costs have increased at a greater rate over the last three years than
the total costs of MIAX PEARL, LLC's affiliated exchanges, MIAX and
MIAX Emerald. This is also reflected in the total costs reported in
MIAX PEARL, LLC's Form 1 filings over the last three years, when
comparing MIAX PEARL, LLC to MIAX PEARL, LLC's affiliated exchanges,
MIAX and MIAX Emerald. This is primarily because that MIAX PEARL, LLC
operates two markets, one for options and one for equities, while MIAX
and MIAX Emerald each operate only one market. This is also due to
higher current expense for MIAX PEARL, LLC for 2022 and 2023, due to a
hardware refresh (i.e., replacing old hardware with new equipment) for
MIAX Pearl Options, as well as higher costs associated with MIAX Pearl
Equities due to greater development efforts to grow that newer
marketplace.\126\ The Exchange confirms that there is no double
counting of expenses between the options and equities platform of MIAX
Pearl; the greater expense amounts of the MIAX PEARL, LLC (relative to
its affiliated exchanges, MIAX and MIAX Emerald) is solely attributed
to the unique factors of MIAX Pearl discussed above.
---------------------------------------------------------------------------

    \126\ See, e.g., Securities Exchange Act Release Nos. 94301
(February 23, 2022), 87 FR 11739 (March 2, 2022) (SR-PEARL-2022-06)
(Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change To Amend Rule 2617(b) To Adopt Two New Routing Options, and
To Make Related Changes and Clarifications to Rules 2614(a)(2)(B)
and 2617(b)(2)); 94851 (May 4, 2022), 87 FR 28077 (May 10, 2022)
(SR-PEARL-2022-15) (Notice of Filing and Immediate Effectiveness of
a Proposed Rule Change To Adopt Exchange Rule 532, Order Price
Protection Mechanisms and Risk Controls); 95298 (July 15, 2022), 87
FR 43579 (July 21, 2022) (SR-PEARL-2022-29) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change by MIAX PEARL, LLC
To Amend the Route to Primary Auction Routing Option Under Exchange
Rule 2617(b)(5)(B)); 95679 (September 6, 2022), 87 FR 55866
(September 12, 2022) (SR-PEARL-2022-34) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend Exchange
Rule 2614, Orders and Order Instructions, To Adopt the Primary Peg
Order Type); 96205 (November 1, 2022), 87 FR 67080 (November 7,
2022) (SR-PEARL-2022-43) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend Rule 2614, Orders
and Order Instructions and Rule 2618, Risk Settings and Trading Risk
Metrics To Enhance Existing Risk Controls); 96905 (February 13,
2023), 88 FR 10391 (February 17, 2023) (SR-PEARL-2023-03) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Exchange Rule 2618 To Add Optional Risk Control Settings);
97236 (March 31, 2023), 88 FR 20597 (April 6, 2023) (SR-PEARL-2023-
15) (Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change To Amend Exchange Rules 2617 and 2626 Regarding Retail Orders
Routed Pursuant to the Route to Primary Auction Routing Option).
---------------------------------------------------------------------------

Costs Related To Offering Physical 10Gb ULL Connectivity
    The following chart details the individual line-item costs
considered by the Exchange to be related to offering physical dedicated
10Gb ULL connectivity via an unshared network as well as the percentage
of the Exchange's overall costs that such costs represent for each cost
driver (e.g., as set forth below, the Exchange allocated approximately
26.9% of its overall Human Resources cost to offering physical
connectivity).

----------------------------------------------------------------------------------------------------------------
                                                                     Allocated       Allocated
                          Cost drivers                              annual cost    monthly cost      % Of all
                                                                        \k\             \l\
----------------------------------------------------------------------------------------------------------------
Human Resources.................................................      $3,675,098        $306,258            26.3
Connectivity (external fees, cabling, switches, etc.)...........          70,163           5,847            60.6
Internet Services and External Market Data......................         322,388          26,866            73.3
Data Center.....................................................         739,983          61,665            60.6
Hardware and Software Maintenance and Licenses..................         959,157          79,930            58.6
Depreciation....................................................       1,885,969         157,164            58.2
Allocated Shared Expenses.......................................       3,914,751         326,229            49.2
                                                                 -----------------------------------------------
    Total.......................................................      11,567,509         963,959            40.5
----------------------------------------------------------------------------------------------------------------
k. The Annual Cost includes figures rounded to the nearest dollar.
l. The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
  rounding up or down to the nearest dollar.

    Below are additional details regarding each of the line-item costs
considered by the Exchange to be related to offering physical 10Gb ULL
connectivity. While some costs were attempted to be allocated as
equally as possible among the Exchange and its affiliated markets, the
Exchange notes that some of its cost allocation percentages for certain
cost drivers differ when compared to the same cost drivers for the
Exchange's affiliated markets in their similar proposed fee changes for
connectivity and ports. This is because MIAX Pearl Options' cost
allocation methodology utilizes the actual projected costs of MIAX
Pearl Options (which are specific to MIAX Pearl Options, and are
independent of the costs projected and utilized by MIAX Pearl Options'
affiliated markets) to determine its actual costs, which may vary
across the Exchange and its affiliated markets based on factors that
are unique to each marketplace. MIAX Pearl Options provides additional
explanation below (including the reason for the deviation) for the
significant differences.
Human Resources
    For personnel costs (Human Resources), the Exchange calculated an
allocation of employee time for employees whose functions include
providing and maintaining physical connectivity and performance thereof

(primarily the Exchange's network infrastructure team, which spends
most of their time performing functions necessary to provide physical
connectivity) and for which the Exchange allocated a weighted average
of 42.9% of each employee's time from the above group assigned to the
Exchange based on the above-described allocation methodology. The
Exchange also allocated Human Resources costs to provide physical
connectivity to a limited subset of personnel with ancillary functions
related to establishing and maintaining such connectivity (such as
information security, sales, membership, and finance personnel), for
which the Exchange allocated cost on an employee-by-employee basis
(i.e., only including those personnel who support functions related to
providing physical connectivity) and then applied a smaller allocation
to such employees (less than 17%). The Exchange notes that it and its
affiliated markets have 184 employees (excluding employees at non-
options/equities exchange subsidiaries of Miami International Holdings,
Inc. (``MIH''), the holding company of the Exchange and its affiliated
markets), and each department leader has direct knowledge of the time
spent by each employee with respect to the various tasks necessary to
operate the Exchange. Specifically, twice a year, and as needed with
additional new hires and new project initiatives, in consultation with
employees as needed, managers and department heads assign a percentage
of time to every employee and then allocate that time amongst the
Exchange and its affiliated markets to determine each market's
individual Human Resources expense. Then, managers and department heads
assign a percentage of each employee's time allocated to the Exchange
into buckets including network connectivity, ports, market data, and
other exchange services. This process ensures that every employee is
100% allocated, ensuring there is no double counting between the
Exchange and its affiliated markets.
    The estimates of Human Resources cost were therefore determined by
consulting with such department leaders, determining which employees
are involved in tasks related to providing physical connectivity, and
confirming that the proposed allocations were reasonable based on an
understanding of the percentage of their time such employees devote to
tasks related to providing physical connectivity.\127\ This includes
personnel from the Exchange departments that are predominately involved
in providing 1Gb and 10Gb ULL connectivity: Business Systems
Development, Trading Systems Development, Systems Operations and
Network Monitoring, Network and Data Center Operations, Listings,
Trading Operations, and Project Management, of which the Exchange
allocated 42.9% of each of their employee's time assigned to the
Exchange, as stated above. The Exchange notes that senior level
executives' time was only allocated to the Human Resources costs to the
extent that they are involved in overseeing tasks related to providing
physical connectivity. The Human Resources cost was calculated using a
blended rate of compensation reflecting salary, equity and bonus
compensation, benefits, payroll taxes, and 401(k) matching
contributions.
---------------------------------------------------------------------------

    \127\ MIAX Pearl Options notes that while 12.3 full time
equivalents (``FTEs'') were allocated in this filing to MIAX Pearl
Options and a similar number of FTEs in a similar filing by the
Exchange's affiliates, MIAX Emerald (11.7 FTEs) and MIAX (12.9
FTEs), the overall cost percentage allocated for each differs due to
the individual level of compensation for each employee assigned to
work on projects for the exchanges.
---------------------------------------------------------------------------

Connectivity (External Fees, Cabling, Switches, etc.)
    The Connectivity cost driver includes external fees paid to connect
to other exchanges and third parties, cabling and switches required to
operate the Exchange. The Connectivity cost driver is more narrowly
focused on technology used to complete connections to the Exchange and
to connect to external markets. The Exchange notes that its
connectivity to external markets is required in order to receive market
data to run the Exchange's matching engine and basic operations
compliant with existing regulations, primarily Regulation NMS.
    The Exchange relies on various connectivity providers for
connectivity to the entire U.S. options industry, and infrastructure
services for critical components of the network that are necessary to
provide and maintain its System Networks and access to its System
Networks via 10Gb ULL connectivity. Specifically, the Exchange utilizes
connectivity providers to connect to other national securities
exchanges and the Options Price Reporting Authority (``OPRA''). The
Exchange understands that these service providers provide services to
most, if not all, of the other U.S. exchanges and other market
participants. Connectivity provided by these service providers is
critical to the Exchanges daily operations and performance of its
System Networks to which market participants connect to via 10Gb ULL
connectivity. Without these services providers, the Exchange would not
be able to connect to other national securities exchanges, market data
providers or OPRA and, therefore, would not be able to operate and
support its System Networks. The Exchange does not employ a separate
fee to cover its connectivity expense and recoups that expense, in
part, by charging for 10Gb ULL connectivity.
Internet Services and External Market Data
    The next cost driver consists of internet Services and external
market data. Internet services includes third-party service providers
that provide the internet, fiber and bandwidth connections between the
Exchange's networks, primary and secondary data centers, and office
locations in Princeton and Miami.
    External market data includes fees paid to third parties, including
other exchanges, to receive market data. The Exchange includes external
market data fee costs towards the provision of 10Gb ULL connectivity
because such market data is necessary for certain services related to
connectivity, including pre-trade risk checks and checks for other
conditions (e.g., re-pricing of orders to avoid locked or crossed
markets and trading collars). Since external market data from other
exchanges is consumed at the Exchange's matching engine level, (to
which 10Gb ULL connectivity provides access) in order to validate
orders before additional orders enter the matching engine or are
executed, the Exchange believes it is reasonable to allocate a small
amount of such costs to 10Gb ULL connectivity.
    The Exchange relies on content service providers for data feeds for
the entire U.S. options industry, as well as content for critical
components of the network that are necessary to provide and maintain
its System Networks and access to its System Networks via 10Gb ULL
connectivity. Specifically, the Exchange utilizes content service
providers to receive market data from OPRA, other exchanges and market
data providers. The Exchange understands that these service providers
provide services to most, if not all, of the other U.S. exchanges and
other market participants. Market data provided these service providers
is critical to the Exchanges daily operations and performance of its
System Networks to which market participants connect to via 10Gb ULL
connectivity. Without these services providers, the Exchange would not
be able to receive market data and, therefore, would not be able to

operate and support its System Networks. The Exchange does not employ a
separate fee to cover its content service provider expense and recoups
that expense, in part, by charging for 10Gb ULL connectivity.
    Lastly, the Exchange notes that the actual dollar amounts allocated
as part of the second step of the 2023 budget process differ among the
Exchange and its affiliated markets for the internet Services and
External Market Data cost driver, even though, but for MIAX Emerald,
the allocation percentages are generally consistent across markets
(e.g., MIAX Emerald, MIAX, MIAX Pearl Options and MIAX Pearl Equities
allocated 84.8%, 73.3%, 73.3% and 72.5%, respectively, to the same cost
driver). This is because: (i) a different percentage of the overall
internet Services and External Market Data cost driver was allocated to
MIAX Emerald and its affiliated markets due to the factors set forth
under the first step of the 2023 budget review process described above
(unique technical architecture, market structure, and business
requirements of each marketplace); and (ii) MIAX Emerald itself
allocated a larger portion of this cost driver to 10Gb ULL connectivity
because of recent initiatives to improve the latency and determinism of
its systems. The Exchange notes while the percentage MIAX Emerald
allocated to the internet Services and External Market Data cost driver
is greater than the Exchange and its other affiliated markets, the
overall dollar amount allocated to the Exchange under the initial step
of the 2023 budget process is lower than its affiliated markets.
However, the Exchange believes that this is not, in dollar amounts, a
significant difference. This is because the total dollar amount of
expense covered by this cost driver is relatively small compared to
other cost drivers and is due to nuances in exchange architecture that
require different initial allocation amount under the first step of the
2023 budget process described above. Thus, non-significant differences
in percentage allocation amounts in a smaller cost driver create the
appearance of a significant difference, even though the actual
difference in dollar amounts is small.
Data Center
    Data Center costs includes an allocation of the costs the Exchange
incurs to provide physical connectivity in the third-party data centers
where it maintains its equipment (such as dedicated space, security
services, cooling and power). The Exchange notes that it does not own
the Primary Data Center or the Secondary Data Center, but instead,
leases space in data centers operated by third parties. The Exchange
has allocated a high percentage of the Data Center cost (60.6%) to
physical 10Gb ULL connectivity because the third-party data centers and
the Exchange's physical equipment contained therein is the most direct
cost in providing physical access to the Exchange. In other words, for
the Exchange to operate in a dedicated space with connectivity by
market participants to a physical trading platform, the data centers
are a very tangible cost, and in turn, if the Exchange did not maintain
such a presence then physical connectivity would be of no value to
market participants.
Hardware and Software Maintenance and Licenses
    Hardware and Software Licenses includes hardware and software
licenses used to operate and monitor physical assets necessary to offer
physical connectivity to the Exchange.\128\ The Exchange notes that
this allocation is greater than MIAX and MIAX Emerald options exchanges
by a significant amount as MIAX Pearl Options allocated 58.6% of its
Hardware and Software Maintenance and License expense towards 10Gb ULL
connectivity, while MIAX and MIAX Emerald allocated 49.8% and 50.9%,
respectively, to the same category of expense. Also, MIAX Pearl
Equities allocated a higher percentage of the same category of expense
(58%) towards its Hardware and Software Maintenance and License expense
for 10Gb ULL connectivity, which MIAX Pearl Equities explains in its
own proposal to amend its 10Gb ULL connectivity fees. This is because
MIAX Pearl Options is in the process of replacing and upgrading various
hardware and software used to operate its options trading platform in
order to maintain premium network performance. At the time of this
filing, the Exchange is undergoing a major hardware refresh, replacing
older hardware with new hardware. This hardware includes servers,
network switches, cables, optics, protocol data units, and cabinets, to
maintain a state-of-the-art technology platform. Because of the timing
of the hardware refresh with the timing of this filing, the Exchange
has materially higher expense than its affiliates.
---------------------------------------------------------------------------

    \128\ This expense may be greater than the Exchange's affiliated
markets, specifically MIAX and MIAX Emerald, because, unlike the
MIAX and MIAX Emerald, MIAX Pearl (the options and equities markets)
maintains an additional gateway to accommodate its Members' and
Equity Members' access and connectivity needs. This added gateway
contributes to the difference in allocations between MIAX Pearl,
MIAX and MIAX Emerald. This expense also differs in dollar amount
among the MIAX Pearl (options and equities markets), MIAX, and MIAX
Emerald because each market may maintain and utilize a different
amount of hardware and software based on its market model and
infrastructure needs. The Exchange allocated a percentage of the
overall cost based on actual amounts of hardware and software
utilized by that market, which resulted in different cost
allocations and dollar amounts.
---------------------------------------------------------------------------

Depreciation
    All physical assets, software and hardware used to provide 10Gb ULL
connectivity, which also includes assets used for testing and
monitoring of Exchange infrastructure, were valued at cost, and
depreciated or leased over periods ranging from three to five years.
Thus, the depreciation cost primarily relates to servers necessary to
operate the Exchange, some of which are owned by the Exchange and some
of which are leased by the Exchange in order to allow efficient
periodic technology refreshes. The Exchange also included in the
Depreciation cost driver certain budgeted improvements that the
Exchange intends to capitalize and depreciate with respect to 10Gb ULL
connectivity in the near-term. As with the other allocated costs in the
Exchange's updated Cost Analysis, the Depreciation cost was therefore
narrowly tailored to depreciation related to 10Gb ULL connectivity. As
noted above, the Exchange allocated 58.2% of its allocated depreciation
costs to providing physical 10Gb ULL connectivity.
    The Exchange also notes that this allocation differs from its
affiliated markets due to a number of factors, such as the age of
physical assets and software (e.g., older physical assets and software
were previously depreciated and removed from the allocation), or
certain system enhancements that required new physical assets and
software, thus providing a higher contribution to the depreciated cost.
For example, the percentages the Exchange and its affiliate, MIAX,
allocated to the depreciation of hardware and software used to provide
10Gb ULL connectivity are nearly identical. However, the Exchange's
dollar amount is less than that of MIAX by approximately $35,000 per
month due to two factors: first, MIAX has undergone a technology
refresh since the time MIAX Pearl Options launched in 2017, leading to
it

having more hardware that software that is subject to depreciation.
Second, MIAX maintains 24 matching engines while MIAX Pearl Options
maintains only 12 matching engines. This also results in more of MIAX's
hardware and software being subject to depreciation than MIAX Pearl
Options' hardware and software due to the greater amount of equipment
and software necessary to support the greater number of matching
engines on MIAX.
Allocated Shared Expenses
    Finally, a limited portion of general shared expenses was allocated
to overall physical connectivity costs because without these general
shared costs the Exchange would not be able to operate in the manner
that it does and provide physical connectivity. The costs included in
general shared expenses include general expenses of the Exchange,
including office space and office expenses (e.g., occupancy and
overhead expenses), utilities, recruiting and training, marketing and
advertising costs, professional fees for legal, tax and accounting
services (including external and internal audit expenses), and
telecommunications costs. Similarly, the cost of paying directors to
serve on the Exchange's Board of Directors is also included in the
Exchange's general shared expense cost driver.\129\ The Exchange notes
that the 49.2% allocation of general shared expenses for physical 10Gb
ULL connectivity is higher than that allocated to general shared
expenses for Full Service MEO Ports based on its allocation methodology
that weighted costs attributable to each core service based on an
understanding of each area. While physical connectivity has several
areas where certain tangible costs are heavily weighted towards
providing such service (e.g., Data Center, as described above), Full
Service MEO Ports do not require as many broad or indirect resources as
other core services.
---------------------------------------------------------------------------

    \129\ The Exchange notes that MEMX allocated a precise amount of
10% of the overall cost for directors to providing physical
connectivity. The Exchange does not calculate is expenses at that
granular a level. Instead, director costs are included as part of
the overall general allocation.
---------------------------------------------------------------------------

* * * * *
Approximate Cost per 10Gb Connection per Month
    After determining the approximate allocated monthly cost related to
10Gb connectivity, the total monthly cost for 10Gb ULL connectivity of
$963,959 was divided by the number of physical 10Gb ULL connections the
Exchange maintained at the time that proposed pricing was determined
(108), to arrive at a cost of approximately $8,925 per month, per
physical 10Gb ULL connection. Due to the nature of this particular
cost, this allocation methodology results in an allocation among the
Exchange and its affiliated markets based on set quantifiable criteria,
i.e., actual number of 10Gb ULL connections.
* * * * *
Costs Related To Offering Full Service MEO Ports
    The following chart details the individual line-item costs
considered by the Exchange to be related to offering Full Service MEO
Ports as well as the percentage of the Exchange's overall costs such
costs represent for such area (e.g., as set forth below, the Exchange
allocated approximately 8.3% of its overall Human Resources cost to
offering Full Service MEO Ports).

----------------------------------------------------------------------------------------------------------------
                                                                     Allocated       Allocated
                          Cost drivers                              annual cost    monthly cost      % Of all
                                                                        \m\             \n\
----------------------------------------------------------------------------------------------------------------
Human Resources.................................................      $1,159,831         $96,653             8.3
Connectivity (external fees, cabling, switches, etc.)...........           1,589             132             1.4
Internet Services and External Market Data......................           6,033             503             1.4
Data Center.....................................................          41,881           3,490             3.4
Hardware and Software Maintenance and Licenses..................          22,438           1,870             1.4
Depreciation....................................................         127,986          10,666             3.9
Allocated Shared Expenses.......................................         284,374          23,698             3.6
                                                                 -----------------------------------------------
    Total.......................................................       1,644,132         137,012             5.8
----------------------------------------------------------------------------------------------------------------
m. See supra note k (describing rounding of Annual Costs).
n. See supra note l (describing rounding of Monthly Costs based on Annual Costs).

    Below are additional details regarding each of the line-item costs
considered by the Exchange to be related to offering Full Service MEO
Ports. While some costs were attempted to be allocated as equally as
possible among the Exchange and its affiliated markets, the Exchange
notes that some of its cost allocation percentages for certain cost
drivers differ when compared to the same cost drivers for the
Exchange's affiliated markets in their similar proposed fee changes for
connectivity and ports. This is because the Exchange's cost allocation
methodology utilizes the actual projected costs of the Exchange (which
are specific to the Exchange, and are independent of the costs
projected and utilized by the Exchange's affiliated markets) to
determine its actual costs, which may vary across the Exchange and its
affiliated markets based on factors that are unique to each
marketplace. The Exchange provides additional explanation below
(including the reason for the deviation) for the significant
differences.
Human Resources
    With respect to Full Service MEO Ports, the Exchange calculated
Human Resources cost by taking an allocation of employee time for
employees whose functions include providing Full Service MEO Ports and
maintaining performance thereof (including a broader range of employees
such as technical operations personnel, market operations personnel,
and software engineering personnel) as well as a limited subset of
personnel with ancillary functions related to maintaining such
connectivity (such as sales, membership, and finance personnel). Just
as described above for 10Gb ULL connectivity, the estimates of Human
Resources cost were again determined by consulting with department
leaders, determining which employees are involved in tasks related to
providing Full Service MEO Ports and maintaining performance thereof,
and confirming that the proposed allocations were reasonable based on
an understanding of the percentage of their time such employees devote
to tasks related to providing Full Service MEO Ports and maintaining
performance thereof. The Exchange notes that senior level executives
were allocated Human Resources costs to the extent they are involved in
overseeing tasks specifically related to providing Full Service MEO

Ports.\130\ This includes personnel from the following Exchange
departments that are predominately involved in providing Full Service
MEO Ports: Business Systems Development, Trading Systems Development,
Systems Operations and Network Monitoring, Network and Data Center
Operations, Listings, Trading Operations, and Project Management.
Senior level executives were only allocated Human Resources costs to
the extent that they are involved in managing personnel responsible for
tasks integral to providing Full Service MEO Ports. The Human Resources
cost was again calculated using a blended rate of compensation
reflecting salary, equity and bonus compensation, benefits, payroll
taxes, and 401(k) matching contributions.
---------------------------------------------------------------------------

    \130\ The Exchange notes that while 3.9 FTEs were allocated in
this filing to the Exchange related to Full Service MEO Ports and a
similar number of FTEs in similar filings by the Exchange's
affiliates, MIAX Emerald (2.5 FTEs) and MIAX (3.0 FTEs) related to
their Limited Service MEI Ports, the overall cost percentage
allocated for each differs due to the individual level of
compensation for each employee assigned to work on projects for the
exchanges.
---------------------------------------------------------------------------

Connectivity (External Fees, Cabling, Switches, etc.)
    The Connectivity cost includes external fees paid to connect to
other exchanges and cabling and switches, as described above.
Internet Services and External Market Data
    The next cost driver consists of internet services and external
market data. Internet services includes third-party service providers
that provide the internet, fiber and bandwidth connections between the
Exchange's networks, primary and secondary data centers, and office
locations in Princeton and Miami. For purposes of Full Service MEO
Ports, the Exchange also includes a portion of its costs related to
external market data. External market data includes fees paid to third
parties, including other exchanges, to receive and consume market data
from other markets. The Exchange includes external market data costs
towards the provision of Full Service MEO Ports because such market
data is necessary (in addition to physical connectivity) to offer
certain services related to such ports, such as validating orders on
entry against the NBBO and checking for other conditions (e.g., halted
securities).\131\ Thus, since market data from other exchanges is
consumed at the Exchange's Full Service MEO Port level in order to
validate orders, before additional processing occurs with respect to
such orders, the Exchange believes it is reasonable to allocate a small
amount of such costs to Full Service MEO Ports.
---------------------------------------------------------------------------

    \131\ The Exchange notes that MEMX separately allocated 7.5% of
its external market data costs to providing physical connectivity.
---------------------------------------------------------------------------

    The Exchange notes that the allocation for the internet Services
and External Market Data cost driver is lower than that of its
affiliate, MIAX, as MIAX allocated 7.2% of its internet Services and
External Market Data expense towards Limited Service MEI Ports, while
MIAX Pearl Options allocated 1.4% to its Full Service MEO Ports for the
same cost driver. The allocation percentages set forth above differ
because they directly correspond with the number of applicable ports
utilized on each exchange. For March 2023, MIAX Market Makers utilized
1,782 Limited Service MEI ports and MIAX Emerald Market Makers utilized
1,028 Limited Service MEI Ports. When compared to Full Service Port
(Bulk and Single) usage, for March 2023, MIAX Pearl Options Members
utilized only 432 Full Service MEO Ports (Bulk and Single), far fewer
than number of Limited Service MEI Ports utilized by Market Makers on
MIAX and MIAX Emerald, thus resulting in a smaller cost allocation.
There is increased cost associated with supporting a higher number of
ports (requiring more hardware and other technical infrastructure and
internet Service), thus the Exchange allocates a higher percentage of
expense than MIAX Pearl Options, which has a lower port count.
Data Center
    Data Center costs includes an allocation of the costs the Exchange
incurs to provide Full Service MEO Ports in the third-party data
centers where it maintains its equipment as well as related costs for
market data to then enter the Exchange's system via Full Service MEO
Ports (the Exchange does not own the Primary Data Center or the
Secondary Data Center, but instead, leases space in data centers
operated by third parties).
Hardware and Software Maintenance and Licenses
    Hardware and Software Licenses includes hardware and software
licenses used to monitor the health of the order entry services
provided by the Exchange, as described above.
    The Exchange notes that this allocation is less than its affiliate,
MIAX, as MIAX allocated 7.2% of its Hardware and Software Maintenance
and License expense towards Limited Service MEI Ports, while MIAX Pearl
Options allocated 1.4% to its Full Service MEO Ports (Bulk and Single)
for the same category of expense. The allocation percentages set forth
above differ because they correspond with the number of applicable
ports utilized on each exchange. For March 2023, MIAX Market Makers
utilized 1,782 Limited Service MEI ports and MIAX Emerald Market Makers
utilized 1,028 Limited Service MEI Ports. When compared to Full Service
Port (Bulk and Single) usage, for March 2023, MIAX Pearl Options
Members utilized only 432 Full Service MEO Ports (Bulk and Single), far
fewer than number of Limited Service MEI Ports utilized by Market
Makers on MIAX and MIAX Emerald, thus resulting in a smaller cost
allocation. There is increased cost associated with supporting a higher
number of ports (requiring more hardware and other technical
infrastructure), thus the Exchange allocates a higher percentage of
expense than MIAX Pearl Options, which has a lower port count.
Depreciation
    The vast majority of the software the Exchange uses to provide Full
Service MEO Ports has been developed in-house and the cost of such
development, which takes place over an extended period of time and
includes not just development work, but also quality assurance and
testing to ensure the software works as intended, is depreciated over
time once the software is activated in the production environment.
Hardware used to provide Full Service MEO Ports includes equipment used
for testing and monitoring of order entry infrastructure and other
physical equipment the Exchange purchased and is also depreciated over
time.
    All hardware and software were valued at cost, depreciated or
leased over periods ranging from three to five years. Thus, the
depreciation cost primarily relates to servers necessary to operate the
Exchange, some of which is owned by the Exchange and some of which is
leased by the Exchange in order to allow efficient periodic technology
refreshes. The Exchange allocated 3.9% of all depreciation costs to
providing Full Service MEO Ports. The Exchange allocated depreciation
costs for depreciated software necessary to operate the Exchange to
Full Service MEO Ports because such software is related to the
provision of Full Service MEO Ports. As with the other allocated costs
in the Exchange's updated Cost Analysis, the Depreciation cost driver
was therefore narrowly tailored to depreciation related to Full Service
MEO Ports.

    The Exchange notes that this allocation differs from its affiliated
markets due to a number of factors, such as the age of physical assets
and software (e.g., older physical assets and software were previously
depreciated and removed from the allocation), or certain system
enhancements that required new physical assets and software, thus
providing a higher contribution to the depreciated cost.
    For example, the Exchange notes that the percentage it allocated to
the depreciation cost driver for Full Service MEO Ports and the
percentage its affiliate, MIAX, allocated to the depreciation cost
driver for MIAX's Limited Service MEI Ports, differ by only 2.4%.
However, MIAX's approximate dollar amount is greater than that of MIAX
Pearl Options by approximately $9,000 per month. This is due to two
primary factors. First, MIAX has under gone a technology refresh since
the time MIAX Pearl Options launched in 2017, leading to it having more
hardware that software that is subject to depreciation. Second, MIAX
maintains 24 matching engines while MIAX Pearl Options maintains only
12 matching engines. This also results in more of MIAX's hardware and
software being subject to depreciation than MIAX Pearl Options'
hardware and software due to the greater amount of equipment and
software necessary to support the greater number of matching engines on
MIAX.
Allocated Shared Expenses
    Finally, a limited portion of general shared expenses was allocated
to overall Full Service MEO Ports costs as without these general shared
costs the Exchange would not be able to operate in the manner that it
does and provide application sessions. The costs included in general
shared expenses include general expenses of the Exchange, including
office space and office expenses (e.g., occupancy and overhead
expenses), utilities, recruiting and training, marketing and
advertising costs, professional fees for legal, tax and accounting
services (including external and internal audit expenses), and
telecommunications costs. The Exchange again notes that the cost of
paying directors to serve on its Board of Directors is included in the
calculation of Allocated Shared Expenses, and thus a portion of such
overall cost amounting to less than 4.0% of the overall cost for
directors was allocated to providing Full Service MEO Ports. The
Exchange notes that the 3.6% allocation of general shared expenses for
Full Service MEO Ports is lower than that allocated to general shared
expenses for physical connectivity based on its allocation methodology
that weighted costs attributable to each Core Service based on an
understanding of each area. While Full Service MEO Ports have several
areas where certain tangible costs are heavily weighted towards
providing such service (e.g., Data Centers, as described above), 10Gb
ULL connectivity requires a broader level of support from Exchange
personnel in different areas, which in turn leads to a broader general
level of cost to the Exchange.
    Lastly, the Exchange notes that this allocation is less than its
affiliate, MIAX, as MIAX allocated 9.8% of its Allocated Shared Expense
towards Limited Service MEI Ports, while MIAX Pearl Options allocated
3.6% to its Full Service MEO Ports (Bulk and Single) for the same
category of expense. The allocation percentages set forth above differ
because they correspond with the number of applicable ports utilized on
each exchange. For March 2023, MIAX Market Makers utilized 1,782
Limited Service MEI Ports and MIAX Emerald Market Makers utilized 1,028
Limited Service MEI ports. When compared to Full Service Port (Bulk and
Single) usage, for March 2023, MIAX Pearl Options Members utilized only
432 Full Service MEO Ports (Bulk and Single), far fewer than number of
Limited Service MEI Ports utilized by Market Makers on MIAX, thus
resulting in a smaller cost allocation. There is increased cost
associated with supporting a higher number of ports (requiring more
hardware and other technical infrastructure), thus the Exchange
allocates a higher percentage of expense than MIAX Pearl Options which
has a lower port count.
* * * * *
Approximate Cost per Limited Service MEI Port per Month
    The total monthly cost allocated to Full Service MEO Ports of
$137,012 was divided by the number of chargeable Full Service MEO Ports
the Exchange maintained at the time that proposed pricing was
determined (20 total; 16 Full Service MEO Port, Bulk, and 4 Full
Service MEO Port, Single), to arrive at a cost of approximately $6,851
per month, per charged Full Service MEO Port.
* * * * *
Cost Analysis--Additional Discussion
    In conducting its Cost Analysis, the Exchange did not allocate any
of its expenses in full to any core services (including physical
connectivity or Full Service MEO Ports) and did not double- count any
expenses. Instead, as described above, the Exchange allocated
applicable cost drivers across its core services and used the same Cost
Analysis to form the basis of this proposal and the filings the
Exchange submitted proposing fees for proprietary data feeds offered by
the Exchange. For instance, in calculating the Human Resources expenses
to be allocated to physical connections based upon the above described
methodology, the Exchange has a team of employees dedicated to network
infrastructure and with respect to such employees the Exchange
allocated network infrastructure personnel with a high percentage of
the cost of such personnel (42.9%) given their focus on functions
necessary to provide physical connections. The salaries of those same
personnel were allocated only 12.3% to Full Service MEO Ports and the
remaining 44.8% was allocated to 1Gb connectivity, other port services,
transaction services, membership services and market data. The Exchange
did not allocate any other Human Resources expense for providing
physical connections to any other employee group, outside of a smaller
allocation of 16.9% for 10Gb ULL connectivity or 17.3% for the entire
network, of the cost associated with certain specified personnel who
work closely with and support network infrastructure personnel. In
contrast, the Exchange allocated much smaller percentages of costs
(6.0% or less) across a wider range of personnel groups in order to
allocate Human Resources costs to providing Full Service MEO Ports.
This is because a much wider range of personnel are involved in
functions necessary to offer, monitor and maintain Full Service MEO
Ports but the tasks necessary to do so are not a primary or full-time
function.
    In total, the Exchange allocated 26.9% of its personnel costs to
providing 10Gb ULL and 1Gb ULL connectivity and 8.3% of its personnel
costs to providing Full Service MEO Ports, for a total allocation of
35.2% Human Resources expense to provide these specific connectivity
and port services. In turn, the Exchange allocated the remaining 64.8%
of its Human Resources expense to membership services, transaction
services, other port services and market data. Thus, again, the
Exchange's allocations of cost across core services were based on real
costs of operating the Exchange and were not double-counted across the
core services or their associated revenue streams.
    As another example, the Exchange allocated depreciation expense to
all core services, including physical

connections and Full Service MEO Ports, but in different amounts. The
Exchange believes it is reasonable to allocate the identified portion
of such expense because such expense includes the actual cost of the
computer equipment, such as dedicated servers, computers, laptops,
monitors, information security appliances and storage, and network
switching infrastructure equipment, including switches and taps that
were purchased to operate and support the network. Without this
equipment, the Exchange would not be able to operate the network and
provide connectivity services to its Members and non-Members and their
customers. However, the Exchange did not allocate all of the
depreciation and amortization expense toward the cost of providing
connectivity services, but instead allocated approximately 62.1% of the
Exchange's overall depreciation and amortization expense to
connectivity services (58.2% attributed to 10Gb ULL physical
connections and 3.9% to Full Service MEO Ports). The Exchange allocated
the remaining depreciation and amortization expense (approximately
37.9%) toward the cost of providing transaction services, membership
services, other port services and market data.
    The Exchange notes that its revenue estimates are based on
projections across all potential revenue streams and will only be
realized to the extent such revenue streams actually produce the
revenue estimated. The Exchange does not yet know whether such
expectations will be realized. For instance, in order to generate the
revenue expected from connectivity, the Exchange will have to be
successful in retaining existing clients that wish to maintain physical
connectivity and/or Full Service MEO Ports or in obtaining new clients
that will purchase such services. Similarly, the Exchange will have to
be successful in retaining a positive net capture on transaction fees
in order to realize the anticipated revenue from transaction pricing.
    The Exchange notes that the Cost Analysis is based on the
Exchange's 2023 fiscal year of operations and projections. It is
possible, however, that actual costs may be higher or lower. To the
extent the Exchange sees growth in use of connectivity services it will
receive additional revenue to offset future cost increases.
    However, if use of connectivity services is static or decreases,
the Exchange might not realize the revenue that it anticipates or needs
in order to cover applicable costs. Accordingly, the Exchange is
committing to conduct a one-year review after implementation of these
fees. The Exchange expects that it may propose to adjust fees at that
time, to increase fees in the event that revenues fail to cover costs
and a reasonable mark-up of such costs. Similarly, the Exchange may
propose to decrease fees in the event that revenue materially exceeds
our current projections. In addition, the Exchange will periodically
conduct a review to inform its decision making on whether a fee change
is appropriate (e.g., to monitor for costs increasing/decreasing or
subscribers increasing/decreasing, etc. in ways that suggest the then-
current fees are becoming dislocated from the prior cost-based
analysis) and would propose to increase fees in the event that revenues
fail to cover its costs and a reasonable mark-up, or decrease fees in
the event that revenue or the mark-up materially exceeds our current
projections. In the event that the Exchange determines to propose a fee
change, the results of a timely review, including an updated cost
estimate, will be included in the rule filing proposing the fee change.
More generally, we believe that it is appropriate for an exchange to
refresh and update information about its relevant costs and revenues in
seeking any future changes to fees, and the Exchange commits to do so.
Projected Revenue \132\
---------------------------------------------------------------------------

    \132\ For purposes of calculating revenue for 10Gb ULL
connectivity, the Exchange used revenues for February 2023, the
first full month for which it provided dedicated 10Gb ULL
connectivity to MIAX Pearl Options and ceased operating a shared
10Gb ULL network with MIAX.
---------------------------------------------------------------------------

    The proposed fees will allow the Exchange to cover certain costs
incurred by the Exchange associated with providing and maintaining
necessary hardware and other network infrastructure as well as network
monitoring and support services; without such hardware, infrastructure,
monitoring and support the Exchange would be unable to provide the
connectivity and port services. Much of the cost relates to monitoring
and analysis of data and performance of the network via the
subscriber's connection(s). The above cost, namely those associated
with hardware, software, and human capital, enable the Exchange to
measure network performance with nanosecond granularity. These same
costs are also associated with time and money spent seeking to
continuously improve the network performance, improving the
subscriber's experience, based on monitoring and analysis activity. The
Exchange routinely works to improve the performance of the network's
hardware and software. The costs associated with maintaining and
enhancing a state-of-the-art exchange network is a significant expense
for the Exchange, and thus the Exchange believes that it is reasonable
and appropriate to help offset those costs by amending fees for
connectivity services. Subscribers, particularly those of 10Gb ULL
connectivity, expect the Exchange to provide this level of support to
connectivity so they continue to receive the performance they expect.
This differentiates the Exchange from its competitors. As detailed
above, the Exchange has five primary sources of revenue that it can
potentially use to fund its operations: transaction fees, fees for
connectivity services, membership and regulatory fees, and market data
fees. Accordingly, the Exchange must cover its expenses from these five
primary sources of revenue.
    The Exchange's Cost Analysis estimates the annual cost to provide
10Gb ULL connectivity services will equal $11,567,509. Based on current
10Gb ULL connectivity services usage, the Exchange would generate
annual revenue of approximately $17,496,000. The Exchange believes this
represents a modest profit of 34% when compared to the cost of
providing 10Gb ULL connectivity services, which could decrease over
time.\133\ The Exchange's Cost Analysis estimates the annual cost to
provide Full Service MEO Port services will equal $1,644,132. Based on
current Full Service MEO Port services usage, the Exchange would
generate annual revenue of approximately $1,644,000. The Exchange
believes this would result in a small negative margin after calculating
the cost of providing Full Service MEO Port services, which could
decrease further over time.\134\
---------------------------------------------------------------------------

    \133\ Assuming the U.S. inflation rate continues at its current
rate, the Exchange believes that the projected profit margins in
this proposal will decrease; however, the Exchange cannot predict
with any certainty whether the U.S. inflation rate will continue at
its current rate or its impact on the Exchange's future profits or
losses. See, e.g., https://www.usinflationcalculator.com/inflation/current-inflation-rates/ (last visited June 15, 2023).
    \134\ Id.
---------------------------------------------------------------------------

    Based on the above discussion, even if the Exchange earns the above
revenue or incrementally more or less, the proposed fees are fair and
reasonable because they will not result in excessive pricing that
deviates from that of other exchanges or a supra-competitive profit,
when comparing the total expense of the Exchange associated with
providing 10Gb ULL connectivity and Full Service MEO Port services
versus the total projected revenue of the Exchange

associated with network 10Gb ULL connectivity and Full Service MEO Port
services.
    The Exchange also notes that this the resultant profit margin
differs slightly from the profit margins set forth in similar fee
filings by its affiliated markets. This is not atypical among exchanges
and is due to a number of factors that differ between these four
markets, including: different market models, market structures, and
product offerings (equities, options, price-time, pro-rata, simple, and
complex); different pricing models; different number of market
participants and connectivity subscribers; different maintenance and
operations costs, as described in the cost allocation methodology
above; different technical architecture (e.g., the number of matching
engines per exchange, i.e., the Exchange maintains 12 matching engines
while MIAX maintains 24 matching engines); and different maturity phase
of the Exchange and its affiliated markets (i.e., start-up versus
growth versus more mature). All of these factors contribute to a unique
and differing level of profit margin per exchange.
    Further, the Exchange proposes to charge rates that are comparable
to, or lower than, similar fees for similar products charged by
competing exchanges. For example, for 10Gb ULL connectivity, the
Exchange proposes a lower fee than the fee charged by Nasdaq for its
comparable 10Gb Ultra fiber connection ($13,500 per month for the
Exchange vs. $15,000 per month for Nasdaq).\135\ NYSE American charges
even higher fees for its comparable 10GB LX LCN connection than the
Exchange's proposed fees ($13,500 for the Exchange vs. $22,000 per
month for NYSE American).\136\ Accordingly, the Exchange believes that
comparable and competitive pricing are key factors in determining
whether a proposed fee meets the requirements of the Act, regardless of
whether that same fee across the Exchange's affiliated markets leads to
slightly different profit margins due to factors outside of the
Exchange's control (i.e., more subscribers to 10Gb ULL connectivity on
the Exchange than its affiliated markets or vice versa).
---------------------------------------------------------------------------

    \135\ See NASDAQ Pricing Schedule, Options 7, Section 3, Ports
and Other Services and NASDAQ Rules, General 8: Connectivity,
Section 1. Co-Location Services.
    \136\ See NYSE American Options Fee Schedule, Section V.A. Port
Fees and Section V.B. Co-Location Fees.
---------------------------------------------------------------------------

* * * * *
    The Exchange has operated at a cumulative net annual loss since it
launched operations in 2017.\137\ This is due to a number of factors,
one of which is choosing to forgo revenue by offering certain products,
such as low latency connectivity, at lower rates than other options
exchanges to attract order flow and encourage market participants to
experience the high determinism, low latency, and resiliency of the
Exchange's trading systems. The Exchange does not believe it should now
be penalized for seeking to raise its fees as it now needs to upgrade
its technology and absorb increased. Therefore, the Exchange believes
the proposed fees are reasonable because they are based on both
relative costs to the Exchange to provide dedicated 10Gb ULL
connectivity and Full Service MEO Ports, the extent to which the
product drives the Exchange's overall costs and the relative value of
the product, as well as the Exchange's objective to make access to its
Systems broadly available to market participants. The Exchange also
believes the proposed fees are reasonable because they are designed to
generate annual revenue to recoup the Exchange's costs of providing
dedicated 10Gb ULL connectivity and Full Service MEO Ports.
---------------------------------------------------------------------------

    \137\ The Exchange has incurred a cumulative loss of $79 million
since its inception in 2017 to 2021. 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 notes that its revenue estimate is based on
projections and will only be realized to the extent customer activity
produces the revenue estimated. As a competitor in the hyper-
competitive exchange environment, and an exchange focused on driving
competition, the Exchange does not yet know whether such projections
will be realized. For instance, in order to generate the revenue
expected from 10Gb ULL connectivity and Full Service MEO Ports, the
Exchange will have to be successful in retaining existing clients that
wish to utilize 10Gb ULL connectivity and Full Service MEO Ports and/or
obtaining new clients that will purchase such access. To the extent the
Exchange is successful in encouraging new clients to utilize 10Gb ULL
connectivity and Full Service MEO Ports, the Exchange does not believe
it should be penalized for such success. To the extent the Exchange has
mispriced and experiences a net loss in connectivity clients or in
transaction activity, the Exchange could experience a net reduction in
revenue. While the Exchange is supportive of transparency around costs
and potential margins (applied across all exchanges), as well as
periodic review of revenues and applicable costs (as discussed below),
the Exchange does not believe that these estimates should form the sole
basis of whether or not a proposed fee is reasonable or can be adopted.
Instead, the Exchange believes that the information should be used
solely to confirm that an Exchange is not earning--or seeking to earn--
supra-competitive profits. The Exchange believes the Cost Analysis and
related projections in this filing demonstrate this fact.
    The Exchange is owned by a holding company that is the parent
company of four exchange markets and, therefore, the Exchange and its
affiliated markets must allocate shared costs across all of those
markets accordingly, pursuant to the above-described allocation
methodology. In contrast, the Investors Exchange LLC (``IEX'') and
MEMX, which are currently each operating only one exchange, in their
recent non-transaction fee filings allocate the entire amount of that
same cost to a single exchange. This can result in lower profit margins
for the non-transaction fees proposed by IEX and MEMX because the
single allocated cost does not experience the efficiencies and
synergies that result from sharing costs across multiple platforms. The
Exchange and its affiliated markets often share a single cost, which
results in cost efficiencies that can cause a broader gap between the
allocated cost amount and projected revenue, even though the fee levels
being proposed are lower or competitive with competing markets (as
described above). To the extent that the application of a cost-based
standard results in Commission Staff making determinations as to the
appropriateness of certain profit margins, the Exchange believes that
Commission Staff should also consider whether the proposed fee level is
comparable to, or competitive with, the same fee charged by competing
exchanges and how different cost allocation methodologies (such as
across multiple markets) may result in different profit margins for
comparable fee levels. Further, if Commission Staff is making
determinations as to appropriate profit margins in their approval of
exchange fees, the Exchange believes that the Commission should be
clear to all market participants as to what they have determined is an
appropriate profit margin and should apply such determinations
consistently and, in the case of certain legacy exchanges,
retroactively, if such standards are to avoid having a discriminatory
effect.
    Further, as is reflected in the proposal, the Exchange continuously

and aggressively works to control its costs as a matter of good
business practice. A potential profit margin should not be evaluated
solely on its size; that assessment should also consider cost
management and whether the ultimate fee reflects the value of the
services provided. For example, a profit margin on one exchange should
not be deemed excessive where that exchange has been successful in
controlling its costs, but not excessive on another exchange where that
exchange is charging comparable fees but has a lower profit margin due
to higher costs. Doing so could have the perverse effect of not
incentivizing cost control where higher costs alone could be used to
justify fees increases.
The Proposed Pricing is not Unfairly Discriminatory and Provides for
the Equitable Allocation of Fees, Dues, and Other Charges
    The Exchange believes that the proposed fees are reasonable, fair,
equitable, and not unfairly discriminatory because they are designed to
align fees with services provided and will apply equally to all
subscribers.
10Gb ULL Connectivity
    The Exchange believes that the proposed fees are equitably
allocated among users of the network connectivity and port
alternatives, as the users of 10Gb ULL connections consume
substantially more bandwidth and network resources than users of 1Gb
ULL connection. Specifically, the Exchange notes that 10Gb ULL
connection users account for more than 99% of message traffic over the
network, driving other costs that are linked to capacity utilization,
as described above, while the users of the 1Gb ULL connections account
for less than 1% of message traffic over the network. In the Exchange's
experience, users of the 1Gb connections do not have the same business
needs for the high-performance network as 10Gb ULL users.
    The Exchange's high-performance network and supporting
infrastructure (including employee support), provides unparalleled
system throughput with the network ability to support access to several
distinct options markets. 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
network connectivity expense for storage and network transport
capabilities. The Exchange must also purchase additional storage
capacity on an ongoing basis to ensure it has sufficient capacity to
store these messages to satisfy its record keeping requirements under
the Exchange Act.\138\ Thus, as the number of messages an entity
increases, certain other costs incurred by the Exchange that are
correlated to, though not directly affected by, connection costs (e.g.,
storage costs, surveillance costs, service expenses) also increase.
Given this difference in network utilization rate, the Exchange
believes that it is reasonable, equitable, and not unfairly
discriminatory that the 10Gb ULL users pay for the vast majority of the
shared network resources from which all market participants' benefit.
---------------------------------------------------------------------------

    \138\ 17 CFR 240.17a-1 (recordkeeping rule for national
securities exchanges, national securities associations, registered
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

Full Service MEO Ports
    The tiered pricing structure for Full Service MEO Ports has been in
effect since 2018.\139\ The Exchange now proposes a pricing structure
that is used by the Exchange's affiliates, MIAX and MIAX Emerald,
except with lower pricing for each tier for Full Service MEO Ports
(Bulk) and a flat fee for Full Service MEO Ports (Single). Members that
are frequently in the highest tier for Full Service MEO Ports consume
the most bandwidth and resources of the network. Specifically, as noted
above for 10Gb ULL connectivity, Market Makers who reach the highest
tier for Full Service MEO Ports (Bulk) account for greater than 84% of
ADV on the Exchange, while Market Makers that are typically in the
lowest Tier for Full Service MEO Ports, account for less than 14% of
ADV on the Exchange. The remaining 1% is accounted for by Market Makers
who are frequently in the middle Tier for Full Service MEO Ports
(Bulk).
---------------------------------------------------------------------------

    \139\ See Securities Exchange Act Release No. 82867 (March 13,
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
---------------------------------------------------------------------------

    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
during anticipated peak market conditions. The need to support billions
of messages per day consume the Exchange's resources and significantly
contribute to the overall network connectivity expense for storage and
network transport capabilities. The Exchange must also purchase
additional storage capacity on an ongoing basis to ensure it has
sufficient capacity to store these messages as part of it surveillance
program and to satisfy its record keeping requirements under the
Exchange Act.\140\ Thus, as the number of connections a Market Maker
has increases, the related pull on Exchange resources also increases.
The Exchange sought to design the proposed tiered-pricing structure to
set the amount of the fees to relate to the number of connections a
firm purchases. The more connections purchased by a Market Maker likely
results in greater expenditure of Exchange resources and increased cost
to the Exchange.
---------------------------------------------------------------------------

    \140\ 17 CFR 240.17a-1 (recordkeeping rule for national
securities exchanges, national securities associations, registered
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

    The Exchange further believes that the proposed fees are
reasonable, equitably allocated and not unfairly discriminatory
because, for the flat fee, the Exchange provides each Member two (2)
Full Service MEO Ports for each matching engine to which that Member is
connected. Unlike other options exchanges that provide similar port
functionality and charge fees on a per port basis,\141\ the Exchange
offers Full Service MEO Ports as a package and provides Members with
the option to receive up to two Full Service MEO Ports per matching
engine to which it connects. The Exchange currently has twelve (12)
matching engines, which means Members may receive up to twenty-four
(24) Full Service MEO Ports for a single monthly fee, that can vary
based on certain volume percentages. The Exchange currently assesses
Members a fee of $5,000 per month in the highest Full Service MEO
Port--Bulk Tier, regardless of the number of Full Service MEO Ports
allocated to the Member. Assuming a Member connects to all twelve (12)
matching engines during a month, with two Full Service MEO Ports per
matching engine, this results in a cost of $208.33 per Full Service MEO
Port--Bulk ($5,000 divided by 24) for the month. This fee has been
unchanged since the Exchange adopted Full Service MEO Port fees in
2018.\142\ Members will continue to receive two (2) Full Service MEO
Ports to each matching engine to which they are connected for the
single flat monthly fee. Assuming a Member connects to all twelve (12)
matching engines during the month, and achieves the highest Tier for
that month, with two Full Service MEO Ports (Bulk) per matching engine,
this would result in a cost of $500 per Full

Service MEO Port ($12,000 divided by 24).
---------------------------------------------------------------------------

    \141\ See supra notes b to j and accompanying text.
    \142\ See Securities Exchange Act Release No. 82867 (March 13,
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
---------------------------------------------------------------------------

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 that is not necessary or appropriate
in furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes the proposed fees will not result in any
burden on intra-market competition that is not necessary or appropriate
in furtherance of the purposes of the Act because the proposed fees
will allow the Exchange to recoup some of its costs in providing 10Gb
ULL connectivity and Full Service MEO Ports at below market rates to
market participants since the Exchange launched operations. As
described above, the Exchange has operated at a cumulative net annual
loss since it launched operations in 2017 \143\ due to 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 and Exchange products or
provide them at a very lower fee, which was not profitable to the
Exchange. This resulted in the Exchange forgoing revenue it could have
generated from assessing any fees or higher fees. The Exchange could
have sought to charge higher fees at the outset, but that could have
served to discourage participation on the Exchange. Instead, the
Exchange chose to provide a low-cost exchange alternative to the
options industry, which resulted in lower initial revenues. Examples of
this are 10Gb ULL connectivity and Full Service MEO Ports, for which
the Exchange only now seeks to adopt fees at a level similar to or
lower than those of other options exchanges.
---------------------------------------------------------------------------

    \143\ See supra note 137.
---------------------------------------------------------------------------

    Further, the Exchange does not believe that the proposed fee
increase for the 10Gb ULL connection change would place certain market
participants at the Exchange at a relative disadvantage compared to
other market participants or affect the ability of such market
participants to compete. As is the case with the current proposed flat
fee, the proposed fee would apply uniformly to all market participants
regardless of the number of connections they choose to purchase. The
proposed fee does not favor certain categories of market participants
in a manner that would impose an undue burden on competition.
    The Exchange does not believe that the proposed rule change would
place certain market participants at the Exchange at a relative
disadvantage compared to other market participants or affect the
ability of such market participants to compete. In particular, Exchange
personnel has been informally discussing potential fees for
connectivity services with a diverse group of market participants that
are connected to the Exchange (including large and small firms, firms
with large connectivity service footprints and small connectivity
service footprints, as well as extranets and service bureaus) for
several months leading up to that time. The Exchange does not believe
the proposed fees for connectivity services would negatively impact the
ability of Members, non-Members (extranets or service bureaus), third-
parties that purchase the Exchange's connectivity and resell it, and
customers of those resellers to compete with other market participants
or that they are placed at a disadvantage.
    The Exchange does anticipate, however, that some market
participants may reduce or discontinue use of connectivity services
provided directly by the Exchange in response to the proposed fees. In
fact, as mentioned above, one MIAX Pearl Options Market Maker
terminated their membership on January 1, 2023 as a direct result of
the proposed fee changes.\144\ The Exchange does not believe that the
proposed fees for connectivity services place certain market
participants at a relative disadvantage to other market participants
because the proposed connectivity pricing is associated with relative
usage of the Exchange by each market participant and does not impose a
barrier to entry to smaller participants. The Exchange believes its
proposed pricing is reasonable and, when coupled with the availability
of third-party providers that also offer connectivity solutions, that
participation on the Exchange is affordable for all market
participants, including smaller trading firms. As described above, the
connectivity services purchased by market participants typically
increase based on their additional message traffic and/or the
complexity of their operations. The market participants that utilize
more connectivity services typically utilize the most bandwidth, and
those are the participants that consume the most resources from the
network. Accordingly, the proposed fees for connectivity services do
not favor certain categories of market participants in a manner that
would impose a burden on competition; rather, the allocation of the
proposed connectivity fees reflects the network resources consumed by
the various size of market participants and the costs to the Exchange
of providing such connectivity services.
---------------------------------------------------------------------------

    \144\ The Exchange acknowledges that IEX included in its
proposal to adopt market data fees after offering market data for
free an analysis of what its projected revenue would be if all of
its existing customers continued to subscribe versus what its
projected revenue would be if a limited number of customers
subscribed due to the new fees. See Securities Exchange Act Release
No. 94630 (April 7, 2022), 87 FR 21945 (April 13, 2022) (SR-IEX-
2022-02). MEMX did not include a similar analysis in either of its
recent non-transaction fee proposals. See, e.g., supra note 90. The
Exchange does not believe a similar analysis would be useful here
because it is amending existing fees, not proposing to charge a new
fee where existing subscribers may terminate connections because
they are no longer enjoying the service at no cost.
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Inter-Market Competition
    The Exchange also does not believe that the proposed rule change
will result in any burden on inter-market competition that is not
necessary or appropriate in furtherance of the purposes of the Act. As
discussed above, options market participants are not forced to connect
to all options exchanges. There is no reason to believe that our
proposed price increase will harm another exchange's ability to
compete. There are other options markets of which market participants
may connect to trade options at higher rates than the Exchange's. There
is also a range of alternative strategies, including routing to the
exchange through another participant or market center or accessing the
Exchange indirectly. Market participants are free to choose which
exchange or reseller to use to satisfy their business needs.
Accordingly, the Exchange does not believe its proposed fee changes
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
    The Exchange also believes that the proposed fees for 10Gb
connectivity are appropriate and warranted in light of it bifurcating
10Gb connectivity between the Exchange and MIAX and would not impose
any burden on competition because this is a technology driven change
that would assist the Exchange in recovering costs related to providing
dedicating 10Gb connectivity to the Exchange while enabling it to
continue to meet current and anticipated demands for connectivity by
its Members and other market participants. Separating its 10Gb network
from MIAX would enable the Exchange to better compete with other
exchanges by ensuring it can continue to provide

adequate connectivity to existing and new Members, which may increase
in ability to compete for order flow and deepen its liquidity pool,
improving the overall quality of its market.
    The proposed rates for 10Gb ULL connectivity are also driven by the
Exchange's need to bifurcate its 10Gb ULL network shared with MIAX so
that it can continue to meet current and anticipated connectivity
demands of all market participants. Similarly, and also in connection
with a technology change, Cboe Exchange, Inc. (``Cboe'') amended access
and connectivity fees, including port fees.\145\ Specifically, Cboe
adopted certain logical ports to allow for the delivery and/or receipt
of trading messages--i.e., orders, accepts, cancels, transactions, etc.
Cboe established tiered pricing for BOE and FIX logical ports, tiered
pricing for BOE Bulk ports, and flat prices for DROP, Purge Ports, GRP
Ports and Multicast PITCH/Top Spin Server Ports. Cboe argued in its fee
proposal that the proposed pricing more closely aligned its access fees
to those of its affiliated exchanges, and reasonably so, as the
affiliated exchanges offer substantially similar connectivity and
functionality and are on the same platform that Cboe migrated to.\146\
Cboe also justified its proposal by stating that, ``. . . the Exchange
believes substitutable products and services are in fact available to
market participants, including, among other things, other options
exchanges a market participant may connect to in lieu of the Exchange,
indirect connectivity to the Exchange via a third-party reseller of
connectivity and/or trading of any options product, including
proprietary products, in the Over- the-Counter (OTC) markets.'' \147\
Cboe stated in its proposal that,
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    \145\ See Securities Exchange Act Release No. 90333 (November 4,
2020), 85 FR 71666 (November 10, 2020) (SR-CBOE-2020-105). The
Exchange notes that Cboe submitted this filing after the Staff
Guidance and contained no cost based justification.
    \146\ Id. at 71676.
    \147\ Id.

    The rule structure for options exchanges are also fundamentally
different from those of equities exchanges. In particular, options
market participants are not forced to connect to (and purchase
market data from) all options exchanges. For example, there are many
order types that are available in the equities markets that are not
utilized in the options markets, which relate to mid-point pricing
and pegged pricing which require connection to the SIPs and each of
the equities exchanges in order to properly execute those orders in
compliance with best execution obligations. Additionally, in the
options markets, the linkage routing and trade through protection
are handled by the exchanges, not by the individual members. Thus
not connecting to an options exchange or disconnecting from an
options exchange does not potentially subject a broker-dealer to
violate order protection requirements. Gone are the days when the
retail brokerage firms (such as Fidelity, Schwab, and eTrade) were
members of the options exchanges--they are not members of the
Exchange or its affiliates, they do not purchase connectivity to the
Exchange, and they do not purchase market data from the Exchange.
Accordingly, not only is there not an actual regulatory requirement
to connect to every options exchange, the Exchange believes there is
also no ``de facto'' or practical requirement as well, as further
evidenced by the recent significant reduction in the number of
broker-dealers that are members of all options exchanges.\148\
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    \148\ Id. at 71676.

    The proposal also referenced the National Market System Plan
Governing the Consolidated Audit Trail (``CAT NMS Plan''),\149\ wherein
the Commission discussed the existence of competition in the
marketplace generally, and particularly for exchanges with unique
business models. The Commission acknowledged that, even if an exchange
were to exit the marketplace due to its proposed fee-related change, it
would not significantly impact competition in the market for exchange
trading services because these markets are served by multiple
competitors.\150\ Further, the Commission explicitly stated that
``[c]onsequently, demand for these services in the event of the exit of
a competitor is likely to be swiftly met by existing competitors.''
\151\ Finally, the Commission recognized that while some exchanges may
have a unique business model that is not currently offered by
competitors, a competitor could create similar business models if
demand were adequate, and if a competitor did not do so, the Commission
believes it would be likely that new entrants would do so if the
exchange with that unique business model was otherwise profitable.\152\
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    \149\ See Securities Exchange Act Release No. 86901 (September
9, 2019), 84 FR 48458 (September 13, 2019) (File No. S7-13-19).
    \150\ Id.
    \151\ Id.
    \152\ Id.
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    Cboe also filed to establish a monthly fee for Certification
Logical Ports of $250 per Certification Logical Port.\153\ Cboe
reasoned that purchasing additional Certification Logical Ports, beyond
the one Certification Logical Port per logical port type offered in the
production environment free of charge, is voluntary and not required in
order to participate in the production environment, including live
production trading on the Exchange.\154\
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    \153\ See Securities Exchange Act Release No. 94512 (March 24,
2002), 87 FR 18425 (March 30, 2022) (SR-Cboe-2022-011). Cboe offers
BOE and FIX Logical Ports, BOE Bulk Logical Ports, DROP Logical
Ports, Purge Ports, GRP Ports and Multicast PITCH/Top Spin Server
Ports. For each type of the aforementioned logical ports that are
used in the production environment, the Exchange also offers
corresponding ports which provide Trading Permit Holders and non-
TPHs access to the Exchange's certification environment to test
proprietary systems and applications (i.e., ``Certification Logical
Ports'').
    \154\ See Securities Exchange Act Release No. 94512 (March 24,
2002), 87 FR 18425 (March 30, 2022) (SR-Cboe-2022-011).
---------------------------------------------------------------------------

    In its statutory basis, Cboe justified the new port fee by stating
that it believed the Certification Logical Port fee were reasonable
because while such ports were no longer completely free, TPHs and non-
TPHs would continue to be entitled to receive free of charge one
Certification Logical Port for each type of logical port that is
currently offered in the production environment.\155\ Cboe noted that
other exchanges assess similar fees and cited to NASDAQ LLC and
MIAX.\156\ Cboe also noted that the decision to purchase additional
ports is optional and no market participant is required or under any
regulatory obligation to purchase excess Certification Logical Ports in
order to access the Exchange's certification environment.\157\ Finally,
similar proposals to adopt a Certification Logical Port monthly fee
were filed by Cboe BYX Exchange, Inc.,\158\ BZX,\159\ and Cboe EDGA
Exchange, Inc.\160\
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    \155\ Id. at 18426.
    \156\ Id.
    \157\ Id.
    \158\ See Securities Exchange Act Release No. 94507 (March 24,
2002), 87 FR 18439 (March 30, 2022) (SR-CboeBYX-2022-004).
    \159\ See Securities Exchange Act Release No. 94511 (March 24,
2002), 87 FR 18411 (March 30, 2022) (SR-CboeBZX-2022-021).
    \160\ See Securities Exchange Act Release No. 94517 (March 25,
2002), 87 FR 18848 (March 31, 2022) (SR-CboeEDGA-2022-004).
---------------------------------------------------------------------------

    The Cboe fee proposals described herein were filed subsequent to
the D.C. Circuit decision in Susquehanna Int'l Grp., LLC v. SEC, 866
F.3d 442 (D.C. Cir. 2017), meaning that such fee filings were subject
to the same (and current) standard for SEC review and approval as this
proposal. In summary, the Exchange requests the Commission apply the
same standard of review to this proposal which was applied to the
various Cboe and Cboe affiliated markets' filings with respect to non-
transaction fees. If the Commission were to apply a different standard
of review to this proposal than it applied to other exchange fee
filings it would create a burden on competition such that it would
impair the Exchange's ability to make necessary technology driven
changes, such as bifurcating its 10Gb ULL network, because it would be
unable to monetize or recoup costs

related to that change and compete with larger, non-legacy exchanges.
* * * * *
    In conclusion, as discussed thoroughly above, the Exchange
regrettably believes that the application of the Revised Review Process
and Staff Guidance has adversely affected inter-market competition
among legacy and non-legacy exchanges by impeding the ability of non-
legacy exchanges to adopt or increase fees for their market data and
access services (including connectivity and port products and services)
that are on parity or commensurate with fee levels previously
established by legacy exchanges. Since the adoption of the Revised
Review Process and Staff Guidance, and even more so recently, it has
become extraordinarily difficult to adopt or increase fees to generate
revenue necessary to invest in systems, provide innovative trading
products and solutions, and improve competitive standing to the benefit
of non-legacy exchanges' market participants. Although the Staff
Guidance served an important policy goal of improving disclosures and
requiring exchanges to justify that their market data and access fee
proposals are fair and reasonable, it has also negatively impacted non-
legacy exchanges in particular in their efforts to adopt or increase
fees that would enable them to more fairly compete with legacy
exchanges, despite providing enhanced disclosures and rationale under
both competitive and cost basis approaches provided for by the Revised
Review Process and Staff Guidance to support their proposed fee
changes.

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

    The Exchange received one comment letter on the Initial Proposal,
one comment letter on the Second Proposal, and one comment letter on
the Third Proposal, all from the same commenter.\161\ In their letters,
the sole commenter seeks to incorporate comments submitted on previous
Exchange proposals to which the Exchange has previously responded. To
the extent the sole commenter has attempted to raise new issues in its
letters, the Exchange believes those issues are not germane to this
proposal in particular, but rather raise larger issues with the current
environment surrounding exchange non-transaction fee proposals that
should be addressed by the Commission through rule making, or Congress,
more holistically and not through an individual exchange fee filing.
Among other things, the commenter is requesting additional data and
information that is both opaque and a moving target and would
constitute a level of disclosure materially over and above that
provided by any competitor exchanges.
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    \161\ See letter from Brian Sopinsky, General Counsel,
Susquehanna International Group, LLP (``SIG''), to Vanessa
Countryman, Secretary, Commission, dated February 7, 2023, and
letters from Gerald D. O'Connell, SIG, to Vanessa Countryman,
Secretary, Commission, dated March 21, 2023 and May 24, 2023.
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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,\162\ and Rule 19b-4(f)(2) \163\ 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.
---------------------------------------------------------------------------

    \162\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \163\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

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

Electronic Comments

     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-2023-27 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-2023-27. 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-PEARL-2023-27 and should be
submitted on or before July 24, 2023.
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    \164\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\164\
Vanessa A. Countryman,
Secretary.
[FR Doc. 2023-14020 Filed 6-30-23; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 78, Number 4 (Monday, January 7, 2013)]
[Notices]
[Page 936]
[FR Doc No: 2013-00017]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Project No. 2558-029]

Green Mountain Power Corporation; Notice of Availability of Draft
Environmental Assessment

    In accordance with the National Environmental Policy Act of 1969
and the Federal Energy Regulatory Commission (Commission) regulations,
18 CFR part 380 (Order No. 486, 52 FR 47897), the Office of Energy
Projects has reviewed the application for a new license for the 21.595-
megawatt (MW) Otter Creek Hydroelectric Project (Commission Project No.
2558-029) and has prepared a draft environmental assessment (draft EA).
The project consists of three developments (Proctor, Beldens, and
Huntington Falls) located on Otter Creek in Addison and Rutland
counties, Vermont.
    In the draft EA, Commission staff analyzes the potential
environmental effects of relicensing the project and concludes that
issuing a new license for the project, with appropriate environmental
measures, would not constitute a major federal action significantly
affecting the quality of the human environment.
    A copy of the draft EA is available for review at the Commission in
the Public Reference Room or may be viewed on the Commission's Web site
at www.ferc.gov using the ``eLibrary'' link. Enter the docket number,
excluding the last three digits, in the docket number field to access
the document. For assistance, contact Commission Online Support at
<EMAIL_ADDRESS>toll-free at 1-866-208-3676; or for
TTY,<PHONE_NUMBER>.
    You may also register online at www.ferc.gov/docs-filing/esubscription.asp to be notified via email of new filings and issuances
related to this or other pending projects. For assistance, contact
Commission Online Support.
    Any comments should be filed within 30 days from the date of this
notice. Comments may be filed electronically via the Internet. See 18
CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web
site www.ferc.gov/docfiling/efiling.asp. Commenters can submit brief
comments up to 6,000 characters, without prior registration, using the
eComment system at www.ferc.gov/docsfiling/ecomment.asp. You must
include your name and contact information at the end of your comments.
For assistance, please contact Commission Online Support. Although the
Commission strongly encourages electronic filing, documents may also be
paper-filed. To paper-file, mail an original and seven copies to:
Kimberly D. Bose, Secretary, Federal Energy Regulatory Commission, 888
First Street NE., Washington, DC 20426. Please affix, ``Otter Creek
Hydroelectric Project, P-2558-029'' to all comments.
    For further information, contact Aaron Liberty at<PHONE_NUMBER> or
by email at<EMAIL_ADDRESS>
    Dated: December 21, 2012.
Kimberly D. Bose,
Secretary.
[FR Doc. 2013-00017 Filed 1-4-13; 8:45 am]
BILLING CODE 6717-01-P