership/trading permit fees
assessed by competing options exchanges.\54\ Further, the Exchange
believes that the proposal is reasonably designed to compete with other
options exchanges by incentivizing market participants to register as
Market Makers and EEMs on the Exchange in a manner than enables the
Exchange to improve its overall competitiveness and strengthen market
quality for all market participants upon launch. As stated above, the
Exchange believes the proposed Market Maker Trading Permit fees are an
appropriate balance between offsetting the anticipated costs to which
Market Makers cost the Exchange and continuing to incentivize Market
Makers to access and make a market on the Exchange.
---------------------------------------------------------------------------
\54\ See supra ``Monthly Membership/Trading Permit Fee'' table.
---------------------------------------------------------------------------
The proposed fees are equitable and not unfairly discriminatory as
the fees apply equally to all Market Makers. As such, all similarly
situated Market Makers, with the same number of class registrations
will be subject to the same Market Maker Trading Permit fee. As
proposed, a Market Maker would be determined to be registered in a
class if that Market Maker has been registered in one or more series in
that class. Exchange Rule 602(a) provides that a Member that has
qualified as a Market Maker may register to make markets in individual
series of options. The proposed tiered structure is based on the number
of options classes the Market Maker is registered in, not the number of
series within the options class. The Exchange believes its proposal is
fair and reasonable because the proposed tiered structure would
encourage Market Makers to register in more series within each options
class as each additional series in that class would not count towards
the particular Market Maker's overall number of classes assigned, and
cause them to qualify for a higher tier and higher fee.
The Exchange also believes that assessing lower fees to Market
Makers that quote in fewer classes is reasonable and appropriate as it
will allow the Exchange to retain and attract smaller-scale Market
Makers, which are an integral component of the options industry
marketplace. Since these smaller Market Makers typically utilize less
bandwidth and capacity on the Exchange network due to the lower number
of quoted classes, the Exchange believes it is reasonable and
appropriate to offer such Market Makers a lower fee, designated in
proposed footnote ``a.'' following the proposed Market Maker Trading
Permit fee table. The Exchange also notes that the Exchange's
affiliates, MIAX, MIAX Pearl, and MIAX Emerald, provide lower Trading
Permit fees for Market Makers who quote the entire markets of those
exchanges (or substantial amount of those markets), as objectively
measured by either number of classes assigned or national ADV, but who
do not otherwise execute a significant amount of volume on MIAX, MIAX
Pearl, or MIAX Emerald,\55\ and, as such, this concept is not new or
novel.
---------------------------------------------------------------------------
\55\ See supra note 24.
---------------------------------------------------------------------------
The Exchange believes the proposed tiered structure of the Market
Maker Trading Permit fees is reasonable because Market Makers will be
charged monthly fees based on the greatest number of classes quoted on
any given trading day in a calendar month or upon certain class volume
percentages of national ADV. Under the proposed fee structure, the fees
increase as the number of classes quoted by a Market Maker increases.
The Exchange believes this structure is reasonable and not unfairly
discriminatory because the Exchange's system requires increased
performance and capacity in order to provide the opportunity for Market
Makers to quote in a higher number of options classes on the Exchange.
Specifically, more classes that are actively quoted on the Exchange by
a Market Maker will require increased memory for record retention,
increased bandwidth for optimized performance, increased
functionalities on each application layer, and increased optimization
with regard to surveillance and monitoring of such classes quoted. As
such, basing the Market Maker Trading Permit fee on the greatest number
of classes quoted in on any given day in a calendar month is reasonable
and not unfairly discriminatory when taking into account how the
increased number of quoted classes directly impacts the costs and
resources required for the Exchange to operate.
There is no requirement, regulatory or otherwise, that any broker-
dealer connect to and access any (or all of) the available options
exchanges. As noted above, the Exchange anticipates a smaller number of
market participants will become Members of the Exchange from launch
through the end of the Initial Waiver Period, which will constitute the
majority of the Exchange's membership. A competing options exchange
noted in a similar proposal to amend their own trading permit fees
that, at the time of that filing in 2022, of the 62 market making firms
that were registered as Market Makers across Cboe, MIAX, and BOX, 42
firms accessed only one of the three exchanges.\56\ In addition, the
Exchange's affiliates, MIAX, MIAX Pearl, and MIAX
[[Page 67995]]
Emerald, have a total of 48 Members (as of July 15, 2024). Of those 48
total members, 36 are members of all three exchanges, four are members
of only two exchanges, and eight are members of only one exchange. Of
the members that are currently Market Makers at the Exchange's
affiliates, five are not registered as Market Makers on MIAX Emerald,
five are not registered as Market Makers on MIAX Pearl, and one is not
registered as a Market Maker on MIAX.\57\ The above data evidences that
a Market Maker need not be a Member of all options exchanges, let alone
the Exchange and its affiliates, and market makers elect to do so based
on their own business decisions and need to directly access each
exchange's liquidity pool. Not only is there no regulatory requirement
to connect to every options exchange, the Exchange believes there is
also no ``de facto'' or practical requirement as well, as further
evidenced by the market maker membership analysis of the options
exchanges discussed above. Indeed, Market Makers choose if and how to
access a particular exchange and because it is a choice, the Exchange
must set reasonable pricing, otherwise prospective market makers would
not connect and existing Market Makers would disconnect from the
Exchange.
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\56\ See Securities Exchange Act Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change to Amend the
Fee Schedule on the BOX Options Market LLC Facility To Adopt
Electronic Market Maker Trading Permit Fees). The Exchange believes
that BOX's observation demonstrates that market making firms can,
and do, select which exchanges they wish to access, and,
accordingly, options exchanges must take competitive considerations
into account when setting fees for such access.
\57\ See supra note 48.
---------------------------------------------------------------------------
The Exchange believes that elasticity of demand for Exchange
membership exists when it comes to purchasing a Trading Permit and, as
evidenced by the data provided below, prior fee proposals have resulted
in Members terminating their memberships. As an example, one Market
Maker terminated their MIAX Pearl membership effective January 1, 2023,
as a direct result of the proposed connectivity and port fee changes
proposed by MIAX Pearl. As another example, two Market Makers
terminated their MIAX Emerald memberships effective February 1, 2024,
as a direct result of the proposed non-transaction fee changes proposed
by MIAX Emerald. Other exchanges have also experienced termination of
memberships if their members deem fees to be unreasonable or excessive.
The Exchange notes that a BOX participant modified its access to BOX in
connection with the implementation of a proposed change to BOX's permit
fees.\58\ The absence of new memberships coupled with the termination
of memberships on the Exchange's affiliates, as well as similar
membership changes on another options exchange in relation to a trading
permit fee increase, shows that elasticity of demand exists.
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\58\ According to BOX, a Market Maker on BOX terminated its
status as a Market Maker in response to BOX's proposed modification
of Market Maker trading permit fees. See Securities Exchange Act
Release No. 94894 (May 11, 2022), 87 FR 29987 (May 17, 2022) (SR-
BOX-2022-17). BOX noted, and the Exchange agrees, that this Market
Maker's decision demonstrates that Market Makers can, and do, alter
their membership status if they deem permit fees at an exchange to
be unsuitable for their business needs, thus demonstrating the
competitive environment for Market Maker permit fees and the
constraints on options exchanges when setting Market Maker permit
fees.
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The Exchange notes that there are material anticipated costs
associated with providing the infrastructure and headcount to fully-
support access to the Exchange. The Exchange expects to incur
technology expenses related to establishing and maintaining Information
Security services, enhanced network monitoring and customer reporting
associated with its network technology. While some of the anticipated
expense is fixed, much of the expense is not fixed, and thus increases
as the expenses associated with access services for Market Makers
increases. For example, new Market Makers to the Exchange may require
the purchase of additional hardware to support those Members as well as
enhanced monitoring and reporting of customer performance that the
Exchange provides. Further, as the total number of Market Makers
increase, the Exchange may need to increase its data center footprint
and consume more power, resulting in increased costs charged by their
third-party data center provider. Accordingly, the anticipated cost to
the Exchange to provide access to its Market Makers is not fixed. The
Exchange believes the proposed Market Maker Trading Permit fees are
reasonable in order to offset a portion of the anticipated costs to the
Exchange associated with providing access to Market Makers to its quote
and order infrastructure.
The Exchange notes that while Market Makers will account for a vast
majority of the system usage placed on the Exchange, Market Makers are
valuable market participants on the exchanges as the options market is
a quote driven industry. The Exchange recognizes the value that Market
Makers bring to the Exchange. The Exchange proposes higher, separate
Trading Permit fees for Market Makers that are more aligned with the
anticipated costs and resources that Market Makers may place on the
Exchange and its systems.
The Exchange believes that the proposed Market Maker Trading Permit
fees are reasonable, equitable, and not unfairly discriminatory. The
Exchange believes that the reasonableness of its proposed fees is
demonstrated by the fact that such fees are comparable to, and lower
than, the costs of similar membership and trading permit fees at other
exchanges.\59\ The Exchange notes these fees were similarly filed with
the Commission and neither suspended nor disapproved.\60\ The proposed
fees are fair and equitable and not unfairly discriminatory because
they apply equally to all Market Makers and access to the Exchange is
offered on terms that are not unfairly discriminatory. The Exchange
designed the fee rates in order to provide objective criteria for
Market Makers of different sizes and business models that best matches
their activity on the Exchange. The Exchange believes that the proposed
fee rates and criteria provide an objective and flexible framework that
will encourage Market Makers to register in options classes while also
equitably allocating the fees in a reasonable manner amongst Market
Maker registrations to account for trading activity.
---------------------------------------------------------------------------
\59\ See supra note 54.
\60\ The Exchange presumes that the fees of other exchanges are
reasonable, as required by the Exchange Act in the absence of any
suspension or disapproval order by the Commission providing
otherwise.
---------------------------------------------------------------------------
The Exchange again notes that it operates in a highly competitive
market in which market makers can readily favor competing venues if
they deem fee levels at a particular venue to be excessive. In such an
environment, the Exchange must continually adjust its fees for services
and products, in addition to order flow, to remain competitive with
other exchanges. The Exchange believes that the proposed changes
reflect this competitive environment.
The Exchange is not aware of any reason why Market Makers could not
simply drop their access to an exchange (or not initially access an
exchange) if an exchange were to establish prices for its non-
transaction fees that, in the determination of such Market Maker, did
not make business or economic sense for such Market Maker to access
such exchange.
In sum, the Exchange believes the proposed Trading Permit fees are
reasonable and reflect a competitive environment, as the Exchange seeks
to establish Trading Permit fees for Market Makers, while still
attracting Market Makers to continue to, or seek to, access the
Exchange. The Exchange further believes the proposed Trading Permit
fees discussed herein are an appropriate balance between offsetting the
anticipated costs to which Market Makers cost the Exchange and
continuing to incentivize Market Makers
[[Page 67996]]
to access and make a market on the Exchange.
API Testing and Certification Fees
The Exchange believes it is reasonable to assess the proposed API
testing and certification fees to Members and non-Members because of
the anticipated time and resources to be spent to ensure that Member
and non-Member APIs function correctly to prevent any system
malfunction before firms use APIs in the production environment. The
Exchange will not assess the proposed API testing and certification
fees in situations where the Exchange initiates a mandatory change to
the Exchange's system that requires testing and certification; rather,
the Exchange proposes to only assess such fee when a Member or non-
Member has been credentialed to use one or more of the respective ports
in the production environment and each time a Member initiatives a
change to its system that requires testing and certification.
The Exchange believes its proposed API testing and certification
fees for Members and non-Members are reasonable, equitable, and not
unfairly discriminatory because they are reasonably related to (and
designed to recover) the Exchange's expected cost associated with
conducting API testing and certification services, which consists
primarily of the time and resources spent to ensure that Member and
non-Member APIs function correctly to prevent any system malfunction.
Further, the Exchange believes the price differential in API
testing and certification fees for Members and non-Members is not
unfairly discriminatory because, in the experience of the Exchange's
affiliates, Member testing utilizes less resources and employee time
than non-Member testing as Members have more experience testing these
systems with exchanges, resulting generally in fewer questions and
issues arising during the testing and certification process. Also, with
respect to API testing and certification, because Third Party Vendors
and Service Bureaus are redistributing data and reselling services to
other Members and market participants the number and types of scenarios
that need to be tested are likely to be more numerous and complex than
those tested and certified for Members. The Exchange believes its
proposed API testing and certification fees are reasonable because they
are priced at the same rates as those charged by Exchange's affiliates,
MIAX and MIAX Emerald, for the same services for Members and non-
Members.\61\
---------------------------------------------------------------------------
\61\ See supra note 29.
---------------------------------------------------------------------------
The Exchange believes its proposal to waive API testing and
certification fees for Members and non-Members during the Initial
Waiver Period is reasonable, equitable and not unfairly discriminatory
because it will provide an incentive to market participants to apply
early for membership and to engage in API testing and certification
such that they will be able to trade options on MIAX Sapphire as soon
as possible. The proposed fee waiver will apply equally to all firms
during the Initial Waiver Period. Even though the Exchange proposes to
waive these particular fees during the Initial Waiver Period, the
Exchange believes that is reasonable to provide market participants
with the overall structure of the proposed fees by outlining the
structure and amounts in the Fee Schedule so that there is general
awareness that the Exchange intends to assess such fees upon expiration
of the defined term of the Initial Waiver Period.
Network Connectivity Testing and Certification Fees
The Exchange believes it is reasonable to assess the proposed
network connectivity testing and certification fees to Members and non-
Members because of the anticipated time and resources to be spent to
ensure that Members and non-Members are able to successfully establish
electronic connections to the Exchange. The Exchange will not assess
the proposed network connectivity testing and certification fees in
situations where the Exchange initiates a mandatory change to the
Exchange's system that requires testing and certification; rather, the
Exchange proposes to only assess such fee initially per connection in
the month the Member or non-Member has been credentialed to use any API
or market data feeds in the production environment utilizing the tested
network connection and each time a Member or non-Member initiates a
change to its system that requires network connectivity testing and
certification.
The Exchange further believes the proposed fees are reasonable
because a Member or non-Member that utilizes a single, shared 1Gb
cross-connect to connect to the trading platforms, market data systems,
test systems, and disaster recovery facilities of the Exchange, MIAX,
MIAX Pearl, and MIAX Emerald will only be assessed one network
connectivity testing and certification fee per connection tested,
regardless of the trading platforms, market data systems, test systems,
and disaster recovery facilities accessed via such connection.
The Exchange believes the proposed network connectivity testing and
certification fees are reasonable because they represent expected
installation and support costs to be incurred by the Exchange as it
works with each Member and non-Member to make sure there are
appropriate electronic communication connections with MIAX Sapphire.
The Exchange's affiliates, MIAX, MIAX Pearl, and MIAX Emerald, charge
the same fees for the same services for their Members and non-
Members.\62\ Additionally, the Exchange believes its proposed network
connectivity testing and certification fees are reasonable, equitable,
and not unfairly discriminatory because they are reasonably related to
(and designed to recover) the Exchange's anticipated cost associated
with conducting network connectivity testing and certification
services, which consists primarily of the time and resources spent to
ensure that Member and non-Member connectivity function correctly to
prevent any system malfunction.
---------------------------------------------------------------------------
\62\ See supra notes 35 and 36.
---------------------------------------------------------------------------
Further, the Exchange believes the price differential in network
connectivity testing and certification fees for Members and non-Members
is not unfairly discriminatory because, in the experience of the
Exchange's affiliates, Member testing utilizes less resources and
employee time than non-Member testing as Members have more experience
testing these systems with exchanges, resulting generally in fewer
questions and issues arising during the testing and certification
process.
The Exchange believes the difference in the proposed 1Gb and 10Gb
ULL network connectivity testing and certification fees is an equitable
allocation of reasonable dues and fees pursuant to Section 6(b)(4) of
the Act \63\ because of the anticipated additional review and resources
involved in testing and certifying a 10Gb ULL connection as opposed to
a 1Gb connection, as 10Gb ULL connections offer vastly greater products
and services which require significantly more time to test, including
Market Maker quoting systems. The Exchange believes its proposed
network connectivity testing and certification fees are reasonable
because the Exchange's affiliates, MIAX, MIAX Pearl, and MIAX Emerald,
charge the same fees for the same services for their Members and non-
Members.\64\
---------------------------------------------------------------------------
\63\ 15 U.S.C. 78f(b)(4).
\64\ See supra notes 35 and 36.
---------------------------------------------------------------------------
[[Page 67997]]
The Exchange believes its proposal to waive network connectivity
testing and certification fees for Members and non-Members during the
Initial Waiver Period is reasonable, equitable and not unfairly
discriminatory because it will provide an incentive to market
participants to apply early for membership and to engage in network
connectivity testing and certification such that they will be able to
trade options on MIAX Sapphire as soon as possible. The proposed fee
waiver will apply equally to all firms during the Initial Waiver
Period. Even though the Exchange proposes to waive these particular
fees during the Initial Waiver Period, the Exchange believes that is
reasonable to provide market participants with the overall structure of
the proposed fees by outlining the structure and amounts in the Fee
Schedule so that there is general awareness that the Exchange intends
to assess such fees upon expiration of the defined term of the Initial
Waiver Period.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Intra-Market Competition
One-Time Membership Application Fees
The Exchange believes that the proposed one-time membership
application fees for EEMs and Market Makers do not impose any burden on
intra-market competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange's proposed one-
time membership application fees for EEMs and Market Makers are lower
than, or similar to, the one-time application fees in place at the
Exchange's affiliates \65\ and other competing equity options
exchanges.\66\ Further, the Exchange proposes to waive the one-time
membership application fee for EEMs and Market Makers for the Initial
Waiver Period, which the Exchange believes will provide an incentive
for market participants interested in becoming Members of the Exchange
to submit early applications, resulting in increased potential order
flow and liquidity as MIAX Sapphire begins electronic trading. In turn,
the Exchange believes its lower one-time membership application fees
may stimulate intra-market competition by attracting additional firms
to become Members on the Exchange or at least should not deter
interested participants from joining the Exchange. As discussed above,
membership fees are subject to competition from other exchanges.
Accordingly, if the changes proposed herein are unattractive to market
participants, it is likely the Exchange will see fewer than anticipated
firms become Members of the Exchange as a result.
---------------------------------------------------------------------------
\65\ See supra note 15.
\66\ See supra note 16.
---------------------------------------------------------------------------
Trading Permit Fees
The Exchange believes that the proposed Trading Permit fees do not
place certain market participants at a relative disadvantage to other
market participants because the proposed fees do not favor certain
categories of market participants in a manner that would impose a
burden on competition; rather, the fee rates are designed in order to
provide objective criteria for Market Makers of different sizes and
business models that best matches their quoting activity on the
Exchange. Further, the Exchange believes that the proposed Market Maker
Trading Permit fees will not impose a burden on intra-market
competition because, when these fees are viewed in the context of the
overall expected activity on the Exchange, Market Makers will: (1)
consume the most bandwidth and resources of the network; (2) transact
the vast majority of the volume on the Exchange; and (3) require the
high touch network support services provided by the Exchange and its
staff, including more costly network monitoring, reporting and support
services, resulting in a much higher cost to the Exchange. The Exchange
notes that the majority of customer demand will likely come from Market
Makers, whose transactions make up a majority of the volume on the
Exchange. Further, other Member types, i.e., EEMs, take up
significantly less Exchange resources and costs. As such, the Exchange
does not believe charging Market Makers higher Trading Permit fees than
other Member types will impose a burden on intra-market competition.
The Exchange believes that the tiered structure of the proposed
Market Maker Trading Permit fees will not impose a burden on intra-
market competition because the tiered structure takes into account the
number of classes quoted by each individual Market Maker. As discussed
herein, the Exchange's system requires increased performance and
capacity in order to provide the opportunity for each Market Maker to
quote in a higher number of options classes on the Exchange.
Specifically, the more classes that are actively quoted on the Exchange
by a Market Maker requires increased memory for record retention,
increased bandwidth for optimized performance, increased
functionalities on each application layer, and increased optimization
with regard to surveillance and monitoring of such classes quoted. As
such, basing the Market Maker Trading Permit fee on the greatest number
of classes quoted in on any given day in a calendar month is reasonable
and appropriate when taking into account how the increased number of
quoted classes directly impact the costs and resources for the
Exchange.
API and Network Connectivity Testing and Certification Fees
The Exchange believes that the proposed API and network
connectivity testing and certification fees do not put any market
participants at a relative disadvantage compared to other market
participants. The proposed fees would apply to all new Exchange Members
and those firms looking to establish APIs and network connectivity in
the same manner. Market participants may not only choose whether to
become Exchange Members at all, but may choose to become members at
competing options exchanges instead.
The Exchange further believes the proposed fees do not place any
market participant at a disadvantage compared to other market
participants because the proposed API testing and certification and
network connectivity testing and certification fees are intended to
cover the situations where a Member or non-Member firm makes changes to
its own system for its own business purpose (i.e., instances where a
firm is trying to improve its quoting engine), which requires the
Exchange to test those re-architected systems. This testing requires
the time of Exchange personnel in several departments (Trading
Operations, Business, On-Boarding, Membership), and occurs primarily
outside of normal business hours, often over the course of the weekend.
The proposed fees are a way for the Exchange to recoup its anticipated
costs associated with this testing. When the Exchange determines to
make upgrades to its own system which requires mandatory testing and
certification by Members, the Exchange does not charge any fees.
The Exchange believes that the proposed fees do not dampen
innovation because the majority of Exchange's anticipated Members are
members of most, if not all, of the other 17 options exchanges. Those
exchanges also require testing and certification any time their members
make changes to their systems at those exchanges, and
[[Page 67998]]
also charge a fee to recoup the anticipated costs associated with
testing and certifying members. Without some sort of testing and
certification fee, the Exchange believes that Members and non-Members
might be less efficient in testing their systems, potentially resulting
in excessive time being consumed by the Exchange re-testing and re-
certifying Members and non-Members, to the detriment of all market
participants as Exchange resources are diverted away from other trading
operations.
The Exchange also believes that the proposed fees neither favor nor
penalize one or more categories of market participants in a manner that
would impose an undue burden on competition. To the extent that various
market participants are charged different fees for per-instance API and
network connectivity testing, those distinctions are not unfairly
discriminatory and do not unfairly burden one set of market
participants over another. The proposed higher fee charged to Third
Party Vendors, Service Bureaus and non-Members reflects the greater
amount of time spent that will likely be spent by the Exchange's
employees testing and certifying non-Members. It has been the
experience of the Exchange's affiliates that Member testing takes less
time than non-Member testing because Members have more experience
testing these systems with exchanges, resulting in generally fewer
questions and issues arising during the testing and certification
process. Also, because Third Party Vendors and Service Bureaus will be
redistributing data and reselling services to other Members and market
participants, the number and types of scenarios that need to be tested
are more numerous and complex than those tested and certified for a
single Member.
The proposed higher fee for network connectivity testing and
certification to be charged to non-Members reflects the likely greater
amount of time to be spent by MIAX Sapphire employees testing and
certifying non-Members. It has been the experience of the Exchange's
affiliates that that Member network connectivity testing takes less
time than non-Member network connectivity testing because Members have
more experience testing these systems with exchanges as generally fewer
questions and issues arise during the testing and certification
process. The proposed higher fee for testing and certifying 10Gb ULL
connections versus 1Gb ULL connections reflects the likely greater
amount of time to be spent by MIAX Sapphire employees testing and
certifying 10Gb ULL connections. MIAX Sapphire's proposed per-instance
API and network connectivity testing and certification fees are set at
the same levels for the same services provided by the Exchanges
affiliates.\67\
---------------------------------------------------------------------------
\67\ See supra notes 29 and 33.
---------------------------------------------------------------------------
The Exchange believes that the proposed API and network
connectivity testing and certification fees do not place certain market
participants at a relative disadvantage to other market participants
because the fees do not apply unequally to different size market
participants, but instead would allow the Exchange to charge for the
time and resource necessary for API testing and certification and
network connectivity testing and certification for Members and non-
Members to ensure proper functioning of all available order types, new
order entry, order management, order throughput and mass order
cancellation (as well as, for Market Makers, all available quote types,
quote throughput, quote management and cancellation, Aggregate Risk
Manager settings and triggers, and confirmation of quotes within the
trading engines). Accordingly, the proposed API and network
connectivity testing and certification fees do not favor certain
categories of market participants in a manner that would impose a
burden on competition.
Inter-Market Competition
The Exchange believes the proposed fees do not place an undue
burden on competition on other SROs that is not necessary or
appropriate because of the availability of numerous substitute options
exchanges. There are 17 other options exchanges where market
participants can become members.
One-Time Membership Application Fee
The Exchange believes that the proposed one-time membership
application fees for EEMs and Market Makers do not impose any burden on
inter-market competition that is not necessary or appropriate in
furtherance of the purposes of the Act because the proposed fees will
apply to all EEMs and Market Makers equally. The Exchange operates in a
highly competitive market in which market participants can determine
whether or not to join the Exchange based on the value received
compared to the cost of joining and maintaining membership on the
Exchange.
Trading Permit Fees
The Exchange believes the proposed Market Maker Trading Permit fees
do not place an undue burden on competition on other self-regulatory
organizations that is not necessary or appropriate. The proposed tiered
structure is based on the number of options classes the Market Maker is
registered in, not the number of series within the options class. The
Exchange believes its proposal would promote inter-market competition
because the proposed tiered structure would encourage Market Makers to
register in more series within each options class as each additional
series in that class would not count towards the particular Market
Maker's overall number of classes assigned, and cause them to qualify
for a higher tier and higher fee. This could improve the Exchange's
market quality by encouraging Market Makers to quote more series within
an options class without it impacting its Trading Permit fee.
Market making firms are not forced to become market makers on all
options exchanges. The Exchange notes that it anticipates having far
less Market Makers as compared to the much greater number of market
makers at other options exchanges. There are a number of large market
makers that are participants of other options exchange but may not
become Members of the Exchange. The Exchange is also unaware of any
assertion that its proposed fee levels or the proposed Market Maker
Trading Permit fees would somehow unduly impair its competition with
other options exchanges. To the contrary, if the fees charged are
deemed too high by a market making firm, they can simply discontinue
their membership with the Exchange or not become a Member at all.
The Exchange operates in a highly competitive market in which
market participants can readily favor one of the 17 competing options
venues if they deem fee levels at a particular venue to be excessive.
Based on publicly-available information, and excluding index-based
options, no single exchange had more than approximately 14-15% of the
equity options market share for the month of June 2024.\68\ Therefore,
no exchange possesses significant pricing power in the execution of
multiply-listed equity and exchange-traded fund (``ETF'') options order
flow. The Exchange believes that the ever-shifting market share among
exchanges from month to month demonstrates that market participants can
discontinue or reduce use of certain categories of products, or shift
order flow, in response to fee changes. In such an
[[Page 67999]]
environment, the Exchange must continually adjust its fees and fee
waivers to remain competitive with other exchanges and to attract order
flow to the facility.
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\68\ See the ``Market Share'' section of the Exchange's website,
available at <a href="http://www.miaxoptions.com">www.miaxoptions.com</a> (last visited July 24, 2024).
---------------------------------------------------------------------------
API and Network Connectivity Testing and Certification Fees
The Exchange believes the proposed API Testing and Certification
fees and Network Connectivity Testing and Certification fees do not
place an undue burden on competition on other SROs that is not
necessary or appropriate. The Exchange believes that the proposed fees
do not impose a burden on competition or on other exchanges that is not
necessary or appropriate because of the availability of numerous
substitute options exchanges. There are 17 other options exchanges
where market participants can become members.
Finally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues. In such an environment, the Exchange must continually
review, and consider adjusting, its fees and credits to remain
competitive with other exchanges. For the reasons described above, the
Exchange believes that the proposed rule change reflects this
competitive environment.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or 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,\69\ and Rule 19b-4(f)(2) \70\ 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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\69\ 15 U.S.C. 78s(b)(3)(A)(ii).
\70\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5b292e373e76383436363e352f281b283e38753c342d"><span class="__cf_email__" data-cfemail="7301061f165e101c1e1e161d0700330016105d141c05">[email protected]</span></a>. Please include
file number SR-SAPPHIRE-2024-20 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-SAPPHIRE-2024-20. 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-SAPPHIRE-2024-20 and should
be submitted on or before September 12, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\71\
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\71\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-18790 Filed 8-21-24; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on August 22, 2024.
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