[Federal Register Volume 87, Number 6 (Monday, January 10, 2022)]
[Notices]
[Pages 1217-1231]
[FR Doc No: 2022-00158]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93895; File No. SR-PEARL-2021-59]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
Pearl Options Fee Schedule To Remove Certain Credits and Increase
Trading Permit Fees

January 4, 2022.
    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 December 21, 2021, MIAX PEARL, LLC (``MIAX Pearl'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Pearl Options
Fee Schedule (the ``Fee Schedule'') to remove certain credits and amend
the monthly Trading Permit \3\ fees for Exchange Members.\4\
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    \3\ The term ``Trading Permit'' means a permit issued by the
Exchange that confers the ability to transact on the Exchange. See
Exchange Rule 100.
    \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 Exchange Rule 100 and the
Definitions Section of the Fee Schedule.
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    The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/pearl at MIAX
Pearl's principal office, and at the Commission's Public Reference
Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule to remove certain
credits and amend the monthly Trading Permit fees (the ``Proposed
Access Fees'') for Exchange Members. The Exchange initially filed this
proposal on July 1, 2021, with the proposed fee changes being
immediately effective (``First Proposed Rule Change'').\5\ The First
Proposed Rule Change was published for comment in the Federal Register
on July 15, 2021.\6\ The Commission received one comment letter on the
First Proposed Rule Change \7\ and subsequently suspended the Frist
Proposed Rule Change on August 27, 2021.\8\ The Exchange withdrew First
Proposed Rule Change on October 12, 2021 and re-submitted the proposal
on October 29, 2021, with the proposed fee changes being effective
beginning November 1, 2021 (``Second Proposed Rule Change'').\9\ The
Second Proposed Rule Change provided additional justification for the
proposed fee changes and addressed certain points raised in the single
comment letter that was submitted on the First Proposed Rule Change.
The Second Proposed Rule Change was published for comment in the
Federal Register on November 17, 2021.\10\ The Commission received no
comment letters on the Second Proposed Rule Change. Nonetheless, the
Exchange withdrew the Second Proposed Rule Change on December 20, 2021
and now submits this proposal for immediate effectiveness (``Third
Proposed Rule Change''). This Third Proposed Rule Change meaningfully
attempts to provide additional justification and explanation for the
proposed fee changes, directly respond again to the points raised in
the single comment letter submitted on the First Proposed Rule Change,
and be responsive to feedback provided by Commission Staff during a
telephone conversation on November 18, 2021 relating to the Second
Proposed Rule Change.
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    \5\ See Securities Exchange Act Release No. 92366 (July 9,
2021), 86 FR 37379 (SR-PEARL-2021-32).
    \6\ See id.
    \7\ See Letter from Richard J. McDonald, Susquehanna
International Group, LLC (``SIG''), to Vanessa Countryman,
Secretary, Commission, dated September 28, 2021 (``SIG Letter'').
    \8\ See Securities Exchange Act Release No. 92797 (August 27,
2021), 86 FR 49399 (September 2, 2021).
    \9\ See Securities Exchange Act Release No. 93555 (November 10,
2021), 86 FR 64254 (November 17, 2021) (SR-PEARL-2021-54).
    \10\ See id.
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Removal of the ``Monthly Volume Credit''
    The Exchange proposes to amend the Definitions section of the Fee
Schedule to delete the definition and remove the credits applicable to
the Monthly Volume Credit for Members. The Exchange established the
Monthly Volume Credit in 2018 \11\ to encourage Members to send
increased Priority Customer \12\ order flow to the Exchange, which the
Exchange applied to the assessment of certain non-transaction rebates
and fees for that Member. The Exchange applies a different Monthly
Volume Credit depending on whether the Member connects to the Exchange
via the FIX Interface \13\ or MEO Interface.\14\ Currently, the
Exchange assesses the Monthly Volume Credit to each Member that has
executed Priority Customer volume along with that of its
Affiliates,\15\ not including Excluded

Contracts,\16\ of at least 0.30% of MIAX Pearl-listed Total
Consolidated Volume (``TCV''),\17\ as set forth in the following table:
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    \11\ See Securities Exchange Act Release No. 82867 (March 13,
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
    \12\ The term ``Priority Customer'' means a person or entity
that (i) is not a broker or dealer in securities, and (ii) does not
place more than 390 orders in listed options per day on average
during a calendar month for its own beneficial accounts(s). The
number of orders shall be counted in accordance with Interpretation
and Policy .01 of Exchange Rule 100. See the Definitions Section of
the Fee Schedule and Exchange Rule 100, including Interpretation and
Policy .01.
    \13\ The term ``FIX Interface'' means the Financial Information
Exchange interface for certain order types as set forth in Exchange
Rule 516. See the Definitions Section of the Fee Schedule and
Exchange Rule 100.
    \14\ The term ``MEO Interface'' or ``MEO'' means a binary order
interface for certain order types as set forth in Rule 516 into the
MIAX Pearl System. See the Definitions Section of the Fee Schedule
and Exchange Rule 100.
    \15\ ``Affiliate'' means (i) an affiliate of a Member of at
least 75% common ownership between the firms as reflected on each
firm's Form BD, Schedule A, or (ii) the Appointed Market Maker of an
Appointed EEM (or, conversely, the Appointed EEM of an Appointed
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market
Maker (who does not otherwise have a corporate affiliation based
upon common ownership with an EEM) that has been appointed by an EEM
and an ``Appointed EEM'' is an EEM (who does not otherwise have a
corporate affiliation based upon common ownership with a MIAX Pearl
Market Maker) that has been appointed by a MIAX Pearl Market Maker,
pursuant to the following process. A MIAX Pearl Market Maker
appoints an EEM and an EEM appoints a MIAX Pearl Market Maker, for
the purposes of the Fee Schedule, by each completing and sending an
executed Volume Aggregation Request Form by email to
[email protected] no later than 2 business days prior to
the first business day of the month in which the designation is to
become effective. Transmittal of a validly completed and executed
form to the Exchange along with the Exchange's acknowledgement of
the effective designation to each of the Market Maker and EEM will
be viewed as acceptance of the appointment. The Exchange will only
recognize one designation per Member. A Member may make a
designation not more than once every 12 months (from the date of its
most recent designation), which designation shall remain in effect
unless or until the Exchange receives written notice submitted 2
business days prior to the first business day of the month from
either Member indicating that the appointment has been terminated.
Designations will become operative on the first business day of the
effective month and may not be terminated prior to the end of the
month. Execution data and reports will be provided to both parties.
See the Definitions Section of the Fee Schedule.
    \16\ ``Excluded Contracts'' means any contracts routed to an
away market for execution. See the Definitions Section of the Fee
Schedule.
    \17\ ``TCV'' means total consolidated volume calculated as the
total national volume in those classes listed on MIAX Pearl for the
month for which the fees apply, excluding consolidated volume
executed during the period of time in which the Exchange experiences
an Exchange System Disruption (solely in the option classes of the
affected Matching Engine). See the Definitions Section of the Fee
Schedule.

------------------------------------------------------------------------
                                                                Monthly
                  Type of member connection                      volume
                                                                 credit
------------------------------------------------------------------------
Member that connects via the FIX Interface...................       $250
Member that connects via the MEO Interface...................      1,000
------------------------------------------------------------------------

    If a Member connects via both the MEO Interface and FIX Interface
and qualifies for the Monthly Volume Credit based upon its Priority
Customer volume, the greater Monthly Volume Credit shall apply to such
Member. The Monthly Volume Credit is a single, once-per-month credit
towards the aggregate monthly total of non-transaction fees assessable
to a Member.
    The Exchange now proposes to amend the Definitions section of the
Fee Schedule to delete the definition and remove the Monthly Volume
Credit. The Exchange established the Monthly Volume Credit when it
first launched operations to attract order flow by lowering the initial
fixed cost for Members. The Monthly Volume Credit has achieved its
purpose and the Exchange now believes it is appropriate to remove this
credit. The Exchange believes that the Exchange's existing Priority
Customer rebates and fees will continue to allow the Exchange to remain
highly competitive and continue to attract order flow and maintain
market share.
Removal of the Trading Permit Fee Credit
    The Exchange proposes to amend Section (3)(b) of the Fee Schedule
to remove the Trading Permit fee credit that is denoted in footnote
``*'' below the Trading Permit fee table. The Trading Permit fee credit
is applicable to Members that connect via both the MEO and FIX
Interfaces. Currently, Members who connect via both the MEO and FIX
Interfaces are assessed the rates for both types of Trading Permits,
but these Members receive a $100 monthly credit towards the Trading
Permit fees applicable to the MEO Interface. The Exchange now proposes
to remove the Trading Permit fee credit and delete footnote ``*'' from
Section (3)(b) of the Fee Schedule.
    The Exchange established the Trading Permit fee credit when it
first launched operations to attract order flow and increase membership
by lowering the costs for Members that connect via both the MEO
Interface and FIX Interface. The Trading Permit fee credit has achieved
its purpose and the Exchange now believes that it is appropriate to
remove this credit in light of the current operating conditions and
membership population on the Exchange.
Amendment of Trading Permit Fees
    The Exchange proposes to amend Section (3)(b) of the Fee Schedule
to increase the amount of the monthly Trading Permit fees. The Exchange
issues Trading Permits to Members who are either Electronic Exchange
Members \18\ (``EEMs'') or Market Makers.\19\ The Exchange assesses
Trading Permit fees based upon the monthly total volume executed by the
Member and its Affiliates on the Exchange across all origin types, not
including Excluded Contracts, as compared to the total TCV in all MIAX
Pearl-listed options. The Exchange adopted a tier-based fee structure
based upon the volume-based tiers detailed in the definition of ``Non-
Transaction Fees Volume-Based Tiers'' \20\ in the Definitions section
of the Fee Schedule. The Exchange also assesses Trading Permit fees
based upon the type of interface used by the Member to connect to the
Exchange--the FIX Interface and/or the MEO Interface.
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    \18\ 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 the Definitions Section of the Fee Schedule.
    \19\ 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 these Rules.
See the Definitions Section of the Fee Schedule.
    \20\ See the Definitions Section of the Fee Schedule for the
monthly volume thresholds associated with each Tier.
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    Current Trading Permit Fees. Currently, each Member who connects to
the System \21\ via the FIX Interface is assessed the following monthly
Trading Permit fees:
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    \21\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
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    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $250;
    (ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to
0.60%, $350; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $450.
    Each Member who connects to the System via the MEO Interface is
assessed the following monthly Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $300;
    (ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to
0.60%, $400; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $500.
    Proposed Trading Permit Fees. The Exchange now proposes to amend
its Trading Permit fees as follows. Each Member who connects to the
System via the FIX Interface will be assessed the following monthly
Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $500;
    (ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, $1,000; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, $1,500.
    Each Member who connects to the System via the MEO Interface will
be assessed the following monthly Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-

Transaction Fees Volume-Based Tiers, $2,500;
    (ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, $4,000; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, $6,000.
    Members who use the MEO Interface may also connect to the System
through the FIX Interface as well, and vice versa. The Exchange notes
that the Trading Permit fees for Members who connect through the MEO
Interface are higher than the Trading Permit fees for Members who
connect through the FIX Interface, since the FIX Interface utilizes
less capacity and resources of the Exchange. The MEO Interface offers
lower latency and higher throughput, which utilizes greater capacity
and resources of the Exchange. The FIX Interface offers lower bandwidth
requirements and an industry-wide uniform message format. Both EEMs and
Market Makers may connect to the Exchange using either interface.
    Trading Permits grant access to the Exchange, thus providing the
ability to submit orders and trade on the Exchange, in the manner
defined in the relevant Trading Permit. Without a Trading Permit, a
Member cannot directly trade on the Exchange. Therefore, a Trading
Permit is a means to directly access the Exchange (which offers
meaningful value), and the Exchange now proposes to increase its
monthly fees since it has not done so since the fees were first adopted
in 2018 \22\ and are designed to recover a portion of the costs
associated with directly accessing the Exchange. The Exchange notes
that the its affiliates, Miami International Securities Exchange, LLC
(``MIAX'') and MIAX Emerald, LLC (``MIAX Emerald''), charge a similar,
fixed trading permit fee to certain users, and a similar, varying
trading permit fee to other users, based upon the number of assignments
of option classes or the percentage of volume in option classes.\23\
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    \22\ See supra note 11.
    \23\ See the MIAX Fee Schedule, Section (3)(b); MIAX Emerald Fee
Schedule, Section (3)(b).
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    As illustrated by the table below, the Exchange notes that the
proposed increased fees for the Exchange's Trading Permits are in line
with, or cheaper than, the similar trading permits and access fees for
similar membership fees charged by other options exchanges. The below
table also illustrates how the Exchange has historically undercharged
for access via Trading Permits as compared to other options exchanges.
The Exchange believes other exchange's access and trading permit fees
are useful examples of alternative approaches to providing and charging
for access and provides the below table for comparison purposes only to
show how the Exchange's proposed fees compare to fees currently charged
by other options exchanges for similar access.

------------------------------------------------------------------------
                               Type of membership
          Exchange              or trading permit        Monthly fee
                                      fees
------------------------------------------------------------------------
MIAX Pearl (as proposed)....  Trading Permit        Tier 1: $500.
                               access via FIX
                               Interface.
                                                    Tier 2: $1,000.
                                                    Tier 3: $1,500.
                              Trading Permit        Tier 1: $2,500.
                               access via MEO
                               Interface.
                                                    Tier 2: $4,000.
                                                    Tier 3: $6,000.
NYSE Arca, Inc. (``NYSE       Options Trading       $6,000 for up to 175
 Arca'') \24\.                 Permits (``OTP'').    option issues.
                                                    Additional $5,000
                                                     for up to 350
                                                     option issues.
                                                    Additional $4,000
                                                     for up to 1,000
                                                     option issues.
                                                    Additional $3,000
                                                     for all option
                                                     issues.
                                                    Additional $1,000
                                                     for the 5th OTP and
                                                     each OTP
                                                     thereafter.
NYSE American, LLC (``NYSE    ATP Trading Permits.  $8,000 for up to 60
 American'') \25\.                                   plus the bottom 45%
                                                     of option issues.
                                                    Additional $6,000
                                                     for up to 150 plus
                                                     the bottom 45% of
                                                     option issues.
                                                    Additional $5,000
                                                     for up to 500 plus
                                                     the bottom 45% of
                                                     option issues.
                                                    Additional $4,000
                                                     for up to 1,100
                                                     plus the bottom 45%
                                                     of option issues.
                                                    Additional $3,000
                                                     for all option
                                                     issues.
                                                    Additional $2,000
                                                     for 6th to 9th ATPs
                                                     (plus additional
                                                     fee for premium
                                                     products).
Nasdaq PHLX LLC (``Nasdaq     Streaming Quote       Tier 1 (up to 200
 PHLX'') \26\.                 Trader permit fees.   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   Tier 1 (less than
                               Organization permit   100 option
                               fees.                 classes): $5,500.
                                                    Tier 2 (more than
                                                     100 and less than
                                                     999 option
                                                     classes): $8,000.
                                                    Tier 3 (1,000 or
                                                     more option
                                                     classes): $11,000.
Nasdaq ISE LLC (``Nasdaq      Access Fees.........  Primary Market
 ISE'') \27\.                                        Maker: $5,000 per
                                                     membership.
                                                    Competitive Market
                                                     Maker: $2,500 per
                                                     membership.
Cboe C2 Exchange, Inc.        Access Permit Fees..  Market Makers:
 (``Cboe C2'') \28\.                                 $5,000.
                                                    Electronic Access
                                                     Permits: $1,000.
------------------------------------------------------------------------

Implementation
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    \24\ NYSE Arca Options Fees and Charges, OTP Trading Participant
Rights, p. 1.
    \25\ NYSE American Options Fee Schedule, Section III, Monthly
Trading Permit, Rights, Floor Access and Premium Product Fees, p.
23-24.
    \26\ Nasdaq PHLX Options 7 Pricing Schedule, Section 8.
Membership Fees.
    \27\ Nasdaq ISE Options 7 Pricing Schedule, Section 8.A. Access
Services.
    \28\ Cboe C2 Fee Schedule, Access Fees.
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    The proposed fees are immediately effective.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \29\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \30\ 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, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest and is not designed to permit unfair discrimination between
customers, issuers, brokers and dealers.
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    \29\ 15 U.S.C. 78f(b).
    \30\ 15 U.S.C. 78f(b)(4) and (5).
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Removal of Monthly Volume Credit and Trading Permit Fee Credit
    The Exchange believes its proposal to remove the Monthly Volume
Credit is reasonable, equitable and not unfairly discriminatory because
all market participants will no longer be offered the ability to
achieve the extra credits associated with the Monthly Volume Credit for
submitting Priority Customer volume to the Exchange and access to the
Exchange is offered on terms that are not unfairly discriminatory. The
Exchange believes it is equitable and not unfairly discriminatory to
remove the Monthly Volume Credit from the Fee Schedule for business and
competitive reasons because, in order to attract order flow when the
Exchange first launched operations, the Exchange established the
Monthly Volume Credit to lower the initial fixed cost for Members. The
Exchange now believes that it is appropriate to remove this credit in
light of the current operating conditions and the current type and
amount of Priority Customer volume executed on the Exchange. The
Exchange believes that the Exchange's Priority Customer rebates and
fees will still allow the Exchange to remain highly competitive such
that the Exchange should continue to attract order flow and maintain
market share.
    The Exchange believes its proposal to remove the Trading Permit fee
credit for Members that connect via both the MEO Interface and FIX
Interface is reasonable, equitable and not unfairly discriminatory
because all market participants will no longer be offered the ability
to receive the credit and access to the Exchange is offered on terms
that are not unfairly discriminatory. The Exchange believes it is
equitable and not unfairly discriminatory to remove the Trading Permit
fee credit for business and competitive reasons because, in order to
attract order flow and membership after the Exchange first launched
operations, the Exchange established the Trading Permit fee credit to
lower the costs for Members that connect via both the MEO Interface and
FIX Interface. The Exchange now believes that it is appropriate to
remove this credit in light of the current operating conditions and
membership on the Exchange.
Trading Permit Fee Increase
    On March 29, 2019, the Commission issued its Order Disapproving
Proposed Rule Changes to Amend the Fee Schedule on the BOX Market LLC
Options Facility to Establish BOX Connectivity Fees for Participants
and Non-Participants Who Connect to the BOX Network (the ``BOX
Order'').\31\ On May 21, 2019, the Commission issued the Staff Guidance
on SRO Rule Filings Relating to Fees.\32\ Accordingly, the Exchange
believes that the Proposed Access Fees are consistent with the Act
because they (i) are reasonable, equitably allocated, not unfairly
discriminatory, and not an undue burden on competition; (ii) comply
with the BOX Order and the Guidance; (iii) are supported by evidence
(including comprehensive revenue and cost data and analysis) that they
are fair and reasonable because they will not result in excessive
pricing or supra-competitive profit; and (iv) utilize a cost-based
justification framework that is substantially similar to a framework
previously used by the Exchange and its affiliates, MIAX and MIAX
Emerald, to establish or increase other non-transaction fees.
Accordingly, the Exchange believes that the Commission should find that
the Proposed Access Fees are consistent with the Act.
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    \31\ See Securities Exchange Act Release No. 85459 (March 29,
2019), 84 FR 13363 (April 4, 2019) (SR-BOX-2018-24, SR-BOX-2018-37,
and SR-BOX-2019-04).
    \32\ See Staff Guidance on SRO Rule Filings Relating to Fees
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
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The Proposed Access Fees Will Not Result in a Supra-Competitive Profit
    The Exchange believes that exchanges, in setting fees of all types,
should meet very high standards of transparency to demonstrate why each
new fee or fee increase meets the requirements of the Act that fees are
reasonable, equitably allocated, not unfairly discriminatory, and not
create an undue burden on competition among market participants. The
Exchange believes this high standard is especially important when an
exchange imposes various access fees for market participants to access
an exchange's marketplace. The Exchange deems the Trading Permit fees
to be access fees. It records these fees as part of its ``Access Fees''
revenue in its financial statements.
    In its Guidance, the Commission Staff stated that, ``[a]s an
initial step in assessing the reasonableness of a fee, staff considers
whether the fee is constrained by significant competitive forces.''
\33\ The Commission Staff Guidance further states that, ``. . . even
where an SRO cannot demonstrate, or does not assert, that significant
competitive forces constrain the fee at issue, a cost-based discussion
may be an alternative basis upon which to show consistency with the
Exchange Act.'' \34\ In its Guidance, the Commission staff further
states that, ``[i]f an SRO seeks to support its claims that a proposed
fee is fair and reasonable because it will permit recovery of the SRO's
costs, or will not result in excessive pricing or supracompetitive
profit, specific information, including quantitative information,
should be provided to support that argument.'' \35\ The Exchange does
not assert that the Proposed Access Fees are constrained by competitive
forces. Rather, the Exchange asserts that the Proposed Access Fees are
reasonable because they will permit recovery of the Exchange's costs in
providing access via Trading Permits and will not result in the
Exchange generating a supra-competitive profit.
---------------------------------------------------------------------------

    \33\ See id.
    \34\ Id.
    \35\ Id.
---------------------------------------------------------------------------

    The Guidance defines ``supra-competitive profit'' as ``profits that
exceed the profits that can be obtained in a competitive market.'' \36\
The Commission Staff further states in the Guidance that ``the SRO
should provide

an analysis of the SRO's baseline revenues, costs, and profitability
(before the proposed fee change) and the SRO's expected revenues,
costs, and profitability (following the proposed fee change) for the
product or service in question.'' \37\ The Exchange provides this
analysis below.
---------------------------------------------------------------------------

    \36\ Id.
    \37\ Id.
---------------------------------------------------------------------------

    Based on this analysis, the Exchange believes the Proposed Access
Fees are reasonable and do not result in a ``supra-competitive'' \38\
profit. The Exchange believes that it is important to demonstrate that
these fees are based on its costs and reasonable business needs. The
Exchange believes the Proposed Access Fees will allow the Exchange to
offset expense the Exchange has and will incur, and that the Exchange
is providing sufficient transparency (as described below) into how the
Exchange determined to charge such fees. Accordingly, the Exchange is
providing an analysis of its revenues, costs, and profitability
associated with the Proposed Access Fees. This analysis includes
information regarding its methodology for determining the costs and
revenues associated with the Proposed Access Fees. As a result of this
analysis, the Exchange believes the Proposed Access Fees are fair and
reasonable as a form of cost recovery plus present the possibility of a
reasonable return for the Exchange's aggregate costs of offering
Trading Permit access to the Exchange.
---------------------------------------------------------------------------

    \38\ Id.
---------------------------------------------------------------------------

    The Proposed Access Fees are based on a cost-plus model. In
determining the appropriate fees to charge, the Exchange considered its
costs to provide the services associated with Trading Permits, using
what it believes to be a conservative methodology (i.e., that strictly
considers only those costs that are most clearly directly related to
the provision and maintenance of Trading Permits) to estimate such
costs,\39\ as well as the relative costs of providing and maintaining
Trading Permits, and set fees that are designed to cover its costs with
a limited return in excess of such costs. However, as discussed more
fully below, such fees may also result in the Exchange recouping less
than all of its costs of providing and maintaining the services
associated with Trading Permits because of the uncertainty of
forecasting subscriber decision making with respect to firms' needs and
the likely potential for increased costs to procure the third-party
services described below.
---------------------------------------------------------------------------

    \39\ For example, the Exchange only included the costs
associated with providing and supporting the access services
associated with the Proposed Access Fees and excluded from its cost
calculations any cost not directly associated with providing and
maintaining such services. Thus, the Exchange notes that this
methodology underestimates the total costs of providing and
maintaining the access services associated with the Proposed Access
Fees.
---------------------------------------------------------------------------

    To determine the Exchange's costs to provide the access services
associated with the Proposed Access Fees, the Exchange conducted an
extensive cost review in which the Exchange analyzed nearly every
expense item in the Exchange's general expense ledger to determine
whether each such expense relates to the Proposed Access Fees, and, if
such expense did so relate, what portion (or percentage) of such
expense actually supports the access services. The sum of all such
portions of expenses represents the total cost of the Exchange to
provide the access services associated with the Proposed Access Fees.
    The Exchange also provides detailed information regarding the
Exchange's cost allocation methodology--namely, information that
explains the Exchange's rationale for determining that it was
reasonable to allocate certain expenses described in this filing
towards the cost to the Exchange to provide the access services
associated with the Proposed Access Fees. The Exchange conducted a
thorough internal analysis to determine the portion (or percentage) of
each expense to allocate to the support of access services associated
with the Proposed Access Fees. This analysis included discussions with
each Exchange department head to determine the expenses that support
access services associated with the Proposed Access Fees. Once the
expenses were identified, the Exchange department heads, with the
assistance of the Exchange's internal finance department, reviewed such
expenses holistically on an Exchange-wide level to determine what
portion of that expense supports providing access services for the
Proposed Access Fees. The sum of all such portions of expenses
represents the total cost to the Exchange to provide access services
associated with the Proposed Access Fees. For the avoidance of doubt,
no expense amount was allocated twice.
    To determine the Exchange's projected revenues associated with the
Proposed Access Fees, the Exchange analyzed the number of Members
currently utilizing Trading Permits, and, utilizing a recent monthly
billing cycle representative of 2021 monthly revenue, extrapolated
annualized revenue on a going-forward basis. The Exchange does not
believe it is appropriate to factor into its analysis future revenue
growth or decline into its projections for purposes of these
calculations, given the uncertainty of such projections due to the
continually changing access needs of market participants, discounts
that can be achieved due to lower trading volume and vice versa, market
participant consolidation, etc. Additionally, the Exchange similarly
does not factor into its analysis future cost growth or decline. The
Exchange is presenting its revenue and expense associated with the
Proposed Access Fees in this filing in a manner that is consistent with
how the Exchange presents its revenue and expense in its Audited
Unconsolidated Financial Statements. The Exchange's most recent Audited
Unconsolidated Financial Statement is for 2020. However, since the
revenue and expense associated with the Proposed Access Fees were not
in place in 2020 or for the majority of 2021 (other than July and
August 2021), the Exchange believes its 2020 Audited Unconsolidated
Financial Statement is not representative of its current total
annualized revenue and costs associated with the Proposed Access Fees.
Accordingly, the Exchange believes it is more appropriate to analyze
the Proposed Access Fees utilizing its 2021 revenue and costs, as
described herein, which utilize the same presentation methodology as
set forth in the Exchange's previously-issued Audited Unconsolidated
Financial Statements. Based on this analysis, the Exchange believes
that the Proposed Access Fees are fair and reasonable because they will
not result in excessive pricing or supra-competitive profit when
comparing the Exchange's total annual expense associated with providing
the services associated with the Proposed Access Fees versus the total
projected annual revenue the Exchange will collect for providing those
services. The Exchange notes that this is the same justification
process utilized by the Exchange's affiliate, MIAX Emerald, in a filing
recently noticed and not suspended by the Commission when MIAX Emerald
adopted trading permit fees.\40\ As outlined in more detail below, the
Exchange projects that the annualized expense for 2021 to provide the
services associated with Trading Permits to be approximately $844,741
per annum or an average of $70,395 per month. The Exchange implemented
the Proposed Access Fees on July 1, 2021 in the First Proposed Rule
Change. For June 2021,

prior to the Proposed Access Fees, Members and non-Members purchased a
total of 48 Trading Permits, for which the Exchange charged a total of
$15,500. This resulted in a loss of $54,895 for that month (a margin of
-354%). For the month of November 2021, which includes the Proposed
Access Fees, Members and non-Members purchased a total of 47 Trading
Permits,\41\ for which the Exchange charged a total of approximately
$93,500 for that month. This resulted in a profit of $23,105 for that
month, representing a profit margin of approximately 24%. The Exchange
believes that the Proposed Access Fees are reasonable because they are
designed to approximately generate a modest profit margin of 24% per-
month.\42\ The Exchange cautions that this profit margin may fluctuate
from month to month based on the uncertainty of predicting how many
Trading Permits may be purchased from month to month as Members and
non-Members are able to add and drop permits at any time based on their
own business decisions, which they frequently do. This profit margin
may also decrease due to the significant inflationary pressure on
capital items that the Exchange needs to purchase to maintain the
Exchange's technology and systems.\43\
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    \40\ See Securities Exchange Act Release No. 91033 (February 1,
2021), 86 FR 8455 (February 5, 2021) (SR-EMERALD-2021-03) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule To Adopt Monthly Trading Permit Fees)
(adopting tiered trading permit fee structure for Market Makers
ranging from $7,000 to $22,000 per month and flat fee of $1,500 per
month for EEMs).
    \41\ The Exchange notes that one Member dropped one Trading
Permit between June 2021 and November 2021, as a result of the
Proposed Access Fees.
    \42\ The Exchange notes that this profit margin differs from the
First and Second Proposed Rule Changes because the Exchange now has
the benefit of using a more recent billing cycle under the Proposed
Access Fees (November 2021) and comparing it to a baseline month
(June 2021) from before the Proposed Access Fees were in effect.
    \43\ See ``Supply chain chaos is already hitting global growth.
And it's about to get worse'', by Holly Ellyatt, CNBC, available at
https://www.cnbc.com/2021/10/18/supply-chain-chaos-is-hitting-global-growth-and-could-get-worse.html (October 18, 2021); and
``There will be things that people can't get, at Christmas, White
House warns'' by Jarrett Renshaw and Trevor Hunnicutt, Reuters,
available at https://www.reuters.com/world/us/americans-may-not-get-some-christmas-treats-white-house-officials-warn-2021-10-12/
(October 12, 2021).
---------------------------------------------------------------------------

    The Exchange has been subject to price increases upwards of 30% on
network equipment due to supply chain shortages. This, in turn, results
in higher overall costs for ongoing system maintenance, but also to
purchase the items necessary to ensure ongoing system resiliency,
performance, and determinism. These costs are expected to continue to
go up as the U.S. economy continues to struggle with supply chain and
inflation related issues.
    As mentioned above, the Exchange projects that the annualized
expense for 2021 to provide the services associated with the Proposed
Access Fees to be approximately $844,741 per annum or an average of
$70,395 per month and that these costs are expected to increase not
only due to anticipated significant inflationary pressure, but also
periodic fee increases by third parties.\44\ The Exchange notes that
there are material costs associated with providing the infrastructure
and headcount to fully-support access to the Exchange. The Exchange
incurs technology expense related to establishing and maintaining
Information Security services, enhanced network monitoring and customer
reporting, as well as Regulation SCI mandated processes, associated
with its network technology. While some of the expense is fixed, much
of the expense is not fixed, and thus increases the cost to the
Exchange to provide access services associated with the Proposed Access
Fees. For example, new Members 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 and
its affiliates provide. Further, as the total number of Members
increases, the Exchange and its affiliates may need to increase their
data center footprint and consume more power, resulting in increased
costs charged by their third-party data center provider. Accordingly,
the cost to the Exchange and its affiliates to provide access to its
Members is not fixed. The Exchange believes the Proposed Access Fees
are a reasonable attempt to offset a portion of the costs to the
Exchange associated with providing access to its network
infrastructure.
---------------------------------------------------------------------------

    \44\ For example, on October 20, 2021, ICE Data Services
announced a 3.5% price increase effective January 1, 2022 for most
services. The price increase by ICE Data Services includes their
SFTI network, which is relied on by a majority of market
participants, including the Exchange. See email from ICE Data
Services to the Exchange, dated October 20, 2021. The Exchange
further notes that on October 22, 2019, the Exchange was notified by
ICE Data Services that it was raising its fees charged to the
Exchange by approximately 11% for the SFTI network.
---------------------------------------------------------------------------

    The Exchange only has four primary sources of revenue and cost
recovery mechanisms: Transaction fees, access fees (which includes the
Proposed Access Fees), regulatory fees, and market data fees.
Accordingly, the Exchange must cover all of its expenses from these
four primary sources of revenue and cost recovery mechanisms. Until
recently, the Exchange has operated at a cumulative net annual loss
since it launched operations in 2017.\45\ This is a result of providing
a low cost alternative to attract order flow and encourage market
participants to experience the high determinism and resiliency of the
Exchange's trading systems. To do so, the Exchange chose to waive the
fees for some non-transaction related services or provide them at a
very marginal cost, which was not profitable to the Exchange. This
resulted in the Exchange forgoing revenue it could have generated from
assessing higher fees.
---------------------------------------------------------------------------

    \45\ The Exchange has incurred a cumulative loss of $86 million
since its inception in 2017 to 2020, the last year for which the
Exchange's Form 1 data is available. See Exchange's Form 1/A,
Application for Registration or Exemption from Registration as a
National Securities Exchange, filed July 28, 2021, available at
https://www.sec.gov/Archives/edgar/vprr/2100/21000461.pdf.
---------------------------------------------------------------------------

    The Exchange believes that the Proposed Access Fees are fair and
reasonable because they will not result in excessive pricing or supra-
competitive profit, when comparing the total annual expense that the
Exchange projects to incur in connection with providing these access
services versus the total annual revenue that the Exchange projects to
collect in connection with services associated with the Proposed Access
Fees. For 2021,\46\ the total annual expense for providing the access
services associated with the Proposed Access Fees for the Exchange is
projected to be approximately $844,741 or an average of $70,395 per
month. The $844,741 in projected total annual expense is comprised of
the following, all of which are directly related to the access services
associated with the Proposed Access Fees: (1) Third-party expense,
relating to fees paid by the Exchange to third-parties for certain
products and services; and (2) internal expense, relating to the
internal costs of the Exchange to provide the services associated with
the Proposed Access Fees.\47\ As noted above, the Exchange believes it
is more appropriate to analyze the Proposed Access Fees utilizing its
2021 revenue and costs, which utilize the same presentation methodology
as set forth in the Exchange's previously-issued Audited Unconsolidated
Financial Statements.\48\ The $844,741 in projected

total annual expense is directly related to the access services
associated with the Proposed Access Fees, and not any other product or
service offered by the Exchange. It does not include general costs of
operating matching systems and other trading technology, and no expense
amount was allocated twice.
---------------------------------------------------------------------------

    \46\ The Exchange has not yet finalized its 2021 year end
results.
    \47\ The percentage allocations used in this proposed rule
change may differ from past filings from the Exchange or its
affiliates due to, among other things, changes in expenses charged
by third-parties, adjustments to internal resource allocations, and
different system architecture of the Exchange as compared to its
affiliates.
    \48\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the
information technology and communication costs line item under the
section titled ``Operating Expenses Incurred Directly or Allocated
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing
its financial statements for 2018. See Securities Exchange Act
Release No. 87876 (December 31, 2019), 85 FR 757 (January 7, 2020)
(SR-PEARL-2019-36). Accordingly, the third-party expense described
in this filing is attributed to the same line item for the
Exchange's 2021 Form 1 Amendment, which will be filed in 2022.
---------------------------------------------------------------------------

    As discussed, the Exchange conducted an extensive cost review in
which the Exchange analyzed nearly every expense item in the Exchange's
general expense ledger (this includes over 150 separate and distinct
expense items) to determine whether each such expense relates to the
access services associated with the Proposed Access Fees, and, if such
expense did so relate, what portion (or percentage) of such expense
actually supports those services, and thus bears a relationship that
is, ``in nature and closeness,'' directly related to those services.
The sum of all such portions of expenses represents the total cost of
the Exchange to provide access services associated with the Proposed
Access Fees.
External Expense Allocations
    For 2021, total third-party expense, relating to fees paid by the
Exchange to third-parties for certain products and services for the
Exchange to be able to provide the access services associated with the
Proposed Access Fees, is projected to be $188,815. This includes, but
is not limited to, a portion of the fees paid to: (1) Equinix, for data
center services, for the primary, secondary, and disaster recovery
locations of the Exchange's trading system infrastructure; (2) Zayo
Group Holdings, Inc. (``Zayo'') for network services (fiber and
bandwidth products and services) linking the Exchange's office
locations in Princeton, New Jersey and Miami, Florida, to all data
center locations; (3) Secure Financial Transaction Infrastructure
(``SFTI''),\49\ which supports connectivity and feeds for the entire
U.S. options industry; (4) various other services providers (including
Thompson Reuters, NYSE, Nasdaq, and Internap), which provide content,
connectivity services, and infrastructure services for critical
components of options connectivity and network services; and (5)
various other hardware and software providers (including Dell and
Cisco, which support the production environment in which Members
connect to the network to trade, receive market data, etc.).
---------------------------------------------------------------------------

    \49\ In fact, on October 20, 2021, ICE Data Services announced a
3.5% price increase effective January 1, 2022 for most services. The
price increase by ICE Data Services includes their SFTI network,
which is relied on by a majority of market participants, including
the Exchange. See email from ICE Data Services to the Exchange,
dated October 20, 2021. This fee increase by ICE data services,
while not subject to Commission review, has a material impact on
costs to exchanges and other market participants that provide
downstream access to other market participants. The Exchange notes
that on October 22, 2019, the Exchange was notified by ICE Data
Services that it was raising its fees charged to the Exchange by
approximately 11% for the SFTI network, without having to show that
such fee change complies with the Act by being reasonable, equitably
allocated, and not unfairly discriminatory. It is unfathomable to
the Exchange that, given the critical nature of the infrastructure
services provided by SFTI, that its fees are not required to be
rule-filed with the Commission pursuant to Section 19(b)(1) of the
Act and Rule 19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR
240.19b-4, respectively.
---------------------------------------------------------------------------

    For clarity, the Exchange took a conservative approach in
determining the expense and the percentage of that expense to be
allocated to the providing access services in connection with the
Proposed Access Fees. Only a portion of all fees paid to such third-
parties is included in the third-party expense herein, and no expense
amount is allocated twice. Accordingly, the Exchange does not allocate
its entire information technology and communication costs to the access
services associated with the Proposed Access Fees. This may result in
the Exchange under allocating an expense to the provision of access
services in connection with the Proposed Access Fees and such expenses
may actually be higher or increase above what the Exchange utilizes
within this proposal. Further, the Exchange notes that, with respect to
the MIAX Pearl expenses included herein, those expenses only cover the
MIAX Pearl options market; expenses associated with the MIAX Pearl
equities market are accounted for separately and are not included
within the scope of this filing. As noted above, the percentage
allocations used in this proposed rule change may differ from past
filings from the Exchange or its affiliates due to, among other things,
changes in expenses charged by third-parties, adjustments to internal
resource allocations, and different system architecture of the Exchange
as compared to its affiliates. Further, as part its ongoing assessment
of costs and expenses, the Exchange recently conducted a periodic
thorough review of its expenses and resource allocations which, in
turn, resulted in a revised percentage allocations in this filing.
Therefore, the percentage allocations used in this proposed rule change
may differ from past filings from the Exchange or its affiliates due
to, among other things, changes in expenses charged by third-parties,
adjustments to internal resource allocations, and different system
architecture of the Exchange as compared to its affiliates.
    The Exchange believes it is reasonable to allocate such third-party
expense described above towards the total cost to the Exchange to
provide the access services associated with the Proposed Access Fees.
In particular, the Exchange believes it is reasonable to allocate the
identified portion of the Equinix expense because Equinix operates the
data centers (primary, secondary, and disaster recovery) that host the
Exchange's network infrastructure. This includes, among other things,
the necessary storage space, which continues to expand and increase in
cost, power to operate the network infrastructure, and cooling
apparatuses to ensure the Exchange's network infrastructure maintains
stability. Without these services from Equinix, the Exchange would not
be able to operate and support the network and provide the access
services associated with the Proposed Access Fees to its Members and
their customers. The Exchange did not allocate all of the Equinix
expense toward the cost of providing the access services associated
with the Proposed Access Fees, only that portion which the Exchange
identified as being specifically mapped to providing the access
services associated with the Proposed Access Fees, approximately 8% of
the total applicable Equinix expense. The Exchange believes this
allocation is reasonable because it represents the Exchange's actual
cost to provide the access services associated with the Proposed Access
Fees, and not any other service, as supported by its cost review.\50\
---------------------------------------------------------------------------

    \50\ As noted above, the percentage allocations used in this
proposed rule change may differ from past filings from the Exchange
or its affiliates due to, among other things, changes in expenses
charged by third-parties, adjustments to internal resource
allocations, and different system architecture of the Exchange as
compared to its affiliates. Again, as part its ongoing assessment of
costs and expenses, the Exchange recently conducted a periodic
thorough review of its expenses and resource allocations which, in
turn, resulted in a revised percentage allocations in this filing.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified
portion of the Zayo expense because Zayo provides the internet, fiber
and bandwidth connections with respect to the network, linking the
Exchange with its affiliates, MIAX and MIAX Emerald, as well as the
data center and disaster

recovery locations. As such, all of the trade data, including the
billions of messages each day per exchange, flow through Zayo's
infrastructure over the Exchange's network. Without these services from
Zayo, the Exchange would not be able to operate and support the network
and provide the access services associated with the Proposed Access
Fees. The Exchange did not allocate all of the Zayo expense toward the
cost of providing the access services associated with the Proposed
Access Fees, only the portion which the Exchange identified as being
specifically mapped to providing the Proposed Access Fees,
approximately 4% of the total applicable Zayo expense. The Exchange
believes this allocation is reasonable because it represents the
Exchange's actual cost to provide the access services associated with
the Proposed Access Fees, and not any other service, as supported by
its cost review.\51\
---------------------------------------------------------------------------

    \51\ Id.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified
portions of the SFTI expense and various other service providers'
(including Thompson Reuters, NYSE, Nasdaq, and Internap) expense
because those entities provide connectivity and feeds for the entire
U.S. options industry, as well as the content, connectivity services,
and infrastructure services for critical components of the network.
Without these services from SFTI and various other service providers,
the Exchange would not be able to operate and support the network and
provide access to its Members and their customers. The Exchange did not
allocate all of the SFTI and other service providers' expense toward
the cost of providing the access services associated with the Proposed
Access Fees, only the portions which the Exchange identified as being
specifically mapped to providing the access services associated with
the Proposed Access Fees, approximately 3% of the total applicable SFTI
and other service providers' expense. The Exchange believes this
allocation is reasonable because it represents the Exchange's actual
cost to provide the access services associated with the Proposed Access
Fees.\52\
---------------------------------------------------------------------------

    \52\ Id.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified
portion of the other hardware and software provider expense because
this includes costs for dedicated hardware licenses for switches and
servers, as well as dedicated software licenses for security monitoring
and reporting across the network. Without this hardware and software,
the Exchange would not be able to operate and support the network and
provide access to its Members and their customers. The Exchange did not
allocate all of the hardware and software provider expense toward the
cost of providing the access services associated with the Proposed
Access Fees, only the portions which the Exchange identified as being
specifically mapped to providing the access services associated with
the Proposed Access Fees, approximately 5% of the total applicable
hardware and software provider expense. The Exchange believes this
allocation is reasonable because it represents the Exchange's actual
cost to provide the access services associated with the Proposed Access
Fees.\53\
---------------------------------------------------------------------------

    \53\ Id.
---------------------------------------------------------------------------

Internal Expense Allocations
    For 2021, total projected internal expense, relating to the
internal costs of the Exchange to provide the access services
associated with the Proposed Access Fees, is projected to be $655,925.
This includes, but is not limited to, costs associated with: (1)
Employee compensation and benefits for full-time employees that support
the access services associated with the Proposed Access Fees, including
staff in network operations, trading operations, development, system
operations, business, as well as staff in general corporate departments
(such as legal, regulatory, and finance) that support those employees
and functions; (2) depreciation and amortization of hardware and
software used to provide the access services associated with the
Proposed Access Fees, including equipment, servers, cabling, purchased
software and internally developed software used in the production
environment to support the network for trading; and (3) occupancy costs
for leased office space for staff that provide the access services
associated with the Proposed Access Fees. The breakdown of these costs
is more fully-described below. For clarity, only a portion of all such
internal expenses are included in the internal expense herein, and no
expense amount is allocated twice. Accordingly, the Exchange does not
allocate its entire costs contained in those items to the access
services associated with the Proposed Access Fees.
    For clarity, and as stated above, the Exchange took a conservative
approach in determining the expense and the percentage of that expense
to be allocated to providing the access services in connection with the
Proposed Access Fees. Only a portion of all such internal expenses are
included in the internal expense herein, and no expense amount is
allocated twice. Accordingly, the Exchange does not allocate its entire
costs contained in those items to the access services associated with
the Proposed Access Fees. This may result in the Exchange under
allocating an expense to the provision of access services in connection
with the Proposed Access Fees and such expenses may actually be higher
or increase above what the Exchange utilizes within this proposal.
Further, as part its ongoing assessment of costs and expenses
(described above), the Exchange recently conducted a periodic thorough
review of its expenses and resource allocations which, in turn,
resulted in a revised percentage allocations in this filing.
    The Exchange believes it is reasonable to allocate such internal
expense described above towards the total cost to the Exchange to
provide the access services associated with the Proposed Access Fees.
In particular, the Exchange's employee compensation and benefits
expense relating to providing the access services associated with the
Proposed Access Fees is projected to be $549,834, which is only a
portion of the $9,163,894 total projected expense for employee
compensation and benefits. The Exchange believes it is reasonable to
allocate the identified portion of such expense because this includes
the time spent by employees of several departments, including
Technology, Back Office, Systems Operations, Networking, Business
Strategy Development (who create the business requirement documents
that the Technology staff use to develop network features and
enhancements), Trade Operations, Finance (who provide billing and
accounting services relating to the network), and Legal (who provide
legal services relating to the network, such as rule filings and
various license agreements and other contracts). As part of the
extensive cost review conducted by the Exchange, the Exchange reviewed
the amount of time spent by each employee on matters relating to the
provision of access services associated with the Proposed Access Fees.
Without these employees, the Exchange would not be able to provide the
access services associated with the Proposed Access Fees to its Members
and their customers. The Exchange did not allocate all of the employee
compensation and benefits expense toward the cost of the access
services associated with the Proposed Access Fees, only the portions
which the Exchange identified as being

specifically mapped to providing the access services associated with
the Proposed Access Fees, approximately 6% of the total applicable
employee compensation and benefits expense. The Exchange believes this
allocation is reasonable because it represents the Exchange's actual
cost to provide the access services associated with the Proposed Access
Fees, and not any other service, as supported by its cost review.\54\
---------------------------------------------------------------------------

    \54\ Id.
---------------------------------------------------------------------------

    The Exchange's depreciation and amortization expense relating to
providing the access services associated with the Proposed Access Fees
is projected to be $66,316, which is only a portion of the $1,326,325
total projected expense for depreciation and amortization. The Exchange
believes it is reasonable to allocate the identified portion of such
expense because such expense includes the actual cost of the computer
equipment, such as dedicated servers, computers, laptops, monitors,
information security appliances and storage, and network switching
infrastructure equipment, including switches and taps that were
purchased to operate and support the network and provide the access
services associated with the Proposed Access Fees. Without this
equipment, the Exchange would not be able to operate the network and
provide the access services associated with the Proposed Access Fees to
its Members and their customers. The Exchange did not allocate all of
the depreciation and amortization expense toward the cost of providing
the access services associated with the Proposed Access Fees, only the
portion which the Exchange identified as being specifically mapped to
providing the access services associated with the Proposed Access Fees,
approximately 5% of the total applicable depreciation and amortization
expense, as these access services would not be possible without relying
on such. The Exchange believes this allocation is reasonable because it
represents the Exchange's actual cost to provide the access services
associated with the Proposed Access Fees, and not any other service, as
supported by its cost review.\55\
---------------------------------------------------------------------------

    \55\ Id.
---------------------------------------------------------------------------

    The Exchange's occupancy expense relating to providing the access
services associated with the Proposed Access Fees is projected to be
$39,775, which is only a portion of the $497,180 total projected
expense for occupancy. The Exchange believes it is reasonable to
allocate the identified portion of such expense because such expense
represents the portion of the Exchange's cost to rent and maintain a
physical location for the Exchange's staff who operate and support the
network, including providing the access services associated with the
Proposed Access Fees. This amount consists primarily of rent for the
Exchange's Princeton, New Jersey office, as well as various related
costs, such as physical security, property management fees, property
taxes, and utilities. The Exchange operates its Network Operations
Center (``NOC'') and Security Operations Center (``SOC'') from its
Princeton, New Jersey office location. A centralized office space is
required to house the staff that operates and supports the network. The
Exchange currently has approximately 200 employees. Approximately two-
thirds of the Exchange's staff are in the Technology department, and
the majority of those staff have some role in the operation and
performance of the access services associated with the proposed Trading
Permit fees. Without this office space, the Exchange would not be able
to operate and support the network and provide the access services
associated with the Proposed Access Fees to its Members and their
customers. Accordingly, the Exchange believes it is reasonable to
allocate the identified portion of its occupancy expense because such
amount represents the Exchange's actual cost to house the equipment and
personnel who operate and support the Exchange's network infrastructure
and the access services associated with the Proposed Access Fees. The
Exchange did not allocate all of the occupancy expense toward the cost
of providing the access services associated with the Proposed Access
Fees, only the portion which the Exchange identified as being
specifically mapped to operating and supporting the network,
approximately 8% of the total applicable occupancy expense. The
Exchange believes this allocation is reasonable because it represents
the Exchange's cost to provide the access services associated with the
Proposed Access Fees, and not any other service, as supported by its
cost review.\56\
---------------------------------------------------------------------------

    \56\ Id.
---------------------------------------------------------------------------

    The Exchange notes that a material portion of its total overall
expense is allocated to the provision of access services (including
connectivity, ports, and trading permits). The Exchange believes this
is reasonable and in line, as the Exchange operates a technology-based
business that differentiates itself from its competitors based on its
trading systems that rely on access to a high performance network,
resulting in significant technology expense. Over two-thirds of
Exchange staff are technology-related employees. The majority of the
Exchange's expense is technology-based. As described above, the
Exchange has only four primary sources of fees to recover its costs,
thus the Exchange believes it is reasonable to allocate a material
portion of its total overall expense towards access fees.
    Based on the above, the Exchange believes that its provision of
access services associated with the Proposed Access Fees will not
result in excessive pricing or supra-competitive profit. As described
above, the Exchange projects that the annualized expense for 2021 to
provide the services associated with Trading Permit to be approximately
$844,741 per annum or an average of $70,395 per month. The Exchange
implemented the Proposed Access Fees on July 1, 2021 in the First
Proposed Rule Change. For June 2021, prior to the Proposed Access Fees,
Members and non-Members purchased a total of 48 Trading Permits, for
which the Exchange charged a total of $15,500. This resulted in a loss
of $54,895 for that month (a margin of -354%). For the month of
November 2021, which includes the Proposed Access Fees, Members and
non-Members purchased a total of 47 Trading Permits,\57\ for which the
Exchange charged a total of approximately $93,500 for that month. This
resulted in a profit of $23,105 for that month, representing a profit
margin of approximately 24%. The Exchange believes that the Proposed
Access Fees are reasonable because they are designed to approximately
generate a modest profit margin of 24% per-month. The Exchange believes
this modest profit margin will allow it to continue to recoup its
expenses and continue to invest in its technology infrastructure.
Therefore, the Exchange also believes that this proposed profit margin
increase is reasonable because it represents a reasonable rate of
return.
---------------------------------------------------------------------------

    \57\ The Exchange notes that one Member dropped one Trading
Permit between June 2021 and November 2021, as a result of the
Proposed Access Fees.
---------------------------------------------------------------------------

    Again, the Exchange cautions that this profit margin may fluctuate
from month to month based in the uncertainty of predicting how many
Trading Permits may be purchased from month to month as Members and
non-Members are free to add and drop permits at any time based on their
own business decisions. This profit margin may also decrease due to the
significant inflationary pressure on capital items that it needs to
purchase to maintain the Exchange's

technology and systems.\58\ Accordingly, the Exchange believes its
total projected revenue for providing the access services associated
with the Proposed Access Fees will not result in excessive pricing or
supra-competitive profit.
---------------------------------------------------------------------------

    \58\ See supra note 43.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable, equitable and not unfairly
discriminatory to allocate the respective percentages of each expense
category described above towards the total cost to the Exchange of
operating and supporting the network, including providing the access
services associated with the Proposed Access Fees because the Exchange
performed a line-by-line item analysis of nearly every expense of the
Exchange, and has determined the expenses that directly relate to
providing access to the Exchange. Further, the Exchange notes that,
without the specific third-party and internal items listed above, the
Exchange would not be able to provide the access services associated
with the Proposed Access Fees to its Members and their customers. Each
of these expense items, including physical hardware, software, employee
compensation and benefits, occupancy costs, and the depreciation and
amortization of equipment, have been identified through a line-by-line
item analysis to be integral to providing access services. The Proposed
Access Fees are intended to recover the Exchange's costs of providing
access to Exchange Systems. Accordingly, the Exchange believes that the
Proposed Access Fees are fair and reasonable because they do not result
in excessive pricing or supra-competitive profit, when comparing the
actual costs to the Exchange versus the projected annual revenue from
the Proposed Access Fees.
The Proposed Tiered-Pricing Structure Is Not Unfairly Discriminatory
and Provides for the Equitable Allocation of Fees, Dues, and Other
Charges
    The Exchange believes the proposed tiered-pricing structure is
reasonable, fair, equitable, and not unfairly discriminatory because it
is the model adopted by the Exchange when it launched operations for
its Trading Permit fees. Moreover, the tiered pricing structure for
Trading Permits is not a new proposal and has been in place since 2018,
well prior to the filing of the First Proposed Rule Change. The
proposed tiers of Trading Permit fees will continue to apply to all
Members and non-Members in the same manner based upon the monthly total
volume executed by a Member and its Affiliates on the Exchange across
all origin types, not including Excluded Contracts, as compared to the
TCV in all MIAX Pearl-listed options. Members and non-Members may
choose to purchase more than the one Trading Permit based on their own
business decisions and needs. All similarly situated Members and non-
Members would be subject to the same fees. The fees do not depend on
any distinction between Members and non-Members because they are solely
determined by the individual Members' or non-Members' business needs
and their impact on Exchange resources.
    The proposed tiered-pricing structure is not unfairly
discriminatory and provides for the equitable allocation of fees, dues,
and other charges because it is designed to encourage Members and non-
Members to be more efficient and economical when determining how to
access the Exchange and the amount of the fees are based on the number
of Trading Permits utilized using the FIX and MEO Interfaces, in
addition to the amount of volume conducted on the Exchange. The
proposed tiered pricing structure should also enable the Exchange to
better monitor and provide access to the Exchange's network to ensure
sufficient capacity and headroom in the System.
    The proposed tiered-pricing structure is not unfairly
discriminatory and provides for the equitable allocation of fees, dues,
and other charges because the amount of the fee is directly related to
the Member or non-Member's TCV resulting in higher fees for greater
TCV. The higher the volume, the greater pull on Exchange resources. The
Exchange's high performance network solutions and supporting
infrastructure (including employee support), provides unparalleled
system throughput and the capacity to handle approximately 10.7 million
order messages per second. On an average day, the Exchange handles over
approximately 2.7 billion total messages. However, in order to achieve
a consistent, premium network performance, the Exchange must build out
and maintain a network that has the capacity to handle the message rate
requirements of its most heavy network consumers. These billions of
messages per day consume the Exchange's resources and significantly
contribute to the overall expense for storage and network transport
capabilities.\59\
---------------------------------------------------------------------------

    \59\ Over the period from April 2021 until September 2021, the
Exchange processed 3.15 billion messages via the FIX interface
(0.43% of total messages received). Over that same time period, the
Exchange processed 731.4 billion messages (99.57% of total messages
received) over the MEO interface. This marked difference between the
number of FIX and MEO messages processed, when mapped to servers,
software, storage, and networking results in a much higher
allocation of total capital and operational expense to support the
MEO interface. For one, the Exchange incurs greater expense in
maintaining the resilience of the MEO interface to ensure its
ongoing operation in accordance with Regulation SCI. Another, the
Exchange must purchase and expand its storage capacity to retain
these increased messages in compliance with its record keeping
obligations. The Exchange has also seen significant inflationary
pressure on capital items that it needs to purchase to maintain its
technology. The Exchange has seen pricing increases upwards of 30%
on network equipment due to supply chain shortages.
---------------------------------------------------------------------------

    There are material costs associated with providing the
infrastructure and headcount to fully-support access to the Exchange.
The Exchange incurs technology expense related to establishing and
maintaining Information Security services, enhanced network monitoring
and customer reporting, as well as Regulation SCI mandated processes,
associated with its network technology. While some of the expense is
fixed, much of the expense is not fixed, and thus increases as the
services associated with the Proposed Access Fees increase. For
example, new Members 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 and
its affiliates provide. Further, as the total number of Members
increases, the Exchange and its affiliates may need to increase their
data center footprint and consume more power, resulting in increased
costs charged by their third-party data center provider. Accordingly,
the cost to the Exchange and its affiliates to provide access to its
Members is not fixed. The Exchange believes the Proposed Access Fees
are reasonable in order to offset a portion of the costs to the
Exchange associated with providing access to its network
infrastructure.
The Proposed Fees Are Reasonable When Compared to the Fees of Other
Options Exchanges With Similar Market Share
    The Exchange does not have visibility into other equities
exchanges' costs to provide access or their fee markup over those
costs, and therefore cannot use other exchanges' membership and access
fees as a benchmark to determine a reasonable markup over the costs of
providing the services associated with the Proposed Access Fees.
Nevertheless, the Exchange believes the other exchanges' membership and
participation fees are a useful example of alternative approaches to
providing and charging for similar types of access. To that end, the
Exchange believes the proposed tiered-pricing structure for its

Trading Permits is reasonable because the proposed highest tier is
still less than or similar to fees charged for similar access provided
by other options exchanges with comparable market shares. The below
table further illustrates this comparison.

------------------------------------------------------------------------
                               Type of membership
          Exchange              or trading permit        Monthly fee
                                      fees
------------------------------------------------------------------------
MIAX Pearl (as proposed)....  Trading Permit        Tier 1: $500.
                               access via FIX
                               Interface.
                                                    Tier 2: $1,000.
                                                    Tier 3: $1,500.
                              Trading Permit        Tier 1: $2,500.
                               access via MEO
                               Interface
                                                    Tier 2: $4,000.
                                                    Tier 3: $6,000.
NYSE Arca \60\..............  Options Trading       $6,000 for up to 175
                               Permits (``OTP'').    option issues.
                                                    Additional $5,000
                                                     for up to 350
                                                     option issues.
                                                    Additional $4,000
                                                     for up to 1,000
                                                     option issues.
                                                    Additional $3,000
                                                     for all option
                                                     issues.
                                                    Additional $1,000
                                                     for the 5th OTP and
                                                     each OTP
                                                     thereafter.
NYSE American \61\..........  ATP Trading Permits.  $8,000 for up to 60
                                                     plus the bottom 45%
                                                     of option issues.
                                                    Additional $6,000
                                                     for up to 150 plus
                                                     the bottom 45% of
                                                     option issues.
                                                    Additional $5,000
                                                     for up to 500 plus
                                                     the bottom 45% of
                                                     option issues.
                                                    Additional $4,000
                                                     for up to 1,100
                                                     plus the bottom 45%
                                                     of option issues.
                                                    Additional $3,000
                                                     for all option
                                                     issues.
                                                    Additional $2,000
                                                     for 6th to 9th ATPs
                                                     (plus additional
                                                     fee for premium
                                                     products).
Nasdaq PHLX \62\............  Streaming Quote       Tier 1 (up to 200
                               Trader permit fees.   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   Tier 1 (less than
                               Organization permit   100 option
                               fees                  classes): $5,500.
                                                    Tier 2 (more than
                                                     100 and less than
                                                     999 option
                                                     classes): $8,000.
                                                    Tier 3 (1,000 or
                                                     more option
                                                     classes): $11,000.
Nasdaq ISE \63\.............  Access Fees.........  Primary Market
                                                     Maker: $5,000 per
                                                     membership.
                                                    Competitive Market
                                                     Maker: $2,500 per
                                                     membership.
Cboe C2 \64\................  Access Permit Fees..  Market Makers:
                                                     $5,000.
                                                    Electronic Access
                                                     Permits: $1,000.
------------------------------------------------------------------------

    In each of the above cases, the Exchange's highest tiered port fee,
as proposed, is similar to or less than the port fees of competing
options exchanges with like market share. Further, as described in more
detail below, many competing exchanges generate higher overall
operating profit margins and higher ``access fees'' than the Exchange,
inclusive of the projected revenues associated with the proposed fees.
The Exchange believes that it provides a premium network experience to
its Members and non-Members via a highly deterministic system, enhanced
network monitoring and customer reporting, and a superior network
infrastructure than markets with higher market shares and more
expensive access fees. Each of the membership, trading permit and
participation fee rates in place at competing options exchanges were
filed with the Commission for immediate effectiveness and remain in
place today.
---------------------------------------------------------------------------

    \60\ See supra note 24.
    \61\ See supra note 25.
    \62\ See supra note 26.
    \63\ See supra note 27.
    \64\ See supra note 28.
---------------------------------------------------------------------------

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
    The Exchange believes that the Proposed Access Fees do not place
certain market participants at a relative disadvantage to other market
participants because the Proposed Access 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 users that connect via the MEO Interface
of different sizes and business models that best matches their activity
on the Exchange.
    The Exchange believes the removal of the Monthly Volume Credit and
Trading Permit fee credit will not place certain market participants at
a relative disadvantage to other market participants because, in order
to attract order flow when the Exchange first launched operations, the
Exchange established these credits to lower the initial fixed cost for
Members. The Exchange now believes that it is appropriate to remove
this credit in light of the current operating conditions, including the
Exchange's overall membership and the current type and amount of volume
executed on the Exchange. The Exchange believes that the Exchange's
rebates and fees will still allow the Exchange to remain highly
competitive such that the Exchange

should continue to attract order flow and maintain market share.
Inter-Market Competition
    The Exchange believes the Proposed Access Fees do not place an
undue burden on competition on other options exchanges that is not
necessary or appropriate. In particular, options market participants
are not forced to become members of all options exchanges. The Exchange
notes that it has far less Members as compared to the much greater
number of members at other options exchanges. There are a number of
large users that connect via the MEO Interface and broker-dealers that
are members of other options exchange but not Members of the Exchange.
The Exchange is also unaware of any assertion that its existing fee
levels or the Proposed Access Fees would somehow unduly impair its
competition with other options exchanges. To the contrary, if the fees
charged are deemed too high by market participants, they can simply
discontinue their membership with the Exchange.
    The Exchange operates in a highly competitive market in which
market participants can readily favor one of the 15 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 has more than approximately 16% market
share. Therefore, no exchange possesses significant pricing power in
the execution of multiply-listed equity and ETF options order flow.
Over the course of 2021, the Exchange's market share has fluctuated
between approximately 3-6% of the U.S. equity options industry.\65\ The
Exchange is not aware of any evidence that a market share of
approximately 3-6% provides the Exchange with anti-competitive pricing
power. 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 environment, the
Exchange must continually adjust its fees to remain competitive with
other exchanges and to attract order flow to the Exchange.
---------------------------------------------------------------------------

    \65\ See ``The market at a glance,'' available at https://www.miaxoptions.com/ (last visited December 20, 2021).
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    As described above, the Exchange received one comment letter on the
First Proposed Rule Change \66\ and no comment letters on the Second
Proposed Rule Change. The SIG Letter cites Rule 700(b)(3) of the
Commission's Rules of Fair Practice which places ``the burden to
demonstrate that a proposed rule change is consistent with the Act on
the self-regulatory organization that proposed the rule change'' and
states that a ``mere assertion that the proposed rule change is
consistent with those requirements . . . is not sufficient.'' \67\ The
SIG Letter's assertion that the Exchange has not met this burden is
without merit, especially considering the overwhelming amounts of
revenue and cost information the Exchange included in the First and
Second Proposed Rule Changes and this filing.
---------------------------------------------------------------------------

    \66\ See supra note 7.
    \67\ 17 CFR 201.700(b)(3).
---------------------------------------------------------------------------

    Until recently, the Exchange has operated at a net annual loss
since it launched operations in 2017.\68\ As stated above, the Exchange
believes that exchanges in setting fees of all types should meet very
high standards of transparency to demonstrate why each new fee or fee
increase meets the requirements of the Act that fees be reasonable,
equitably allocated, not unfairly discriminatory, and not create an
undue burden on competition among market participants. The Exchange
believes this high standard is especially important when an exchange
imposes various access fees for market participants to access an
exchange's marketplace. The Exchange believes it has achieved this
standard in this filing and in the First and Second Proposed Rules
Changes. Similar justifications for the proposed fee change included in
the First and Second Proposed Rule Changes, but also in this filing,
were previously included in similar fee changes filed by the Exchange
and its affiliates, MIAX Emerald and MIAX, and SIG did not submit a
comment letter on those filings.\69\ Those filings were not suspended
by the Commission and continue to remain in effect. The justification
included in each of the prior filings was the result of numerous
withdrawals and re-filings of the proposals to address comments
received from Commission Staff over many months. The Exchange and its
affiliates have worked diligently with Commission Staff on ensuring the
justification included in past fee filings fully supported an assertion
that those proposed fee changes were consistent with the Act.\70\ The
Exchange leveraged its past work with Commission Staff to ensure the
justification provided herein and in the First and Second Proposed Rule
Changes included the same level of detail (or more) as the prior fee
changes that survived Commission scrutiny. The Exchange's detailed
disclosures in fee filings have also been applauded by one industry
group which noted, ``[the Exchange's] filings contain significantly
greater information about who is impacted and how than other filings

that have been permitted to take effect without suspension.'' \71\ That
same industry group also noted their ``worry that the Commission's
process for reviewing and evaluating exchange filings may be
inconsistently applied.'' \72\ Therefore, a finding by the Commission
that the Exchange has not met its burden to show that the proposed fee
change is consistent with the Act would be different than the
Commission's treatment of similar past filings, would create further
ambiguity regarding the standards exchange fee changes should satisfy,
and is not warranted here.
---------------------------------------------------------------------------

    \68\ The Exchange has incurred a cumulative loss of $86 million
since its inception in 2017 to 2020, the last year for which the
Exchange's Form 1 data is available. See Exchange's Form 1/A,
Application for Registration or Exemption from Registration as a
National Securities Exchange, filed July 29, 2021, available at
https://sec.report/Document/9999999997-21-004367/.
    \69\ See Securities Exchange Act Release Nos. 91858 (May 12,
2021), 86 FR 26967 (May 18, 2021) (SR-PEARL-2021-23) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to
Amend the MIAX Pearl Fee Schedule to Remove the Cap on the Number of
Additional Limited Service Ports Available to Market Makers); 91460
(April 2, 2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-11)
(Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change To Amend Its Fee Schedule To Adopt Port Fees, Increase
Certain Network Connectivity Fees, and Increase the Number of
Additional Limited Service MIAX Emerald Express Interface Ports
Available to Market Makers); and 91857 (May 12, 2021), 86 FR 26973
(May 18, 2021) (SR-MIAX-2021-19) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To
Remove the Cap on the Number of Additional Limited Service Ports
Available to Market Makers).
    \70\ See, e.g., Securities Exchange Act Release No. 90196
(October 15, 2020), 85 FR 67064 (October 21, 2020) (SR-EMERALD-2020-
11) (Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change To Amend Its Fee Schedule To Adopt One-Time Membership
Application Fees and Monthly Trading Permit Fees). See Securities
Exchange Act Release Nos. 90601 (December 8, 2020), 85 FR 80864
(December 14, 2020) (SR-EMERALD-2020-18) (re-filing with more detail
added in response to Commission Staff's feedback and after
withdrawing SR-EMERALD-2020-11); and 91033 (February 1, 2021), 86 FR
8455 (February 5, 2021) (SR-EMERALD-2021-03) (re-filing with more
detail added in response to Commission Staff's feedback and after
withdrawing SR-EMERALD-2020-18). The Exchange initially filed a
proposal to remove the cap on the number of additional Limited
Service MEO Ports available to Members on April 9, 2021. See SR-
PEARL-2021-17. On April 22, 2021, the Exchange withdrew SR-PEARL-
2021-17 and refiled that proposal (without increasing the actual fee
amounts) to provide further clarification regarding the Exchange's
revenues, costs, and profitability any time more Limited Service MEO
Ports become available, in general, (including information regarding
the Exchange's methodology for determining the costs and revenues
for additional Limited Service MEO Ports). See SR-PEARL-2021-20. On
May 3, 2021, the Exchange withdrew SR-PEARL-2021-20 and refiled that
proposal to further clarify its cost methodology. See SR-PEARL-2021-
22. On May 10, 2021, the Exchange withdrew SR-PEARL-2021-22 and
refiled that proposal as SR-PEARL-2021-23. See Securities Exchange
Act Release No. 91858 (May 12, 2021), 86 FR 26967 (May 18, 2021)
(SR-PEARL-2021-23).
    \71\ See letter from Tyler Gellasch, Executive Director, Healthy
Markets Association, to Hon. Gary Gensler, Chair, Commission, dated
October 29, 2021.
    \72\ Id. (providing examples where non-transaction fee filings
by other exchanges have been permitted to remain effective and not
suspended by the Commission despite less disclosure and
justification).
---------------------------------------------------------------------------

    In addition, the arguments in the SIG Letter do not support their
claim that the Exchange has not met its burden to show the proposed
rule change is consistent with the Act. Prior to and after submitting
the First Proposed Rule Change, the Exchange solicited feedback from
its Members, including SIG. SIG relayed their concerns regarding the
proposed change. The Exchange then sought to work with SIG to address
their concerns and gain a better understanding of the access/
connectivity/quoting infrastructure of other exchanges. In response,
SIG provided no substantive suggestions on how to amend the First
Proposed Rule Change to address their concerns and instead chose to
submit a comment letter. One could argue that SIG is using the comment
letter process not to raise legitimate regulatory concerns regarding
the proposal, but to inhibit or delay proposed fee changes by the
Exchange. Nonetheless, the Exchange has further enhanced its cost and
revenue analysis and data in this Third Proposed Rule Change to further
justify that the Proposed Access Fees are reasonable in accordance with
the Commission Staff's Guidance. Among other things, these enhancements
include providing baseline information in the form of data from the
month before the Proposed Access Fees became effective.
MIAX Pearl Provided More Than Sufficient Justification for the Proposed
Fees
    The SIG Letter asserts that the Exchange provided ``no affirmative
justifiable reason that its legacy fees are no longer sufficient.''
\73\ This statement assumes that the previous fees were ``sufficient''
and does not state how the legacy fees might have been sufficient to
cover the Exchange's expenses. As evidenced above, the previous fees
were not sufficient to cover the costs the Exchange incurred in
providing access to the Exchange. However, the previous fees were
sufficient to attract order flow as the pricing was set to not
discourage participation on the Exchange. The Exchange is relatively
new as it only began operations in 2017.\74\ Like other new exchange
entrants, the Exchange chose to charge lower fees than other more
established exchanges to attract order flow and increase
membership.\75\ The Exchange chose that approach by setting the price
of its Trading Permits (as well as other access-type fees) below market
rates. SIG's statement assumes that exchanges should charge at market
rates that are sufficient to cover its costs. This statement ignores
pricing incentives exchanges may offer to attract order flow and that
exchanges, like many businesses including SIG, may make a business
decision to price certain offerings at a loss or ``on sale'' as they
build their business. Further, a vast majority of the Exchange's
Members, if not all, benefited from these lower fees.
---------------------------------------------------------------------------

    \73\ See SIG Letter, supra note 7.
    \74\ See ``Miami International Holdings Receives Approval from
SEC to Launch MIAX PEARL; Targets February 6, 2017 Launch''
(December 14, 2016) available at https://www.miaxoptions.com/sites/default/files/press_release-files/MIAX_Press_Release_12142016.pdf
(last visited October 18, 2021) (stating that the Exchange ``plans
to launch with an initial moratorium on most non-transaction
fees.'').
    \75\ See, e.g., ``Members Exchange Unveils Transaction Pricing''
(September 10, 2020), available at https://www.businesswire.com/news/home/20200910005183/en/Members-Exchange-Unveils-Transaction-Pricing (last visited October 18, 2021) (quoting Jonathan Kellner,
CEO of Members Exchange, ``[t]o further incentivize participants to
connect to a new destination, we are implementing initial pricing
that generates a net loss for the exchange on each transaction. We
are confident that as participants experience the benefits of our
platform, they will continue to incorporate MEMX in their routing
strategies.''); and ``Miami International Holdings Announces Fully
Subscribed Strategic Equity Rights Transaction with Leading Equities
Firms to Trade on MIAX PEARL Equities Trading to Begin September 25,
2020'' available at https://www.miaxoptions.com/sites/default/files/press_release-files/Press_Release_09142020.pdf (last visited October
18, 2021) (quoting Douglas M. Schafer, Jr., Executive Vice President
and Chief Information Officer of MIH, MIAX PEARL Equities, ``[w]e
are excited to be offering a simpler, transparent, low cost venue to
market participants and have no doubt that MIAX PEARL Equities will
become a competitive alternative venue following our launch on
September 25th.'').
---------------------------------------------------------------------------

    As a new entrant in the market, the Exchange chose to forgo any
potential additional revenue that may have been generated by higher
Trading Permit fees to encourage participation on the new platform.
This served to attract participation on the Exchange so market
participants could evaluate the Exchange's quality, technology and the
quality of their overall customer/user experience. Setting higher rates
for non-transaction fees could have served to dissuade market
participants from trading on the Exchange and not experiencing the high
quality technological system the Exchange built.
    Nonetheless, the Exchange provided significant cost based
justification for the proposed fees not only in this filing, but also
in the First and Second Proposed Rule Changes. The SIG Letter
conveniently ignores this fact. In fact, the level of disclosure by the
Exchange provided in this filing and the First and Second Proposed Rule
Changes has been worked on with Commission Staff over numerous past
filings that have been published for comment and remain effect.\76\ The
Exchange's detailed disclosures in fee filings have also been applauded
by one industry group which noted, ``[the Exchange's] filings contain
significantly greater information about who is impacted and how than
other filings that have been permitted to take effect without
suspension.'' \77\ That same industry group also noted their ``worry
that the Commission's process for reviewing and evaluating exchange
filings may be inconsistently applied.'' \78\
---------------------------------------------------------------------------

    \76\ See supra note 70.
    \77\ See supra note 71.
    \78\ Id. (providing examples where non-transaction fee filings
by other exchanges have been permitted to remain effective and not
suspended by the Commission despite less disclosure and
justification).
---------------------------------------------------------------------------

    The Exchange believes the proposed fees will allow the Exchange to
offset expenses the Exchange has and will incur, and that the Exchange
provided sufficient transparency into how the Exchange determined to
charge such fees. Accordingly, the Exchange provided an analysis of its
revenues, costs, and profitability associated with the proposed fees.
This analysis included information regarding its methodology for
determining the costs and revenues associated with the proposal.
    To determine the Exchange's costs to provide the access services
associated with the proposed fees, the Exchange conducted an extensive
cost review in which the Exchange analyzed nearly every expense item in
the Exchange's general expense ledger to determine whether each such
expense relates to the proposed fees, and, if such expense did so
relate, what portion (or percentage) of such expense actually

supports the access services. The sum of all such portions of expenses
represents the total cost of the Exchange to provide the access
services associated with the proposed fees.
    Furthermore, the Exchange is beginning to see significant
inflationary pressure on capital items that it needs to purchase to
maintain the Exchange's technology and systems.\79\ The Exchange has
seen pricing increases upwards of 30% on network equipment due to
supply chain shortages. This, in turn, results in higher overall costs
for ongoing system maintenance, but also to purchase the items
necessary to ensure ongoing system resiliency, performance, and
determinism. These costs are expected to continue to go up as the U.S.
economy continues to struggle with supply chain and inflation related
issues.
---------------------------------------------------------------------------

    \79\ See ``Supply chain chaos is already hitting global growth.
And it's about to get worse'', by Holly Ellyatt, CNBC, available at
https://www.cnbc.com/2021/10/18/supply-chain-chaos-is-hitting-global-growth-and-could-get-worse.html (October 18, 2021); and
``There will be things that people can't get, at Christmas, White
House warns'' by Jarrett Renshaw and Trevor Hunnicutt, Reuters,
available at https://www.reuters.com/world/us/americans-may-not-get-some-christmas-treats-white-house-officials-warn-2021-10-12/
(October 12, 2021).
---------------------------------------------------------------------------

The Proposed Fee Increases are not Part of a Discriminatory Fee
Structure and Tiered Fee Structures are Commonplace Amongst Exchanges
    The SIG Letter correctly notes that the proposed Trading Permit
fees are higher for Members who connect through the MEO Interface than
for Members who connect through the FIX Interface. Members who use the
MEO Interface may also connect to the System through the FIX Interface
as well, and vice versa. The Exchange notes that the Trading Permit
fees for Members who connect through the MEO Interface are higher than
the Trading Permit fees for Members who connect through the FIX
Interface, since the FIX Interface utilizes less capacity and resources
of the Exchange. The MEO Interface offers lower latency and higher
throughput, which utilizes greater capacity and resources of the
Exchange. The FIX Interface offers lower bandwidth requirements and an
industry-wide uniform message format. Both EEMs and Market Makers may
connect to the Exchange using either interface.
    The SIG Letter asserts that the Exchange ``provides no description
of the `capacity and resources' being utilized, and no information on
the nature or extent of the disparity in such utilization between the
two Interface types.'' As a MEO user, SIG is uniquely positioned to
understand and appreciate the differences between the MEO and FIX
interfaces and why rates for the MEO interface are justifiably higher.
Nonetheless, the Exchange is providing the below additional data to
address the statements made in the SIG Letter.
    Orders on the Exchange are supplied by Members via two different
interfaces, FIX and MEO. MEO is the Exchange's proprietary binary order
interface. Over the period from April 2021 until September 2021, 3.15
billion messages were processed via the FIX interface (0.43% of total
messages received). Over that same time period, 731.4 billion messages
(99.57% of total messages received) were processed over the MEO
interface. Also, the MEO interface allows for mass purging of orders
which has a significant impact on the number of messages processed.
This marked difference between the number of FIX and MEO messages
processed, when mapped to servers, software, storage, and networking
results in a much higher allocation of total capital and operational
expense to support the MEO interface. For one, the Exchange incurs
greater expense in maintaining the resilience of the MEO interface to
ensure its ongoing operation in accordance with Regulation SCI.
Another, the Exchange must purchase and expand its storage capacity to
retain these increased messages in compliance with its record keeping
obligations. As noted above, the Exchange has seen significant
inflationary pressure on capital items that it needs to purchase to
maintain its technology.\80\ The Exchange has seen pricing increases
upwards of 30% on network equipment due to supply chain shortages.
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    \80\ See id.
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    SIG is also uniquely positioned to know that the fee structure
utilized by the Exchange, which charges different Trading Permit fees
for MEO interface users than FIX interface users is not a new proposal.
In fact, it was first adopted by the Exchange over 3\1/2\ years ago in
March 2018, published by the Commission and received no comment
letters, not even by SIG.\81\ SIG claims a fee structure that they have
been subject to for years as an MEO interface user is just now unfairly
discriminatory.
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    \81\ See supra note 11.
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The Proposed Fees Are in Line With, or Cheaper Than, the Trading Permit
Fees or Similar Membership/Access Fees Charged by Other Options
Exchanges
    The Exchange correctly asserts herein and in the Initial Proposed
Fee Change that it's proposed Trading Permit fees ``are in line with,
or cheaper than, the trading permit fees or similar membership fees
charged by other options exchanges.'' The SIG letter challenges this
assertion is an ``apples to oranges'' comparison because NYSE American
and NYSE Arca based their rates on the number of options issued to the
member and not trading volume, like the exchange does. In fact, the
number of options traded by a member of NYSE American or NYSE Arca is
an appropriate proxy for trading volume as the more options issued to
the member would result in higher volumes traded by that member. Firms
that trade more liquid options generate increased message traffic and
greater pull on exchange resources. Therefore, comparing options traded
to trading volume is an ``apples to apples'' comparison.
    The Exchange proposes a range of fees from $500 to $6,000 per month
depending on trading volume and the type of interface that is utilized
by the Member. These rates are undoubtedly similar to or lower than the
rates charged by NYSE Arca and NYSE American. As of December 20, 2021,
the Exchange maintained a market share of approximately 4.03%.\82\
Among Exchanges with similar market share, the Exchange's proposed
Trading Permit Fees remain similar to or lower than fees charged by
other options exchanges with comparable market share for access/
membership fees.\83\ The proposed rates are also lower than those of
its affiliates, MIAX and MIAX Emerald, which remain in effect
today.\84\
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    \82\ See supra note 65.
    \83\ See supra notes 24, 25, 26, 27 and 28, and accompanying
table. The below market share numbers are as of December 20, 2021.
Id. Cboe C2 had a market share of 3.72% and charges a monthly Access
Fee of $5,000 for market makers and $1,000 per month for an
additional Electronic Access Permit regardless of trading volume or
options traded. See supra note 28. Nasdaq ISE had a market share of
6.95% and charges a monthly Access Fee to Primary Market Makers of
$5,000 and Competitive Market Maker of $2,500 regardless of trading
volume or options traded. See supra note 27.
    \84\ See MIAX Fee Schedule, Section 3)b); MIAX Emerald Fee
Schedule, Section 3)b).
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    The SIG Letter states that ``[the Exchange] offers no information
about the capacity and resource costs of access to the other exchanges
or any other basis to support the reasonability of those fees, let
alone compare such costs to those of MIAX Pearl.'' \85\ This statement
is misleading as SIG should be aware that the Exchange does not have
access to this information and when it asked SIG to assist the Exchange
in better

understanding the access structure of other exchanges, SIG refused.
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    \85\ See SIG Letter, supra note 7.
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    The SIG Letter further asserts that the Exchange ``has not
established that the other exchange fees are reasonable, nor that this
would mean that the MIAX Pearl fees are reasonable as well.\86\ SIG
should be aware that it is not the Exchange's obligation to justify why
another exchange's fees are reasonable and it is presumed that such
fees were deemed reasonable by the Commission when filed by the
exchange that proposed said fee. If SIG felt another exchange's fees
were or are unreasonable, they are free to share that concern with the
Commission and were provided an opportunity to submit comment letter on
those earlier proposals from other exchanges. It is the Exchange's
responsibility to show that its own proposed fee change is reasonable
and consistent with the Act, and that assertion is amply supported by
the statements made in this Item 5 and elsewhere herein.
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    \86\ See id.
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The Proposed Fees Are Consistent With Section 6(b)(4) of the Act
Because the Proposed Fees Will Not Result in Excessive Pricing or
Supra-Competitive Profit
    The Exchange has provided ample data that the proposed fees would
not result in excessive pricing or a supra-competitive profit. In this
Third Proposed Rule Change, the Exchange no longer utilizes a
comparison of its profit margin to that of other options exchanges as a
basis that the Proposed Access Fees are reasonable. Rather, the
Exchange has enhanced its cost and revenue analysis and data in this
Third Proposed Rule Change to further justify that the Proposed Access
Fees are reasonable in accordance with the Commission Staff's Guidance.
Therefore, the Exchange believes it is no longer necessary to respond
to this portion of the SIG Letter.
Recoupment of Exchange Infrastructure Costs
    Nowhere in this proposal or in the First Proposed Rule Change did
the Exchange assert that it benefits competition to allow a new
exchange entrant to recoup their infrastructure costs. Rather, the
Exchange asserts above that its ``proposed fees are reasonable,
equitably allocated and not unfairly discriminatory because the
Exchange, and its affiliates, are still recouping the initial
expenditures from building out their systems while the legacy exchanges
have already paid for and built their systems.'' The Exchange no longer
makes this assertion in this filing and, therefore, does not believe is
it necessary to respond to SIG's assertion here.

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,\87\ and Rule 19b-4(f)(2) \88\ 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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    \87\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \88\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-PEARL-2021-59 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-PEARL-2021-59. 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 (https://www.sec.gov/rules/sro.shtml). 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
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-PEARL-2021-59 and should be
submitted on or before January 31, 2022.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\89\
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    \89\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-00158 Filed 1-7-22; 8:45 am]
BILLING CODE 8011-01-P