[Federal Register Volume 88, Number 201 (Thursday, October 19, 2023)]
[Notices]
[Pages 72117-72142]
[FR Doc No: 2023-23040]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98752; File No. SR-MIAX-2023-39]

Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Its Fee Schedule To Modify Certain
Connectivity and Port Fees

October 13, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 2, 2023, Miami International Securities Exchange, LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Options
Exchange Fee Schedule (``Fee Schedule'') to amend certain connectivity
and port fees.
    The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings, at MIAX's
principal office, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule as follows: (1)
increase the fees for a 10 gigabit (``Gb'') ultra-low latency (``ULL'')
fiber connection for Members \3\ and non-Members; and (2) amend the
monthly port fee for additional Limited Service MIAX Express Interface
(``MEI'') Ports \4\ available to Market Makers.\5\ The Exchange and its
affiliate, MIAX PEARL, LLC (``MIAX Pearl'') operated 10Gb ULL
connectivity (for MIAX Pearl's options market) on a single shared
network that provided access to both exchanges via a single 10Gb ULL
connection. The Exchange last increased fees for 10Gb ULL connections
from $9,300 to $10,000 per month on January 1, 2021.\6\ At the same
time, MIAX Pearl also increased its 10Gb ULL connectivity fee from
$9,300 to $10,000 per month.\7\ The Exchange and MIAX Pearl shared a
combined cost analysis in those filings due to the single shared 10Gb
ULL connectivity network for both exchanges. In those filings, the
Exchange and MIAX Pearl allocated a combined total of $17.9 million in
expenses to providing 10Gb ULL connectivity.\8\
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    \3\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
    \4\ The MIAX Express Interface (``MEI'') is a connection to MIAX
systems that enables Market Makers to submit simple and complex
electronic quotes to MIAX. See Fee Schedule, note 26.
    \5\ The term ``Market Makers'' refers to Lead Market Makers
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered
Market Makers (``RMMs'') collectively. See Exchange Rule 100. For
purposes of Limit Service MEI Ports, Market Makers also include
firms that engage in other types of liquidity activity, such as
seeking to remove resting liquidity from the Exchange's Book.
    \6\ See Securities Exchange Act Release No. 90980 (January 25,
2021), 86 FR 7602 (January 29, 2021) (SR-MIAX-2021-02).
    \7\ See Securities Exchange Act Release No. 90981 (January 25,
2021), 86 FR 7582 (January 29, 2021) (SR-PEARL-2021-01).
    \8\ See id.
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    Beginning in late January 2023, the Exchange also recently
determined a substantial operational need to no longer operate 10Gb ULL
connectivity on a single shared network with MIAX Pearl. The Exchange
bifurcated 10Gb ULL connectivity due to ever-increasing

capacity constraints and to enable it to continue to satisfy the
anticipated access needs for Members and other market participants.\9\
Since the time of the 2021 increase discussed above, the Exchange
experienced ongoing increases in expenses, particularly internal
expenses.\10\ As discussed more fully below, the Exchange recently
calculated increased annual aggregate costs of $12,034,554 for
providing 10Gb ULL connectivity on a single unshared network (an
overall increase over its prior cost to provide 10Gb ULL connectivity
on a shared network with MIAX Pearl) and $2,157,178 for providing
Limited Service MEI Ports.
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    \9\ See MIAX Options and MIAX Pearl Options--Announce planned
network changes related to shared 10G ULL extranet, issued August
12, 2022, available at https://www.miaxglobal.com/alert/2022/08/12/miax-options-and-miax-pearl-options-announce-planned-network-changes-0. The Exchange will continue to provide access to both the
Exchange and MIAX Pearl over a single shared 1Gb connection. See
Securities Exchange Act Release Nos. 96553 (December 20, 2022), 87
FR 79379 (December 27, 2022) (SR-PEARL-2022-60); 96545 (December 20,
2022) 87 FR 79393 (December 27, 2022) (SR-MIAX-2022-48).
    \10\ For example, the New York Stock Exchange, Inc.'s (``NYSE'')
Secure Financial Transaction Infrastructure (``SFTI'') network,
which contributes to the Exchange's connectivity cost, increased its
fees by approximately 9% since 2021. Similarly, since 2021, the
Exchange, and its affiliates, experienced an increase in data center
costs of approximately 17% and an increase in hardware and software
costs of approximately 19%. These percentages are based on the
Exchange's actual 2021 and proposed 2023 budgets.
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    Much of the cost relates to monitoring and analysis of data and
performance of the network via the subscriber's connection with
nanosecond granularity, and continuous improvements in network
performance with the goal of improving the subscriber's experience. The
costs associated with maintaining and enhancing a state-of-the-art
network is a significant expense for the Exchange, and thus the
Exchange believes that it is reasonable and appropriate to help offset
those increased costs by amending fees for connectivity services.
Subscribers expect the Exchange to provide this level of support so
they continue to receive the performance they expect. This
differentiates the Exchange from its competitors.
    The Exchange now proposes to amend the Fee Schedule to amend the
fees for 10Gb ULL connectivity and Limited Service MEI Ports in order
to recoup cost related to bifurcating 10Gb connectivity to the Exchange
and MIAX Pearl as well as the ongoing costs and increase in expenses
set forth below in the Exchange's cost analysis.\11\ The Exchange
proposes to implement the changes to the Fee Schedule pursuant to this
proposal immediately. The Exchange initially filed the proposal on
December 30, 2022 (SR-MIAX-2022-50) (the ``Initial Proposal'').\12\ On
February 23, 2023, the Exchange withdrew the Initial Proposal and
replaced it with a revised proposal (SR-MIAX-2023-08) (the ``Second
Proposal'').\13\ On April 20, 2023, the Exchange withdrew the Second
Proposal and replaced it with a revised proposal (SR-MIAX-2023-18) (the
``Third Proposal'').\14\ On June 16, 2023, the Exchange withdrew the
Third Proposal and replaced it with a revised proposal (SR-MIAX-2023-
25) (the ``Fourth Proposal'').\15\ On August 8, 2023, the Exchange
withdrew the Fourth Proposal and replaced it with a revised proposal
(SR-MIAX-2023-30) (the ``Fifth Proposal'').\16\ Since a U.S. government
shutdown was avoided, on October 2, 2023, the Exchange withdrew the
Fifth Proposal and replaced it with this further revised proposal (SR-
MIAX-2023-39) (the ``Sixth Proposal'').
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    \11\ The Exchange notes that MIAX Pearl Options will make a
similar filing to increase its 10Gb ULL connectivity fees.
    \12\ See Securities Exchange Act Release No. 96629 (January 10,
2023), 88 FR 2729 (January 17, 2023) (SR-MIAX-2022-50).
    \13\ See Securities Exchange Act Release No. 97081 (March 8,
2023), 88 FR 15782 (March 14, 2023) (SR-MIAX-2023-08).
    \14\ See Securities Exchange Act Release No. 97419 (May 2,
2023), 88 FR 29777 (May 8, 2023) (SR-MIAX-2023-18).
    \15\ The Exchange met with Commission Staff to discuss the Third
Proposal during which the Commission Staff provided feedback and
requested additional information, including, most recently,
information about total costs related to certain third party
vendors. Such vendor cost information is subject to confidentiality
restrictions. The Exchange provided this information to Commission
Staff under separate cover with a request for confidentiality. While
the Exchange will continue to be responsive to Commission Staff's
information requests, the Exchange believes that the Commission
should, at this point, issue substantially more detailed guidance
for exchanges to follow in the process of pursuing a cost-based
approach to fee filings, and that, for the purposes of fair
competition, detailed disclosures by exchanges, such as those that
the Exchange is providing now, should be consistent across all
exchanges, including for those that have resisted a cost-based
approach to fee filings, in the interests of fair and even
disclosure and fair competition. See Securities Exchange Act Release
No. 97814 (June 27, 2023), 88 FR 42844 (July 3, 2023) (SR-MIAX-2023-
25).
    \16\ See Securities Exchange Act Release No. 98173 (August 21,
2023), 88 FR 58378 (August 25, 2023) (SR-MIAX-2023-30). Due to the
prospect of a U.S. government shutdown, the Commission suspended the
Fifth Proposal on September 29, 2023. See Securities Exchange Act
Release No. 98657 (September 29, 2023) (SR-MIAX-2023-30).
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    The Exchange previously included a cost analysis in the Initial,
Second, Third, Fourth and Fifth Proposals. As described more fully
below, the Exchange provides an updated cost analysis that includes,
among other things, additional descriptions of how the Exchange
allocated costs among it and its affiliated exchanges (MIAX Pearl
(separately among MIAX Pearl Options and MIAX Pearl Equities) and MIAX
Emerald \17\ (together with MIAX Pearl Options and MIAX Pearl Equities,
the ``affiliated markets'')) to ensure no cost was allocated more than
once, as well as additional detail supporting its cost allocation
processes and explanations as to why a cost allocation in this proposal
may differ from the same cost allocation in a similar proposal
submitted by one of its affiliated markets. Although the baseline cost
analysis used to justify the proposed fees was made in the Initial,
Second, Third, Fourth and Fifth Proposals, the fees themselves have not
changed since the Initial, Second, Third, Fourth or Fifth Proposals and
the Exchange still proposes fees that are intended to cover the
Exchange's cost of providing 10Gb ULL connectivity and Limited Service
MEI Ports with a reasonable mark-up over those costs.
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    \17\ The term ``MIAX Emerald'' means MIAX Emerald, LLC. See
Exchange Rule 100.
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* * * * *
    Starting in 2017, following the United States Court of Appeals for
the District of Columbia's Susquehanna Decision \18\ and various other
developments, the Commission began to undertake a heightened review of
exchange filings, including non-transaction fee filings that was
substantially and materially different from it prior review process
(hereinafter referred to as the ``Revised Review Process''). In the
Susquehanna Decision, the D.C. Circuit Court stated that the Commission
could not maintain a practice of ``unquestioning reliance'' on claims
made by a self-regulatory organization (``SRO'') in the course of
filing a rule or fee change with the Commission.\19\ Then, on October
16, 2018, the Commission issued an opinion in Securities Industry and
Financial Markets Association finding that exchanges failed both to
establish that the challenged fees were constrained by significant
competitive forces and that these fees were consistent with the
Act.\20\ On that same day, the Commission issued an order remanding to
various exchanges and national market system (``NMS'') plans challenges
to over 400 rule changes and plan amendments that were asserted in 57
applications for review (the ``Remand

Order'').\21\ The Remand Order directed the exchanges to ``develop a
record,'' and to ``explain their conclusions, based on that record, in
a written decision that is sufficient to enable us to perform our
review.'' \22\ The Commission denied requests by various exchanges and
plan participants for reconsideration of the Remand Order.\23\ However,
the Commission did extend the deadlines in the Remand Order ``so that
they d[id] not begin to run until the resolution of the appeal of the
SIFMA Decision in the D.C. Circuit and the issuance of the court's
mandate.'' \24\ Both the Remand Order and the Order Denying
Reconsideration were appealed to the D.C. Circuit.
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    \18\ See Susquehanna International Group, LLP v. Securities &
Exchange Commission, 866 F.3d 442 (D.C. Circuit 2017) (the
``Susquehanna Decision'').
    \19\ Id.
    \20\ See Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 84432, 2018 WL 5023228 (October 16, 2018) (the ``SIFMA
Decision'').
    \21\ See Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 84433, 2018 WL 5023230 (Oct. 16, 2018). See 15 U.S.C.
78k-1, 78s; see also Rule 608(d) of Regulation NMS, 17 CFR
242.608(d) (asserted as an alternative basis of jurisdiction in some
applications).
    \22\ Id. at page 2.
    \23\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 85802, 2019 WL 2022819 (May 7, 2019) (the ``Order
Denying Reconsideration'').
    \24\ Order Denying Reconsideration, 2019 WL 2022819, at *13.
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    While the above appeal to the D.C. Circuit was pending, on March
29, 2019, the Commission issued an order disapproving a proposed fee
change by BOX Exchange LLC (``BOX'') to establish connectivity fees
(the ``BOX Order''), which significantly increased the level of
information needed for the Commission to believe that an exchange's
filing satisfied its obligations under the Act with respect to changing
a fee.\25\ Despite approving hundreds of access fee filings in the
years prior to the BOX Order (described further below) utilizing a
``market-based'' test, the Commission changed course and disapproved
BOX's proposal to begin charging connectivity at one-fourth the rate of
competing exchanges' pricing.
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    \25\ See Securities Exchange Act Release No. 85459 (March 29,
2019), 84 FR 13363 (April 4, 2019) (SR-BOX-2018-24, SR-BOX-2018-37,
and SR-BOX-2019-04) (Order Disapproving Proposed Rule Changes to
Amend the Fee Schedule on the BOX Market LLC Options Facility to
Establish BOX Connectivity Fees for Participants and Non-
Participants Who Connect to the BOX Network). The Commission noted
in the BOX Order that it ``historically applied a `market-based'
test in its assessment of market data fees, which [the Commission]
believe[s] present similar issues as the connectivity fees proposed
herein.'' Id. at page 16. Despite this admission, the Commission
disapproved BOX's proposal to begin charging $5,000 per month for
10Gb connections (while allowing legacy exchanges to charge rates
equal to 3-4 times that amount utilizing ``market-based'' fee
filings from years prior).
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    Also while the above appeal was pending, on May 21, 2019, the
Commission Staff issued guidance ``to assist the national securities
exchanges and FINRA . . . in preparing Fee Filings that meet their
burden to demonstrate that proposed fees are consistent with the
requirements of the Securities Exchange Act.'' \26\ In the Staff
Guidance, the Commission Staff states that, ``[a]s an initial step in
assessing the reasonableness of a fee, staff considers whether the fee
is constrained by significant competitive forces.'' \27\ The Staff
Guidance also states that, ``. . . even where an SRO cannot
demonstrate, or does not assert, that significant competitive forces
constrain the fee at issue, a cost-based discussion may be an
alternative basis upon which to show consistency with the Exchange
Act.'' \28\
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    \26\ See Staff Guidance on SRO Rule Filings Relating to Fees
(May 21, 2019), available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Staff Guidance'').
    \27\ Id.
    \28\ Id.
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    Following the BOX Order and Staff Guidance, on August 6, 2020, the
D.C. Circuit vacated the Commission's SIFMA Decision in NASDAQ Stock
Market, LLC v. SEC \29\ and remanded for further proceedings consistent
with its opinion.\30\ That same day, the D.C. Circuit issued an order
remanding the Remand Order to the Commission for reconsideration in
light of NASDAQ. The court noted that the Remand Order required the
exchanges and NMS plan participants to consider the challenges that the
Commission had remanded in light of the SIFMA Decision. The D.C.
Circuit concluded that because the SIFMA Decision ``has now been
vacated, the basis for the [Remand Order] has evaporated.'' \31\
Accordingly, on August 7, 2020, the Commission vacated the Remand Order
and ordered the parties to file briefs addressing whether the holding
in NASDAQ v. SEC that Exchange Act section 19(d) does not permit
challenges to generally applicable fee rules requiring dismissal of the
challenges the Commission previously remanded.\32\ The Commission
further invited ``the parties to submit briefing stating whether the
challenges asserted in the applications for review . . . should be
dismissed, and specifically identifying any challenge that they contend
should not be dismissed pursuant to the holding of Nasdaq v. SEC.''
\33\ Without resolving the above issues, on October 5, 2020, the
Commission issued an order granting SIFMA and Bloomberg's request to
withdraw their applications for review and dismissed the
proceedings.\34\
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    \29\ NASDAQ Stock Mkt., LLC v. SEC, No 18-1324, --- Fed. App'x -
---, 2020 WL 3406123 (D.C. Cir. June 5, 2020). The court's mandate
was issued on August 6, 2020.
    \30\ Nasdaq v. SEC, 961 F.3d 421, at 424, 431 (D.C. Cir. 2020).
The court's mandate issued on August 6, 2020. The D.C. Circuit held
that Exchange Act ``Section 19(d) is not available as a means to
challenge the reasonableness of generally-applicable fee rules.''
Id. The court held that ``for a fee rule to be challengeable under
Section 19(d), it must, at a minimum, be targeted at specific
individuals or entities.'' Id. Thus, the court held that ``Section
19(d) is not an available means to challenge the fees at issue'' in
the SIFMA Decision. Id.
    \31\ Id. at *2; see also id. (``[T]he sole purpose of the
challenged remand has disappeared.'').
    \32\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 89504, 2020 WL 4569089 (August 7, 2020) (the ``Order
Vacating Prior Order and Requesting Additional Briefs'').
    \33\ Id.
    \34\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 90087 (October 5, 2020).
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    As a result of the Commission's loss of the NASDAQ vs. SEC case
noted above, the Commission never followed through with its intention
to subject the over 400 fee filings to ``develop a record,'' and to
``explain their conclusions, based on that record, in a written
decision that is sufficient to enable us to perform our review.'' \35\
As such, all of those fees remained in place and amounted to a baseline
set of fees for those exchanges that had the benefit of getting their
fees in place before the Commission Staff's fee review process
materially changed. The net result of this history and lack of
resolution in the D.C. Circuit Court resulted in an uneven competitive
landscape where the Commission subjects all new non-transaction fee
filings to the new Revised Review Process, while allowing the
previously challenged fee filings, mostly submitted by incumbent
exchanges prior to 2019, to remain in effect and not subject to the
``record'' or ``review'' earlier intended by the Commission.
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    \35\ See supra note 29, at page 2.
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    While the Exchange appreciates that the Staff Guidance articulates
an important policy goal of improving disclosures and requiring
exchanges to justify that their market data and access fee proposals
are fair and reasonable, the practical effect of the Revised Review
Process, Staff Guidance, and the Commission's related practice of
continuous suspension of new fee filings, is anti-competitive,
discriminatory, and has put in place an un-level playing field, which
has negatively impacted smaller, nascent, non-legacy exchanges (``non-
legacy exchanges''), while favoring larger, incumbent, entrenched,
legacy exchanges (``legacy exchanges'').\36\ The

legacy exchanges all established a significantly higher baseline for
access and market data fees prior to the Revised Review Process. From
2011 until the issuance of the Staff Guidance in 2019, national
securities exchanges filed, and the Commission Staff did not abrogate
or suspend (allowing such fees to become effective), at least 92
filings \37\ to amend exchange connectivity or port fees (or similar
access fees). The support for each of those filings was a simple
statement by the relevant exchange that the fees were constrained by
competitive forces.\38\ These fees remain in effect today.
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    \36\ Commission Chair Gary Gensler recently reiterated the
Commission's mandate to ensure competition in the equities markets.
See ``Statement on Minimum Price Increments, Access Fee Caps, Round
Lots, and Odd-Lots'', by Chair Gary Gensler, dated December 14, 2022
(stating ``[i]n 1975, Congress tasked the Securities and Exchange
Commission with responsibility to facilitate the establishment of
the national market system and enhance competition in the securities
markets, including the equity markets'' (emphasis added)). In that
same statement, Chair Gary Gensler cited the five objectives laid
out by Congress in 11A of the Exchange Act (15 U.S.C. 78k-1),
including ensuring ``fair competition among brokers and dealers,
among exchange markets, and between exchange markets and markets
other than exchange markets . . .'' (emphasis added). Id. at note 1.
See also Securities Acts Amendments of 1975, available at https://www.govtrack.us/congress/bills/94/s249.
    \37\ This timeframe also includes challenges to over 400 rule
filings by SIFMA and Bloomberg discussed above. Sec. Indus. & Fin.
Mkts. Ass'n, Securities Exchange Act Release No. 84433, 2018 WL
5023230 (Oct. 16, 2018). Those filings were left to stand, while at
the same time, blocking newer exchanges from the ability to
establish competitive access and market data fees. See The Nasdaq
Stock Market, LLC v. SEC, Case No. 18-1292 (D.C. Cir. June 5, 2020).
The expectation at the time of the litigation was that the 400 rule
flings challenged by SIFMA and Bloomberg would need to be justified
under revised review standards.
    \38\ See, e.g., Securities Exchange Act Release Nos. 74417
(March 3, 2015), 80 FR 12534 (March 9, 2015) (SR-ISE-2015-06); 83016
(April 9, 2018), 83 FR 16157 (April 13, 2018) (SR-PHLX-2018-26);
70285 (August 29, 2013), 78 FR 54697 (September 5, 2013) (SR-
NYSEMKT-2013-71); 76373 (November 5, 2015), 80 FR 70024 (November
12, 2015) (SR-NYSEMKT-2015-90); 79729 (January 4, 2017), 82 FR 3061
(January 10, 2017) (SR-NYSEARCA-2016-172).
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    The net result is that the non-legacy exchanges are effectively now
blocked by the Commission Staff from adopting or increasing fees to
amounts comparable to the legacy exchanges (which were not subject to
the Revised Review Process and Staff Guidance), despite providing
enhanced disclosures and rationale to support their proposed fee
changes that far exceed any such support provided by legacy exchanges.
Simply put, legacy exchanges were able to increase their non-
transaction fees during an extended period in which the Commission
applied a ``market-based'' test that only relied upon the assumed
presence of significant competitive forces, while exchanges today are
subject to a cost-based test requiring extensive cost and revenue
disclosures, a process that is complex, inconsistently applied, and
rarely results in a successful outcome, i.e., non-suspension. The
Revised Review Process and Staff Guidance changed decades-long
Commission Staff standards for review, resulting in unfair
discrimination and placing an undue burden on inter-market competition
between legacy exchanges and non-legacy exchanges.
    Commission Staff now require exchange filings, including from non-
legacy exchanges such as the Exchange, to provide detailed cost-based
analysis in place of competition-based arguments to support such
changes. However, even with the added detailed cost and expense
disclosures, the Commission Staff continues to either suspend such
filings and institute disapproval proceedings, or put the exchanges in
the unenviable position of having to repeatedly withdraw and re-file
with additional detail in order to continue to charge those fees.\39\
By impeding any path forward for non-legacy exchanges to establish
commensurate non-transaction fees, or by failing to provide any
alternative means for smaller markets to establish ``fee parity'' with
legacy exchanges, the Commission is stifling competition: non-legacy
exchanges are, in effect, being deprived of the revenue necessary to
compete on a level playing field with legacy exchanges. This is
particularly harmful, given that the costs to maintain exchange systems
and operations continue to increase. The Commission Staff's change in
position impedes the ability of non-legacy exchanges to raise revenue
to invest in their systems to compete with the legacy exchanges who
already enjoy disproportionate non-transaction fee based revenue. For
example, the Cboe Exchange, Inc. (``Cboe'') reported ``access and
capacity fee'' revenue of $70,893,000 for 2020 \40\ and $80,383,000 for
2021.\41\ Cboe C2 Exchange, Inc. (``C2'') reported ``access and
capacity fee'' revenue of $19,016,000 for 2020 \42\ and $22,843,000 for
2021.\43\ Cboe BZX Exchange, Inc. (``BZX'') reported ``access and
capacity fee'' revenue of $38,387,000 for 2020 \44\ and $44,800,000 for
2021.\45\ Cboe EDGX Exchange, Inc. (``EDGX'') reported ``access and
capacity fee'' revenue of $26,126,000 for 2020 \46\ and $30,687,000 for
2021.\47\ For 2021, the affiliated Cboe, C2, BZX, and EDGX (the four
largest exchanges of the Cboe exchange group) reported $178,712,000 in
``access and capacity fees'' in 2021. NASDAQ Phlx, LLC (``NASDAQ
Phlx'') reported ``Trade Management Services'' revenue of $20,817,000
for 2019.\48\ The Exchange notes it is unable to compare ``access fee''
revenues with NASDAQ Phlx (or other affiliated NASDAQ exchanges)
because after 2019, the ``Trade Management Services'' line item was
bundled into a much larger line item in PHLX's Form 1, simply titled
``Market services.'' \49\
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    \39\ The Exchange has filed, and subsequently withdrawn, various
forms of this proposed fee change numerous times since August 2021
with each proposal containing hundreds of cost and revenue
disclosures never previously disclosed by legacy exchanges in their
access and market data fee filings prior to 2019.
    \40\ According to Cboe's 2021 Form 1 Amendment, access and
capacity fees represent fees assessed for the opportunity to trade,
including fees for trading-related functionality. See Cboe 2021 Form
1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000465.pdf.
    \41\ See Cboe 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001155.pdf.
    \42\ See C2 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000469.pdf.
    \43\ See C2 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001156.pdf.
    \44\ See BZX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000465.pdf.
    \45\ See BZX 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001152.pdf.
    \46\ See EDGX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000467.pdf.
    \47\ See EDGX 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001154.pdf.
    \48\ According to PHLX, ``Trade Management Services'' includes
``a wide variety of alternatives for connectivity to and accessing
[the PHLX] markets for a fee. These participants are charged monthly
fees for connectivity and support in accordance with [PHLX's]
published fee schedules.'' See PHLX 2020 Form 1 Amendment, available
at https://www.sec.gov/Archives/edgar/vprr/2001/20012246.pdf.
    \49\ See PHLX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000475.pdf. The Exchange
notes that this type of Form 1 accounting appears to be designed to
obfuscate the true financials of such exchanges and has the effect
of perpetuating fee and revenue advantages of legacy exchanges.
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    The much higher non-transaction fees charged by the legacy
exchanges provides them with two significant competitive advantages.
First, legacy exchanges are able to use their additional non-
transaction revenue for investments in infrastructure, vast marketing
and advertising on major media outlets,\50\ new products and other
innovations. Second, higher non-transaction fees provide the legacy
exchanges with greater flexibility to lower their transaction fees (or
use the revenue from the higher non-transaction fees to subsidize
transaction fee rates),\51\

which are more immediately impactful in competition for order flow and
market share, given the variable nature of this cost on member firms.
The prohibition of a reasonable path forward denies the Exchange (and
other non-legacy exchanges) this flexibility, eliminates the ability to
remain competitive on transaction fees, and hinders the ability to
compete for order flow and market share with legacy exchanges. There is
little doubt that subjecting one exchange to a materially different
standard than that historically applied to legacy exchanges for non-
transaction fees leaves that exchange at a disadvantage in its ability
to compete with its pricing of transaction fees.
---------------------------------------------------------------------------

    \50\ See, e.g., CNBC Debuts New Set on NYSE Floor, available at
https://www.cnbc.com/id/46517876.
    \51\ See, e.g., Cboe Fee Schedule, Page 4, Affiliate Volume
Plan, available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf (providing that if a market maker or its
affiliate receives a credit under Cboe's Volume Incentive Program
(``VIP''), the market maker will receive an access credit on their
BOE Bulk Ports corresponding to the VIP tier reached and the market
maker will receive a transaction fee credit on their sliding scale
market maker transaction fees) and NYSE American Options Fee
Schedule, Section III, E, Floor Broker Incentive and Rebate
Programs, available at https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf (providing
floor brokers the opportunity to prepay certain non-transaction fees
for the following calendar year by achieving certain amounts of
volume executed on NYSE American).
---------------------------------------------------------------------------

    While the Commission has clearly noted that the Staff Guidance is
merely guidance and ``is not a rule, regulation or statement of the . .
. Commission . . . the Commission has neither approved nor disapproved
its content . . .'',\52\ this is not the reality experienced by
exchanges such as MIAX. As such, non-legacy exchanges are forced to
rely on an opaque cost-based justification standard. However, because
the Staff Guidance is devoid of detail on what must be contained in
cost-based justification, this standard is nearly impossible to meet
despite repeated good-faith efforts by the Exchange to provide
substantial amount of cost-related details. For example, the Exchange
has attempted to increase fees using a cost-based justification
numerous times, having submitted over six filings.\53\ However, despite
providing 100+ page filings describing in extensive detail its costs
associated with providing the services described in the filings,
Commission Staff continues to suspend such filings, with the rationale
that the Exchange has not provided sufficient detail of its costs and
without ever being precise about what additional data points are
required. The Commission Staff appears to be interpreting the
reasonableness standard set forth in section 6(b)(4) of the Act \54\ in
a manner that is not possible to achieve. This essentially nullifies
the cost-based approach for exchanges as a legitimate alternative as
laid out in the Staff Guidance. By refusing to accept a reasonable
cost-based argument to justify non-transaction fees (in addition to
refusing to accept a competition-based argument as described above), or
by failing to provide the detail required to achieve that standard, the
Commission Staff is effectively preventing non-legacy exchanges from
making any non-transaction fee changes, which benefits the legacy
exchanges and is anticompetitive to the non-legacy exchanges. This does
not meet the fairness standard under the Act and is discriminatory.
---------------------------------------------------------------------------

    \52\ See supra note 26, at note 1.
    \53\ See Securities Exchange Act Release Nos. 94890 (May 11,
2022), 87 FR 29945 (May 17, 2022) (SR-MIAX-2022-20); 94720 (April
14, 2022), 87 FR 23586 (April 20, 2022) (SR-MIAX-2022-16); 94719
(April 14, 2022), 87 FR 23600 (April 20, 2022) (SR-MIAX-2022-14);
94259 (February 15, 2022), 87 FR 9747 (February 22, 2022) (SR-MIAX-
2022-08); 94256 (February 15, 2022), 87 FR9711 (February 22, 2022)
(SR-MIAX-2022-07); 93771 (December 14, 2021), 86 FR 71940 (December
20, 2021) (SR-MIAX-2021-60); 93775 (December 14, 2021), 86 FR 71996
(December 20, 2021) (SR-MIAX-2021-59); 93185 (September 29, 2021),
86 FR 55093 (October 5, 2021) (SR-MIAX-2021-43); 93165 (September
28, 2021), 86 FR 54750 (October 4, 2021) (SR-MIAX-2021-41); 92661
(August 13, 2021), 86 FR 46737 (August 19, 2021) (SR-MIAX-2021-37);
92643 (August 11, 2021), 86 FR 46034 (August 17, 2021) (SR-MIAX-
2021-35).
    \54\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    Because of the un-level playing field created by the Revised Review
Process and Staff Guidance, the Exchange believes that the Commission
Staff, at this point, should either (a) provide sufficient clarity on
how its cost-based standard can be met, including a clear and
exhaustive articulation of required data and its views on acceptable
margins,\55\ to the extent that this is pertinent; (b) establish a
framework to provide for commensurate non-transaction based fees among
competing exchanges to ensure fee parity; \56\ or (c) accept that
certain competition-based arguments are applicable given the linkage
between non-transaction fees and transaction fees, especially where
non-transaction fees among exchanges are based upon disparate standards
of review, lack parity, and impede fair competition. Considering the
absence of any such framework or clarity, the Exchange believes that
the Commission does not have a reasonable basis to deny the Exchange
this change in fees, where the proposed change would result in fees
meaningfully lower than comparable fees at competing exchanges and
where the associated non-transaction revenue is meaningfully lower than
competing exchanges.
---------------------------------------------------------------------------

    \55\ To the extent that the cost-based standard includes
Commission Staff making determinations as to the appropriateness of
certain profit margins, the Exchange believes that Staff should be
clear as to what they determine is an appropriate profit margin.
    \56\ In light of the arguments above regarding disparate
standards of review for historical legacy non-transaction fees and
current non-transaction fees for non-legacy exchanges, a fee parity
alternative would be one possible way to avoid the current unfair
and discriminatory effect of the Staff Guidance and Revised Review
Process. See, e.g., CSA Staff Consultation Paper 21-401, Real-Time
Market Data Fees, available at https://www.bcsc.bc.ca/-/media/PWS/Resources/Securities_Law/Policies/Policy2/21401_Market_Data_Fee_CSA_Staff_Consulation_Paper.pdf.
---------------------------------------------------------------------------

    In light of the above, disapproval of this would not meet the
fairness standard under the Act, would be discriminatory and places a
substantial burden on competition. The Exchange would be uniquely
disadvantaged by not being able to increase its access fees to
comparable levels (or lower levels than current market rates) to those
of other options exchanges for connectivity. If the Commission Staff
were to disapprove this proposal, that action, and not market forces,
would substantially affect whether the Exchange can be successful in
its competition with other options exchanges. Disapproval of this
filing could also be viewed as an arbitrary and capricious decision
should the Commission Staff continue to ignore its past treatment of
non-transaction fee filings before implementation of the Revised Review
Process and Staff Guidance and refuse to allow such filings to be
approved despite significantly enhanced arguments and cost
disclosures.\57\
---------------------------------------------------------------------------

    \57\ The Exchange's costs have clearly increased and continue to
increase, particularly regarding capital expenditures, as well as
employee benefits provided by third parties (e.g., healthcare and
insurance). Yet, practically no fee change proposed by the Exchange
to cover its ever-increasing costs has been acceptable to the
Commission Staff since 2021. The only other fair and reasonable
alternative would be to require the numerous fee filings
unquestioningly approved before the Staff Guidance and Revised
Review Process to ``develop a record,'' and to ``explain their
conclusions, based on that record, in a written decision that is
sufficient to enable us to perform our review,'' and to ensure a
comparable review process with the Exchange's filing.
---------------------------------------------------------------------------

* * * * *
10Gb ULL Connectivity Fee Change
    The Exchange filed a proposal to no longer operate 10Gb
connectivity to the Exchange on a single shared network with its
affiliate, MIAX Pearl Options. This change is an operational necessity
due to ever-increasing capacity constraints and to accommodate
anticipated access needs for Members and other market participants.\58\
This proposal: (i) sets forth the applicable fees for the bifurcated
10Gb ULL network; (ii) removes provisions in the

Fee Schedule that provide for a shared 10Gb ULL network; and (iii)
specifies that market participants may continue to connect to both the
Exchange and MIAX Pearl Options via the 1Gb network.
---------------------------------------------------------------------------

    \58\ See supra note 9.
---------------------------------------------------------------------------

    The Exchange bifurcated the Exchange and MIAX Pearl Options 10Gb
ULL networks on January 23, 2023. The Exchange issued an alert on
August 12, 2022 publicly announcing the planned network change and
implementation plan and dates to provide market participants adequate
time to prepare.\59\ Upon bifurcation of the 10Gb ULL network,
subscribers need to purchase separate connections to the Exchange and
MIAX Pearl Options at the applicable rate. The Exchange's proposed
amended rate for 10Gb ULL connectivity is described below. Prior to the
bifurcation of the 10Gb ULL networks, subscribers to 10Gb ULL
connectivity would be able to connect to both the Exchange and MIAX
Pearl Options at the applicable rate set forth below.
---------------------------------------------------------------------------

    \59\ Id.
---------------------------------------------------------------------------

    The Exchange, therefore, proposes to amend the Fee Schedule to
increase the fees for Members and non-Members to access the Exchange's
system networks \60\ via a 10Gb ULL fiber connection and to specify
that this fee is for a dedicated connection to the Exchange and no
longer provides access to MIAX Pearl Options. Specifically, the
Exchange proposes to amend Sections (5)(a)-(b) of the Fee Schedule to
increase the 10Gb ULL connectivity fee for Members and non-Members from
$10,000 per month to $13,500 per month (``10Gb ULL Fee'').\61\ The
Exchange also proposes to amend the Fee Schedule to reflect the
bifurcation of the 10Gb ULL network and specify that only the 1Gb
network provides access to both the Exchange and MIAX Pearl Options.
---------------------------------------------------------------------------

    \60\ The Exchange's system networks consist of the Exchange's
extranet, internal network, and external network.
    \61\ Market participants that purchase additional 10Gb ULL
connections as a result of this change will not be subject to the
Exchange's Member Network Connectivity Testing and Certification Fee
under Section 4)c) of the Exchange's fee schedule. See Section 4)c)
of the Exchange's Fee Schedule available at https://www.miaxglobal.com/markets/us-options/miax-options/fees (providing
that ``Network Connectivity Testing and Certification Fees will not
be assessed in situations where the Exchange initiates a mandatory
change to the Exchange's system that requires testing and
certification. Member Network Connectivity Testing and Certification
Fees will not be assessed for testing and certification of
connectivity to the Exchange's Disaster Recovery Facility.'').
---------------------------------------------------------------------------

    The Exchange proposes to make the following changes to reflect the
bifurcated 10Gb ULL network for the Exchange and MIAX Pearl Options.
The Exchange proposes to amend the explanatory paragraphs below the
network connectivity fee tables in Sections (5)(a)-(b) of the Fee
Schedule to specify that, with the bifurcated 10Gb ULL network, Members
(and non-Members) utilizing the MENI to connect to the trading
platforms, market data systems, test systems, and disaster recovery
facilities of the Exchange and MIAX Pearl Options via a single, can
only do so via a shared 1Gb connection.
    The Exchange will continue to assess monthly Member and non-Member
network connectivity fees for connectivity to the primary and secondary
facilities in any month the Member or non-Member is credentialed to use
any of the Exchange APIs or market data feeds in the production
environment. The Exchange will continue to pro-rate the fees when a
Member or non-Member makes a change to the connectivity (by adding or
deleting connections) with such pro-rated fees based on the number of
trading days that the Member or non-Member has been credentialed to
utilize any of the Exchange APIs or market data feeds in the production
environment through such connection, divided by the total number of
trading days in such month multiplied by the applicable monthly rate.
Limited Service MEI Ports
Background
    The Exchange also proposes to amend Section 5)d) of the Fee
Schedule to amend the monthly port fee for Limited Service MEI Ports
available to Market Makers.\62\ The Exchange currently allocates two
(2) Full Service MEI Ports \63\ and two (2) Limited Service MEI Ports
\64\ per matching engine \65\ to which each Market Maker connects.
Market Makers may also request additional Limited Service MEI Ports for
each matching engine to which they connect. The Full Service MEI Ports
and Limited Service MEI Ports all include access to the Exchange's
primary and secondary data centers and its disaster recovery center.
Market Makers may request additional Limited Service MEI Ports. Prior
to the Exchange's proposals to adopt a tiered fee structure for Limited
Service MEI Ports, Market Makers were assessed a $100 monthly fee for
each Limited Service MEI Port for each matching engine above the first
two Limited Service MEI Ports that are included for free. This fee was
unchanged since 2016 (before the proposals to adopt a tiered fee
structure).\66\
---------------------------------------------------------------------------

    \62\ The Exchange notes that in its prior filings (the Initial,
Second, Third, Fourth and Fifth Proposals), the Exchange proposed to
adopt a tiered-pricing structure for Limited Service MEI Ports.
    \63\ Full Service MEI Ports provide Market Makers with the
ability to send Market Maker quotes, eQuotes, and quote purge
messages to the MIAX System. Full Service MEI Ports are also capable
of receiving administrative information. Market Makers are limited
to two Full Service MEI Ports per matching engine. See Fee Schedule,
Section 5)d)ii), note 27.
    \64\ Limited Service MEI Ports provide Market Makers with the
ability to send eQuotes and quote purge messages only, but not
Market Maker Quotes, to the MIAX System. Limited Service MEI Ports
are also capable of receiving administrative information. Market
Makers initially receive two Limited Service MEI Ports per matching
engine. See Fee Schedule, Section 5)d)ii), note 28.
    \65\ A ``matching engine'' is a part of the MIAX electronic
system that processes options quotes and trades on a symbol-by-
symbol basis. Some matching engines will process option classes with
multiple root symbols, and other matching engines will be dedicated
to one single option root symbol (for example, options on SPY will
be processed by one single matching engine that is dedicated only to
SPY). A particular root symbol may only be assigned to a single
designated matching engine. A particular root symbol may not be
assigned to multiple matching engines. See Fee Schedule, Section
5)d)ii), note 29.
    \66\ See Securities Exchange Act Release No. 79666 (December 22,
2016), 81 FR 96133 (December 29, 2016) (SR-MIAX-2016-47).
---------------------------------------------------------------------------

Limited Service MEI Port Fee Changes
    The Exchange now proposes to amend the monthly fee per Limited
Service MEI Port and increase the number of free Limited Service MEI
Ports per matching engine from two (2) to four (4). Specifically, the
Exchange will now provide the first, second, third, and fourth Limited
Service MEI Ports for each matching engine free of charge. For
additional Limited Service MEI Ports after the first four ports per
matching engine that are provided for free (i.e., beginning with the
fifth Limited Service MEI Port), the Exchange proposes to increase the
monthly fee from $100 to $275 per Limited Service MEI Port per matching
engine.
    Market Makers that elect to purchase more than the number of
Limited Service Ports that are provide for free do so due to the nature
of their business and their perceived need for numerous ports to access
the Exchange. Meanwhile, Market Makers who utilize the free Limited
Service MEI Ports do so based on their business needs.
    The Exchange notes that it last proposed to increase its monthly
Limited Service MEI Port fees in 2016 (other than the prior proposals
to adopt a tiered fee structure for Limited Service MEI Ports),\67\ and
such increase proposed herein is designed to recover a portion of the
ever increasing costs

associated with directly accessing the Exchange.
---------------------------------------------------------------------------

    \67\ See Securities Exchange Act Release No. 79666 (December 22,
2016), 81 FR 96133 (December 29, 2016) (SR-MIAX-2016-47).
---------------------------------------------------------------------------

Implementation
    The proposed fee changes are immediately effective.
2. Statutory Basis
    The Exchange believes that the proposed fees are consistent with
section 6(b) of the Act \68\ in general, and furthers the objectives of
section 6(b)(4) of the Act \69\ in particular, in that it provides for
the equitable allocation of reasonable dues, fees and other charges
among Members and other persons using any facility or system which the
Exchange operates or controls. The Exchange also believes the proposed
fees further the objectives of section 6(b)(5) of the Act \70\ in that
they are designed to promote just and equitable principles of trade,
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general protect investors
and the public interest and are not designed to permit unfair
discrimination between customers, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \68\ 15 U.S.C. 78f(b).
    \69\ 15 U.S.C. 78f(b)(4).
    \70\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the information provided to justify the
proposed fees meets or exceeds the amount of detail required in respect
of proposed fee changes under the Revised Review Process and as set
forth in recent Staff Guidance. Based on both the BOX Order \71\ and
the Staff Guidance,\72\ the Exchange believes that the proposed fees
are consistent with the Act because they are: (i) reasonable, equitably
allocated, not unfairly discriminatory, and not an undue burden on
competition; (ii) comply with the BOX Order and the Staff Guidance; and
(iii) supported by evidence (including comprehensive revenue and cost
data and analysis) that they are fair and reasonable and will not
result in excessive pricing or supra-competitive profit.
---------------------------------------------------------------------------

    \71\ See supra note 25.
    \72\ See supra note 26.
---------------------------------------------------------------------------

    The Exchange believes that exchanges, in setting fees of all types,
should meet high standards of transparency to demonstrate why each new
fee or fee amendment meets the requirements of the Act that fees be
reasonable, equitably allocated, not unfairly discriminatory, and not
create an undue burden on competition among market participants. The
Exchange believes this high standard is especially important when an
exchange imposes various fees for market participants to access an
exchange's marketplace.
    In the Staff Guidance, the Commission Staff states that, ``[a]s an
initial step in assessing the reasonableness of a fee, staff considers
whether the fee is constrained by significant competitive forces.''
\73\ The Staff Guidance further states that, ``. . . even where an SRO
cannot demonstrate, or does not assert, that significant competitive
forces constrain the fee at issue, a cost-based discussion may be an
alternative basis upon which to show consistency with the Exchange
Act.'' \74\ In the Staff Guidance, the Commission Staff further states
that, ``[i]f an SRO seeks to support its claims that a proposed fee is
fair and reasonable because it will permit recovery of the SRO's costs,
. . . , specific information, including quantitative information,
should be provided to support that argument.'' \75\
---------------------------------------------------------------------------

    \73\ Id.
    \74\ Id.
    \75\ Id.
---------------------------------------------------------------------------

    The proposed fees are reasonable because they promote parity among
exchange pricing for access, which promotes competition, including in
the Exchanges' ability to competitively price transaction fees, invest
in infrastructure, new products and other innovations, all while
allowing the Exchange to recover its costs to provide dedicated access
via 10Gb ULL connectivity (driven by the bifurcation of the 10Gb ULL
network) and Limited Service MEI Ports. As discussed above, the Revised
Review Process and Staff Guidance have created an uneven playing field
between legacy and non-legacy exchanges by severely restricting non-
legacy exchanges from being able to increase non-transaction related
fees to provide them with additional necessary revenue to better
compete with legacy exchanges, which largely set fees prior to the
Revised Review Process. The much higher non-transaction fees charged by
the legacy exchanges provides them with two significant competitive
advantages: (i) additional non-transaction revenue that may be used to
fund areas other than the non-transaction service related to the fee,
such as investments in infrastructure, advertising, new products and
other innovations; and (ii) greater flexibility to lower their
transaction fees by using the revenue from the higher non-transaction
fees to subsidize transaction fee rates. The latter is more immediately
impactful in competition for order flow and market share, given the
variable nature of this cost on Member firms. The absence of a
reasonable path forward to increase non-transaction fees to comparable
(or lower rates) limits the Exchange's flexibility to, among other
things, make additional investments in infrastructure and advertising,
diminishes the ability to remain competitive on transaction fees, and
hinders the ability to compete for order flow and market share. Again,
there is little doubt that subjecting one exchange to a materially
different standard than that applied to other exchanges for non-
transaction fees leaves that exchange at a disadvantage in its ability
to compete with its pricing of transaction fees.
The Proposed Fees Ensure Parity Among Exchange Access Fees, Which
Promotes Competition
    The Exchange commenced operations in 2012 and adopted its initial
fee schedule, with all connectivity and port fees set at $0.00 (the
Exchange originally had a non-ULL 10Gb connectivity option, which it
has since removed).\76\ As a new exchange entrant, the Exchange chose
to offer connectivity and ports free of charge to encourage market
participants to trade on the Exchange and experience, among things, the
quality of the Exchange's technology and trading functionality. This
practice is not uncommon. New exchanges often do not charge fees or
charge lower fees for certain services such as memberships/trading
permits to attract order flow to an exchange, and later amend their
fees to reflect the true value of those services, absorbing all costs
to provide those services in the meantime. Allowing new exchange
entrants time to build and sustain market share through various pricing
incentives before increasing non-transaction fees encourages market
entry and fee parity, which promotes competition among exchanges. It
also enables new exchanges to mature their markets and allow market
participants to trade on the new exchanges without fees serving as a
potential barrier to attracting memberships and order flow.\77\
---------------------------------------------------------------------------

    \76\ See Securities Exchange Act Release No. 68415 (December 12,
2012), 77 FR 74905 (December 18, 2012) (SR-MIAX-2012-01).
    \77\ See Securities Exchange Act Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (stating, ``[t]he
Exchange established this lower (when compared to other options
exchanges in the industry) Participant Fee in order to encourage
market participants to become Participants of BOX . . .''). See also
Securities Exchange Act Release No. 90076 (October 2, 2020), 85 FR
63620 (October 8, 2020) (SR-MEMX-2020-10) (proposing to adopt the
initial fee schedule and stating that ``[u]nder the initial proposed
Fee Schedule, the Exchange proposes to make clear that it does not
charge any fees for membership, market data products, physical
connectivity or application sessions.''). MEMX's market share has
increased and recently proposed to adopt numerous non-transaction
fees, including fees for membership, market data, and connectivity.
See Securities Exchange Act Release Nos. 93927 (January 7, 2022), 87
FR 2191 (January 13, 2022) (SR-MEMX-2021-19) (proposing to adopt
membership fees); 96430 (December 1, 2022), 87 FR 75083 (December 7,
2022) (SR-MEMX-2022-32) and 95936 (September 27, 2022), 87 FR 59845
(October 3, 2022) (SR-MEMX-2022-26) (proposing to adopt fees for
connectivity). See also, e.g., Securities Exchange Act Release No.
88211 (February 14, 2020), 85 FR 9847 (February 20, 2020) (SR-
NYSENAT-2020-05), available at https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2020/SR-NYSENat-2020-05.pdf (initiating market data fees for the NYSE National exchange
after initially setting such fees at zero).

---------------------------------------------------------------------------

    Later in 2013, as the Exchange's market share increased,\78\ the
Exchange adopted a nominal $10 fee for each additional Limited Service
MEI Port.\79\ The Exchange last increased the fees for its 10Gb ULL
fiber connections from $9,300 to $10,000 per month on January 1,
2021.\80\ The Exchange balanced business and competitive concerns with
the need to financially compete with the larger incumbent exchanges
that charge higher fees for similar connectivity and use that revenue
to invest in their technology and other service offerings.
---------------------------------------------------------------------------

    \78\ The Exchange experienced a monthly average equity options
trading volume of 1.87% for the month of November 2013. See the
``Market Share'' section of the Exchange's website, available at
https://www.miaxglobal.com/.
    \79\ See Securities Exchange Act Release No. 70903 (November 20,
2013), 78 FR 70615 (November 26, 2013) (SR-MIAX-2013-52).
    \80\ See Securities Exchange Act Release No. 90980 (January 25,
2021), 86 FR 7602 (January 29, 2021) (SR-MIAX-2021-02).
---------------------------------------------------------------------------

    The proposed changes to the Fee Schedule are reasonable in several
respects. As a threshold matter, the Exchange is subject to significant
competitive forces, which constrains its pricing determinations for
transaction fees as well as non-transaction fees. The fact that the
market for order flow is competitive has long been recognized by the
courts. In NetCoalition v. Securities and Exchange Commission, the D.C.
Circuit stated, ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers' . . . .'' \81\
---------------------------------------------------------------------------

    \81\ See NetCoalition, 615 F.3d at 539 (D.C. Cir. 2010) (quoting
Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR
74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention to determine
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues, and also recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \82\
---------------------------------------------------------------------------

    \82\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------

    Congress directed the Commission to ``rely on `competition,
whenever possible, in meeting its regulatory responsibilities for
overseeing the SROs and the national market system.' '' \83\ As a
result, and as evidenced above, the Commission has historically relied
on competitive forces to determine whether a fee proposal is equitable,
fair, reasonable, and not unreasonably or unfairly discriminatory. ``If
competitive forces are operative, the self-interest of the exchanges
themselves will work powerfully to constrain unreasonable or unfair
behavior.'' \84\ Accordingly, ``the existence of significant
competition provides a substantial basis for finding that the terms of
an exchange's fee proposal are equitable, fair, reasonable, and not
unreasonably or unfairly discriminatory.'' \85\ In the Revised Review
Process and Staff Guidance, Commission Staff indicated that they would
look at factors beyond the competitive environment, such as cost, only
if a ``proposal lacks persuasive evidence that the proposed fee is
constrained by significant competitive forces.'' \86\
---------------------------------------------------------------------------

    \83\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep.
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that
the national market system evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed.'').
    \84\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \85\ Id.
    \86\ See supra note 26.
---------------------------------------------------------------------------

    The Exchange believes the competing exchanges' 10Gb connectivity
and port fees are useful examples of alternative approaches to
providing and charging for access and demonstrating how such fees are
competitively set and constrained. To that end, the Exchange believes
the proposed fees are competitive and reasonable because the proposed
fees are similar to or less than fees charged for similar connectivity
and port access provided by other options exchanges with comparable
market shares. As such, the Exchange believes that denying its ability
to institute fees that allow the Exchange to recoup its costs with a
reasonable margin in a manner that is closer to parity with legacy
exchanges, in effect, impedes its ability to compete, including in its
pricing of transaction fees and ability to invest in competitive
infrastructure and other offerings.
    The following table shows how the Exchange's proposed fees remain
similar to or less than fees charged for similar connectivity and port
access provided by other options exchanges with similar market share.
Each of the connectivity or port rates in place at competing options
exchanges were filed with the Commission for immediate effectiveness
and remain in place today.

------------------------------------------------------------------------
                                                       Monthly fee (per
            Exchange              Type of connection   connection or per
                                        or port              port)
------------------------------------------------------------------------
MIAX (as proposed) (equity        10Gb ULL            $13,500.
 options market share of 6.20%     connection.        1-4 ports: FREE.
 for the month of August 2023)    Limited Service     5 or more ports:
 \a\.                              MEI Ports.          $275 each.
NASDAQ \b\ (equity options        10Gb Ultra fiber    $15,000 per
 market share of 5.80% for the     connection.         connection.
 month of August 2023) \c\.       SQF Port \d\......  1-5 ports: $1,500
                                                       per port.
                                                      6-20 ports: $1,000
                                                       per port.
                                                      21 or more ports:
                                                       $500 per port.
NASDAQ ISE LLC (``ISE'') \e\      10Gb Ultra fiber    $15,000 per
 (equity options market share of   connection.         connection.
 5.58% for the month of August    SQF Port..........  $1,100 per port.
 2023) \f\.
NYSE American LLC (``NYSE         10Gb LX LCN         $22,000 per
 American'') \g\ (equity options   connection.         connection.
 market share of 7.34% for the    Order/Quote Entry   1-40 ports: $450
 month of August2023) \h\.         Port.               per port.
                                                      41 or more ports:
                                                       $150 per port.

NASDAQ GEMX, LLC (``GEMX'') \i\   10Gb Ultra          $15,000 per
 (equity options market share of   connection.         connection.
 3.03% for the month of August    SQF Port..........  $1,250 per port.
 2023) \j\.
------------------------------------------------------------------------
\a\ See the ``Market Share'' section of the Exchange's website,
  available at https://www.miaxglobal.com/.
\b\ See NASDAQ Pricing Schedule, Options 7, Section 3, Ports and Other
  Services and NASDAQ Rules, General 8: Connectivity, Section 1. Co-
  Location Services.
\c\ See supra note a.
\d\ Similar to the Exchange's MEI Ports, SQF ports are primarily
  utilized by Market Makers.
\e\ See ISE Pricing Schedule, Options 7, Section 7, Connectivity Fees
  and ISE Rules, General 8: Connectivity.
\f\ See supra note a.
\g\ See NYSE American Options Fee Schedule, Section V.A. Port Fees and
  Section V.B. Co-Location Fees.
\h\ See supra note a.
\i\ See GEMX Pricing Schedule, Options 7, Section 6, Connectivity Fees
  and GEMX Rules, General 8: Connectivity.
\j\ See supra note a.

    There is no requirement, regulatory or otherwise, that any broker-
dealer connect to and access any (or all of) the available options
exchanges. Market participants may choose to become a member of one or
more options exchanges based on the market participant's assessment of
the business opportunity relative to the costs of the Exchange. With
this, there is elasticity of demand for exchange membership. As an
example, the Exchange's affiliate, MIAX Pearl Options, experienced a
decrease in membership as the result of similar fees proposed herein.
One MIAX Pearl Options Market Maker terminated their MIAX Pearl Options
membership effective January 1, 2023, as a direct result of the
proposed connectivity and port fee changes proposed by MIAX Pearl
Options.
    It is not a requirement for market participants to become members
of all options exchanges; in fact, certain market participants conduct
an options business as a member of only one options market.\87\ A very
small number of market participants choose to become a member of all
sixteen options exchanges. Most firms that actively trade on options
markets are not currently Members of the Exchange and do not purchase
connectivity or port services at the Exchange. Connectivity and ports
are only available to Members or service bureaus, and only a Member may
utilize a port.\88\
---------------------------------------------------------------------------

    \87\ BOX recently adopted an electronic market maker trading
permit fee. See Securities Exchange Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17). In that
proposal, BOX stated that, ``. . . it is not aware of any reason why
Market Makers could not simply drop their access to an exchange (or
not initially access an exchange) if an exchange were to establish
prices for its non-transaction fees that, in the determination of
such Market Maker, did not make business or economic sense for such
Market Maker to access such exchange. [BOX] again notes that no
market makers are required by rule, regulation, or competitive
forces to be a Market Maker on [BOX].'' Also in 2022, MEMX
established a monthly membership fee. See Securities Exchange Act
Release No. 93927 (January 7, 2022), 87 FR 2191 (January 13, 2022)
(SR-MEMX-2021-19). In that proposal, MEMX reasoned that that there
is value in becoming a member of the exchange and stated that it
believed that the proposed membership fee ``is not unfairly
discriminatory because no broker-dealer is required to become a
member of the Exchange'' and that ``neither the trade-through
requirements under Regulation NMS nor broker-dealers' best execution
obligations require a broker-dealer to become a member of every
exchange.''
    \88\ Service Bureaus may obtain ports on behalf of Members.
---------------------------------------------------------------------------

    One other exchange recently noted in a proposal to amend their own
trading permit fees that of the 62 market making firms that are
registered as Market Makers across Cboe, MIAX, and BOX, 42 firms access
only one of the three exchanges.\89\ The Exchange and its affiliated
options markets, MIAX Pearl Options and MIAX Emerald, have a total of
46 members. Of those 46 total members, 37 are members of all three
affiliated options markets, two are members of only two affiliated
options markets, and seven are members of only one affiliated options
market. The Exchange also notes that no firm is a Member of the
Exchange only. The above data evidences that a broker-dealer need not
have direct connectivity to all options exchanges, let alone the
Exchange and its two affiliates, and broker-dealers may elect to do so
based on their own business decisions and need to directly access each
exchange's liquidity pool.
---------------------------------------------------------------------------

    \89\ See Securities Exchange Act Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change to Amend the
Fee Schedule on the BOX Options Market LLC Facility To Adopt
Electronic Market Maker Trading Permit Fees). The Exchange believes
that BOX's observation demonstrates that market making firms can,
and do, select which exchanges they wish to access, and,
accordingly, options exchanges must take competitive considerations
into account when setting fees for such access.
---------------------------------------------------------------------------

    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
broker-dealer membership analysis of the options exchanges discussed
above. As noted above, this is evidenced by the fact that one MIAX
Pearl Options Market Maker terminated their MIAX Pearl Options
membership effective January 1, 2023 as a direct result of the proposed
connectivity and port fee changes on MIAX Pearl Options (which are
similar to the changes proposed herein). Indeed, broker-dealers choose
if and how to access a particular exchange and because it is a choice,
the Exchange must set reasonable pricing, otherwise prospective members
would not connect and existing members would disconnect from the
Exchange. The decision to become a member of an exchange, particularly
for registered market makers, is complex, and not solely based on the
non-transactional costs assessed by an exchange. As noted herein,
specific factors include, but are not limited to: (i) an exchange's
available liquidity in options series; (ii) trading functionality
offered on a particular market; (iii) product offerings; (iv) customer
service on an exchange; and (v) transactional pricing. Becoming a
member of the exchange does not ``lock'' a potential member into a
market or diminish the overall competition for exchange services.
    In lieu of becoming a member at each options exchange, a market
participant may join one exchange and elect to have their orders routed
in the event that a better price is available on an away market.
Nothing in the Order Protection Rule requires a firm to become a Member
at--or establish connectivity to--the Exchange.\90\ If the Exchange is
not at the national best bid or offer (``NBBO''),\91\ the Exchange will
route an order to any away market that is at the NBBO to ensure that
the order was

executed at a superior price and prevent a trade-through.\92\
---------------------------------------------------------------------------

    \90\ See Options Order Protection and Locked/Crossed Market Plan
(August 14, 2009), available at https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf.
    \91\ See Exchange Rule 100.
    \92\ Members may elect to not route their orders by utilizing
the Do Not Route order type. See Exchange Rule 516(g).
---------------------------------------------------------------------------

    With respect to the submission of orders, Members may also choose
not to purchase any connection from the Exchange, and instead rely on
the port of a third party to submit an order. For example, a third-
party broker-dealer Member of the Exchange may be utilized by a retail
investor to submit orders into an exchange. An institutional investor
may utilize a broker-dealer, a service bureau,\93\ or request sponsored
access \94\ through a member of an exchange in order to submit a trade
directly to an options exchange.\95\ A market participant may either
pay the costs associated with becoming a member of an exchange or, in
the alternative, a market participant may elect to pay commissions to a
broker-dealer, pay fees to a service bureau to submit trades, or pay a
member to sponsor the market participant in order to submit trades
directly to an exchange.
---------------------------------------------------------------------------

    \93\ Service Bureaus provide access to market participants to
submit and execute orders on an exchange. On the Exchange, a Service
Bureau may be a Member. Some Members utilize a Service Bureau for
connectivity and that Service Bureau may not be a Member. Some
market participants utilize a Service Bureau who is a Member to
submit orders.
    \94\ Sponsored Access is an arrangement whereby a Member permits
its customers to enter orders into an exchange's system that bypass
the Member's trading system and are routed directly to the Exchange,
including routing through a service bureau or other third-party
technology provider.
    \95\ This may include utilizing a floor broker and submitting
the trade to one of the five options trading floors.
---------------------------------------------------------------------------

    Non-Member third-parties, such as service bureaus and extranets,
resell the Exchange's connectivity. This indirect connectivity is
another viable alternative for market participants to trade on the
Exchange without connecting directly to the Exchange (and thus not pay
the Exchange's connectivity fees), which alternative is already being
used by non-Members and further constrains the price that the Exchange
is able to charge for connectivity and other access fees to its market.
The Exchange notes that it could, but chooses not to, preclude market
participants from reselling its connectivity. Unlike other exchanges,
the Exchange also does not currently assess fees on third-party
resellers on a per customer basis (i.e., fees based on the number of
firms that connect to the Exchange indirectly via the third-party).\96\
Indeed, the Exchange does not receive any connectivity revenue when
connectivity is resold by a third-party, which often is resold to
multiple customers, some of whom are agency broker-dealers that have
numerous customers of their own.\97\ Particularly, in the event that a
market participant views the Exchange's direct connectivity and access
fees as more or less attractive than competing markets, that market
participant can choose to connect to the Exchange indirectly or may
choose not to connect to the Exchange and connect instead to one or
more of the other 15 options markets. Accordingly, the Exchange
believes that the proposed fees are fair and reasonable and constrained
by competitive forces.
---------------------------------------------------------------------------

    \96\ See, e.g., Nasdaq Price List--U.S. Direct Connection and
Extranet Fees, available at US Direct-Extranet Connection
(nasdaqtrader.com); and Securities Exchange Act Release Nos. 74077
(January 16, 2022), 80 FR 3683 (January 23, 2022) (SR-NASDAQ-2015-
002); and 82037 (November 8, 2022), 82 FR 52953 (November 15, 2022)
(SR-NASDAQ-2017-114).
    \97\ The Exchange notes that resellers, such as SFTI, are not
required to publicize, let alone justify or file with the Commission
their fees, and as such could charge the market participant any fees
it deems appropriate (including connectivity fees higher than the
Exchange's connectivity fees), even if such fees would otherwise be
considered potentially unreasonable or uncompetitive fees.
---------------------------------------------------------------------------

    The Exchange is obligated to regulate its Members and secure access
to its environment. In order to properly regulate its Members and
secure the trading environment, the Exchange takes measures to ensure
access is monitored and maintained with various controls. Connectivity
and ports are methods utilized by the Exchange to grant Members secure
access to communicate with the Exchange and exercise trading rights.
When a market participant elects to be a Member, and is approved for
membership by the Exchange, the Member is granted trading rights to
enter orders and/or quotes into Exchange through secure connections.
    Again, there is no legal or regulatory requirement that a market
participant become a Member of the Exchange. This is again evidenced by
the fact that one MIAX Pearl Options Market Maker terminated their MIAX
Pearl Options membership effective January 1, 2023 as a direct result
of the proposed connectivity and port fee changes on MIAX Pearl
Options. If a market participant chooses to become a Member, they may
then choose to purchase connectivity beyond the one connection that is
necessary to quote or submit orders on the Exchange. Members may freely
choose to rely on one or many connections, depending on their business
model.
Bifurcation of 10Gb ULL Connectivity and Related Fees
    The Exchange began to operate on a single shared network with MIAX
Pearl Options when MIAX Pearl commenced operations as a national
securities exchange on February 7, 2017.\98\ The Exchange and MIAX
Pearl Options operated on a single shared network to provide Members
with a single convenient set of access points for both exchanges. Both
the Exchange and MIAX Pearl Options offer two methods of connectivity,
1Gb and 10Gb ULL connections. The 1Gb connection services are supported
by a discrete set of switches providing 1Gb access ports to Members.
The 10Gb ULL connection services are supported by a second and mutually
exclusive set of switches providing 10Gb ULL access ports to Members.
Previously, both the 1Gb and 10Gb ULL shared extranet ports allowed
Members to use one connection to access both exchanges, namely their
trading platforms, market data systems, test systems, and disaster
recovery facilities.
---------------------------------------------------------------------------

    \98\ See Securities Exchange Act Release No. 80061 (February 17,
2017), 82 FR 11676 (February 24, 2017) (establishing MIAX Pearl Fee
Schedule and establishing that the MENI can also be configured to
provide network connectivity to the trading platforms, market data
systems, test systems, and disaster recovery facility of the MIAX
Pearl's affiliate, MIAX, via a single, shared connection).
---------------------------------------------------------------------------

    The Exchange stresses that bifurcating the 10Gb ULL connectivity
between the Exchange and MIAX Pearl Options was not designed with the
objective to generate an overall increase in access fee revenue.
Rather, the proposed change was necessitated by 10Gb ULL connectivity
experiencing a significant decrease in port availability mostly driven
by connectivity demands of latency sensitive Members that seek to
maintain multiple 10Gb ULL connections on every switch in the network.
Operating two separate national securities exchanges on a single shared
network provided certain benefits, such as streamlined connectivity to
multiple exchanges, and simplified exchange infrastructure. However,
doing so was no longer sustainable due to ever-increasing capacity
constraints and current system limitations. The network is not an
unlimited resource. As described more fully in the proposal to
bifurcate the 10Gb ULL network,\99\ the connectivity needs of Members
and market participants has increased every year since the launch of
MIAX Pearl Options

and the operations of the Exchange and MIAX Pearl Options on a single
shared 10Gb ULL network is no longer feasible. This required constant
System \100\ expansion to meet Member demand for additional ports and
10Gb ULL connections has resulted in limited available System headroom,
which eventually became operationally problematic for both the Exchange
and its customers.
---------------------------------------------------------------------------

    \99\ See Securities Exchange Act Release Nos. 96553 (December
20, 2022), 87 FR 79379 (December 27, 2022) (SR-PEARL-2022-60); 96545
(December 20, 2022) 87 FR 79393 (December 27, 2022) (SR-MIAX-2022-
48).
    \100\ The term ``System'' means the automated trading system
used by the Exchange for the trading of securities. See Exchange
Rule 100.
---------------------------------------------------------------------------

    As stated above, the shared network is not an unlimited resource
and its expansion was constrained by MIAX's and MIAX Pearl Options'
ability to provide fair and equitable access to all market participants
of both markets. Due to the ever-increasing connectivity demands, the
Exchange found it necessary to bifurcate 10Gb ULL connectivity to the
Exchange's and MIAX Pearl Options' Systems and networks to be able to
continue to meet ongoing and future 10Gb ULL connectivity and access
demands.\101\
---------------------------------------------------------------------------

    \101\ Currently, the Exchange maintains sufficient headroom to
meet ongoing and future requests for 1Gb connectivity. Therefore,
the Exchange did not propose to alter 1Gb connectivity and continues
to provide 1Gb connectivity over a shared network.
---------------------------------------------------------------------------

    Unlike the switches that provide 1Gb connectivity, the availability
for additional 10Gb ULL connections on each switch had significantly
decreased. This was mostly driven by the connectivity demands of
latency sensitive Members (e.g., Market Makers and liquidity removers)
that sought to maintain connectivity across multiple 10Gb ULL switches.
Based on the Exchange's experience, such Members did not typically use
a shared 10Gb ULL connection to reach both the Exchange and MIAX Pearl
Options due to related latency concerns. Instead, those Members
maintain dedicated separate 10Gb ULL connections for the Exchange and
separate dedicated 10Gb ULL connections for MIAX Pearl Options. This
resulted in a much higher 10Gb ULL usage per switch by those Members on
the shared 10Gb ULL network than would otherwise be needed if the
Exchange and MIAX Pearl Options had their own dedicated 10Gb ULL
networks. Separation of the Exchange and MIAX Pearl Options 10Gb ULL
networks naturally lends itself to reduced 10Gb ULL port consumption on
each switch and, therefore, increased 10Gb ULL port availability for
current Members and new Members.
    Prior to bifurcating the 10Gb ULL network, the Exchange and MIAX
Pearl Options continued to add switches to meet ongoing demand for 10Gb
ULL connectivity. That was no longer sustainable because simply adding
additional switches to expand the current shared 10Gb ULL network would
not adequately alleviate the issue of limited available port
connectivity. While it would have resulted in a gain in overall port
availability, the existing switches on the shared 10Gb ULL network in
use would have continued to suffer from lack of port headroom given
many latency sensitive Members' needs for a presence on each switch to
reach both the Exchange and MIAX Pearl Options. This was because those
latency sensitive Members sought to have a presence on each switch to
maximize the probability of experiencing the best network performance.
Those Members routinely decide to rebalance orders and/or messages over
their various connections to ensure each connection is operating with
maximum efficiency. Simply adding switches to the extranet would not
have resolved the port availability needs on the shared 10Gb ULL
network since many of the latency sensitive Members were unwilling to
relocate their connections to a new switch due to the potential
detrimental performance impact. As such, the impact of adding new
switches and rebalancing ports would not have been effective or
responsive to customer needs. The Exchange has found that ongoing and
continued rebalancing once additional switches are added has had, and
would have continued to have had, a diminishing return on increasing
available 10Gb ULL connectivity.
    Based on its experience and expertise, the Exchange found the most
practical way to increase connectivity availability on its switches was
to bifurcate the existing 10Gb ULL networks for the Exchange and MIAX
Pearl Options by migrating the exchanges' connections from the shared
network onto their own set of switches. Such changes accordingly
necessitated a review of the Exchange's previous 10Gb ULL connectivity
fees and related costs. The proposed fees are necessary to allow the
Exchange to cover ongoing costs related to providing and maintaining
such connectivity, described more fully below. The ever increasing
connectivity demands that necessitated this change further support that
the proposed fees are reasonable because this demand reflects that
Members and non-Members believe they are getting value from the 10Gb
ULL connections they purchase.
    The Exchange announced on August 12, 2022 the planned network
change and the January 23, 2023 implementation date to provide market
participants adequate time to prepare.\102\ Since August 12, 2022, the
Exchange has worked with current 10Gb ULL subscribers to address their
connectivity needs ahead of the January 23, 2023 date. Based on those
interactions and subscriber feedback, the Exchange experienced a
minimal net increase of six (6) overall 10Gb ULL connectivity
subscriptions across the Exchange and MIAX Pearl Options. This
immaterial increase in overall connections reflects a minimal fee
impact for all types of subscribers and reflects that subscribers
elected to reallocate existing 10Gb ULL connectivity directly to the
Exchange or MIAX Pearl Options, or choose to decrease or cease
connectivity as a result of the change.
---------------------------------------------------------------------------

    \102\ See supra note 9.
---------------------------------------------------------------------------

    Should the Commission Staff disapprove such fees, it would
effectively dictate how an exchange manages its technology and would
hamper the Exchange's ability to continue to invest in and fund access
services in a manner that allows it to meet existing and anticipated
access demands of market participants. Disapproval could also have the
adverse effect of discouraging an exchange from optimizing its
operations and deploying innovative technology to the benefit of market
participants if it believes the Commission would later prevent that
exchange from covering its costs and monetizing operational
enhancements, thus adversely impacting competition. Also, as noted
above, the economic consequences of not being able to better establish
fee parity with other exchanges for non-transaction fees hampers the
Exchange's ability to compete on transaction fees.
Cost Analysis
    In general, the Exchange believes that exchanges, in setting fees
of all types, should meet very high standards of transparency to
demonstrate why each new fee or fee increase meets the Exchange Act
requirements that fees be reasonable, equitably allocated, not unfairly
discriminatory, and not create an undue burden on competition among
members and markets. In particular, the Exchange believes that each
exchange should take extra care to be able to demonstrate that these
fees are based on its costs and reasonable business needs.
    In proposing to charge fees for connectivity and port services, the
Exchange is especially diligent in assessing those fees in a
transparent way against its own aggregate costs of providing the
related service, and in carefully and transparently assessing the
impact on Members--both generally and

in relation to other Members, i.e., to assure the fee will not create a
financial burden on any participant and will not have an undue impact
in particular on smaller Members and competition among Members in
general. The Exchange believes that this level of diligence and
transparency is called for by the requirements of section 19(b)(1)
under the Act,\103\ and Rule 19b-4 thereunder,\104\ with respect to the
types of information exchanges should provide when filing fee changes,
and section 6(b) of the Act,\105\ which requires, among other things,
that exchange fees be reasonable and equitably allocated,\106\ not
designed to permit unfair discrimination,\107\ and that they not impose
a burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.\108\ This rule change proposal addresses those
requirements, and the analysis and data in each of the sections that
follow are designed to clearly and comprehensively show how they are
met.\109\ The Exchange reiterates that the legacy exchanges with whom
the Exchange vigorously competes for order flow and market share, were
not subject to any such diligence or transparency in setting their
baseline non-transaction fees, most of which were put in place before
the Revised Review Process and Staff Guidance.
---------------------------------------------------------------------------

    \103\ 15 U.S.C. 78s(b)(1).
    \104\ 17 CFR 240.19b-4.
    \105\ 15 U.S.C. 78f(b).
    \106\ 15 U.S.C. 78f(b)(4).
    \107\ 15 U.S.C. 78f(b)(5).
    \108\ 15 U.S.C. 78f(b)(8).
    \109\ See supra note 25.
---------------------------------------------------------------------------

    As detailed below, the Exchange recently calculated its aggregate
annual costs for providing physical 10Gb ULL connectivity to the
Exchange at $12,034,554 (or approximately $1,002,880 per month, rounded
up to the nearest dollar when dividing the annual cost by 12 months)
and its aggregate annual costs for providing Limited Service MEI Ports
at $2,157,178 (or approximately $179,765 per month, rounded down to the
nearest dollar when dividing the annual cost by 12 months). In order to
cover the aggregate costs of providing connectivity to its users (both
Members and non-Members \110\) going forward and to make a modest
profit, as described below, the Exchange proposes to modify its Fee
Schedule to charge a fee of $13,500 per month for each physical 10Gb
ULL connection and to remove language providing for a shared 10Gb ULL
network between the Exchange and MIAX Pearl Options. The Exchange also
proposes to modify its Fee Schedule to amend the monthly fee for
additional Limited Service MEI Ports and provide two additional ports
free of charge for a total of four free Limited Service MEI Ports per
matching engine to which each Member connects.
---------------------------------------------------------------------------

    \110\ Types of market participants that obtain connectivity
services from the Exchange but are not Members include service
bureaus and extranets. Service bureaus offer technology-based
services to other companies for a fee, including order entry
services, and thus, may access Limited Service MEI Ports on behalf
of one or more Members. Extranets offer physical connectivity
services to Members and non-Members.
---------------------------------------------------------------------------

    In 2019, the Exchange completed a study of its aggregate costs to
produce market data and connectivity (the ``Cost Analysis'').\111\ The
Cost Analysis required a detailed analysis of the Exchange's aggregate
baseline costs, including a determination and allocation of costs for
core services provided by the Exchange--transaction execution, market
data, membership services, physical connectivity, and port access
(which provide order entry, cancellation and modification
functionality, risk functionality, the ability to receive drop copies,
and other functionality). The Exchange separately divided its costs
between those costs necessary to deliver each of these core services,
including infrastructure, software, human resources (i.e., personnel),
and certain general and administrative expenses (``cost drivers'').
---------------------------------------------------------------------------

    \111\ The Exchange frequently updates it Cost Analysis as
strategic initiatives change, costs increase or decrease, and market
participant needs and trading activity changes. The Exchange's most
recent Cost Analysis was conducted ahead of this filing.
---------------------------------------------------------------------------

    As an initial step, the Exchange determined the total cost for the
Exchange and the affiliated markets for each cost driver as part of its
2023 budget review process. The 2023 budget review is a company-wide
process that occurs over the course of many months, includes meetings
among senior management, department heads, and the Finance Team. Each
department head is required to send a ``bottom up'' budget to the
Finance Team allocating costs at the profit and loss account and vendor
levels for the Exchange and its affiliated markets based on a number of
factors, including server counts, additional hardware and software
utilization, current or anticipated functional or non-functional
development projects, capacity needs, end-of-life or end-of-service
intervals, number of members, market model (e.g., price time or pro-
rata, simple only or simple and complex markets, auction functionality,
etc.), which may impact message traffic, individual system
architectures that impact platform size,\112\ storage needs, dedicated
infrastructure versus shared infrastructure allocated per platform
based on the resources required to support each platform, number of
available connections, and employees allocated time. All of these
factors result in different allocation percentages among the Exchange
and its affiliated markets, i.e., the different percentages of the
overall cost driver allocated to the Exchange and its affiliated
markets will cause the dollar amount of the overall cost allocated
among the Exchange and its affiliated markets to also differ. Because
the Exchange's parent company currently owns and operates four separate
and distinct marketplaces, the Exchange must determine the costs
associated with each actual market--as opposed to the Exchange's parent
company simply concluding that all costs drivers are the same at each
individual marketplace and dividing total cost by four (4) (evenly for
each marketplace). Rather, the Exchange's parent company determines an
accurate cost for each marketplace, which results in different
allocations and amounts across exchanges for the same cost drivers, due
to the unique factors of each marketplace as described above. This
allocation methodology also ensures that no cost would be allocated
twice or double-counted between the Exchange and its affiliated
markets. The Finance Team then consolidates the budget and sends it to
senior management, including the Chief Financial Officer and Chief
Executive Officer, for review and approval. Next, the budget is
presented to the Board of Directors and the Finance and Audit
Committees for each exchange for their approval. The above steps
encompass the first step of the cost allocation process.
---------------------------------------------------------------------------

    \112\ For example, the Exchange maintains 24 matching engines,
MIAX Pearl Options maintains 12 matching engines, MIAX Pearl
Equities maintains 24 matching engines, and MIAX Emerald maintains
12 matching engines.
---------------------------------------------------------------------------

    The next step involves determining what portion of the cost
allocated to the Exchange pursuant to the above methodology is to be
allocated to each core service, e.g., connectivity and ports, market
data, and transaction services. The Exchange and its affiliated markets
adopted an allocation methodology with thoughtful and consistently
applied principles to guide how much of a particular cost amount
allocated to the Exchange should be allocated within the Exchange to
each core service. This is the final step in the cost allocation
process and is applied to each of the cost drivers set forth below.

For instance, fixed costs that are not driven by client activity (e.g.,
message rates), such as data center costs, were allocated more heavily
to the provision of physical connectivity (60.6% of total expense
amount allocated to 10Gb ULL connectivity), with smaller allocations to
additional Limited Service MEI Ports (7.2%), and the remainder to the
provision of other connectivity, other ports, transaction execution,
membership services and market data services (32.3%). This next level
of the allocation methodology at the individual exchange level also
took into account factors similar to those set forth under the first
step of the allocation methodology process described above, to
determine the appropriate allocation to connectivity or market data
versus allocations for other services. This allocation methodology was
developed through an assessment of costs with senior management
intimately familiar with each area of the Exchange's operations. After
adopting this allocation methodology, the Exchange then applied an
allocation of each cost driver to each core service, resulting in the
cost allocations described below. Each of the below cost allocations is
unique to the Exchange and represents a percentage of overall cost that
was allocated to the Exchange pursuant to the initial allocation
described above.
    By allocating segmented costs to each core service, the Exchange
was able to estimate by core service the potential margin it might earn
based on different fee models. The Exchange notes that as a non-listing
venue it has five primary sources of revenue that it can potentially
use to fund its operations: transaction fees, fees for connectivity and
port services, membership fees, regulatory fees, and market data fees.
Accordingly, the Exchange must cover its expenses from these five
primary sources of revenue. The Exchange also notes that as a general
matter each of these sources of revenue is based on services that are
interdependent. For instance, the Exchange's system for executing
transactions is dependent on physical hardware and connectivity; only
Members and parties that they sponsor to participate directly on the
Exchange may submit orders to the Exchange; many Members (but not all)
consume market data from the Exchange in order to trade on the
Exchange; and, the Exchange consumes market data from external sources
in order to comply with regulatory obligations. Accordingly, given this
interdependence, the allocation of costs to each service or revenue
source required judgment of the Exchange and was weighted based on
estimates of the Exchange that the Exchange believes are reasonable, as
set forth below. While there is no standardized and generally accepted
methodology for the allocation of an exchange's costs, the Exchange's
methodology is the result of an extensive review and analysis and will
be consistently applied going forward for any other potential fee
proposals. In the absence of the Commission attempting to specify a
methodology for the allocation of exchanges' interdependent costs, the
Exchange will continue to be left with its best efforts to attempt to
conduct such an allocation in a thoughtful and reasonable manner.
    Through the Exchange's extensive updated Cost Analysis, which was
again recently further refined, the Exchange analyzed every expense
item in the Exchange's general expense ledger to determine whether each
such expense relates to the provision of connectivity and port
services, and, if such expense did so relate, what portion (or
percentage) of such expense actually supports the provision of
connectivity and port services, and thus bears a relationship that is,
``in nature and closeness,'' directly related to network connectivity
and port services. In turn, the Exchange allocated certain costs more
to physical connectivity and others to ports, while certain costs were
only allocated to such services at a very low percentage or not at all,
using consistent allocation methodologies as described above. Based on
this analysis, the Exchange estimates that the aggregate monthly cost
to provide 10Gb ULL connectivity and Limited Service MEI Port services,
including both physical 10Gb connections and Limited Service MEI Ports,
is $1,182,645 (utilizing the rounded numbers when dividing the annual
cost for 10Gb ULL connectivity and annual cost for Limited Service MEI
Ports by 12 months, then adding both numbers together), as further
detailed below.
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
25.6% of its overall Human Resources cost to offering physical
connectivity).

----------------------------------------------------------------------------------------------------------------
                                                                     Allocated       Allocated
                          Cost drivers                              annual cost    monthly cost   Percent of all
                                                                        \k\             \l\
----------------------------------------------------------------------------------------------------------------
Human Resources.................................................      $3,867,297        $322,275              25
Connectivity (external fees, cabling, switches, etc.)...........          70,163           5,847            60.6
Internet Services and External Market Data......................         424,584          35,382            73.3
Data Center.....................................................         718,950          59,912            60.6
Hardware and Software Maintenance and Licenses..................         727,734          60,645            49.8
Depreciation....................................................       2,310,898         192,575            61.6
Allocated Shared Expenses.......................................       3,914,928         326,244            49.1
                                                                 -----------------------------------------------
    Total.......................................................      12,034,554       1,002,880            39.4
----------------------------------------------------------------------------------------------------------------
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 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
    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.
    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). As described more fully above, the Exchange's parent
company allocates costs to the Exchange and its affiliated markets and
then a portion of the Human Resources costs allocated to the Exchange
is then allocated to connectivity. From that portion allocated to the
Exchange that applied to connectivity, the Exchange then allocated a
weighted average of 42% of each employee's time from the above group.
    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). 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' time to 10Gb ULL connectivity (less than
18%). This other group of personnel with a smaller allocation of Human
Resources costs also have a direct nexus to 10Gb ULL connectivity,
whether it is a sales person selling a connection, finance personnel
billing for connectivity or providing budget analysis, or information
security ensuring that such connectivity is secure and adequately
defended from an outside intrusion.
    The estimates of Human Resources cost were therefore determined by
consulting with such department leaders, determining which employees
are involved in tasks related to providing physical connectivity, and
confirming that the proposed allocations were reasonable based on an
understanding of the percentage of time such employees devote to those
tasks. This includes personnel from the Exchange departments that are
predominately involved in providing 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. Again, the
Exchange allocated 42% of each of their employee's time assigned to the
Exchange for 10Gb ULL connectivity, as stated above. Employees from
these departments perform numerous functions to support 10Gb ULL
connectivity, such as the installation, re-location, configuration, and
maintenance of 10Gb ULL connections and the hardware they access. This
hardware includes servers, routers, switches, firewalls, and monitoring
devices. These employees also perform software upgrades, vulnerability
assessments, remediation and patch installs, equipment configuration
and hardening, as well as performance and capacity management. These
employees also engage in research and development analysis for
equipment and software supporting 10Gb ULL connectivity and design, and
support the development and on-going maintenance of internally-
developed applications as well as data capture and analysis, and Member
and internal Exchange reports related to network and system
performance. The above list of employee functions is not exhaustive of
all the functions performed by Exchange employees to support 10Gb ULL
connectivity, but illustrates the breath of functions those employees
perform in support of the above cost and time allocations.
    Lastly, the Exchange notes that senior level executives' time was
only allocated to the 10Gb ULL connectivity related 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.
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 provider 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 an amount
of such costs to 10Gb ULL connectivity.
    The Exchange relies on various 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. For instance, despite the
difference in cost allocation percentages for the internet Services and
External Market Data cost driver across the Exchange and MIAX Emerald,
the actual dollar amount difference is approximately only $4,000 per
month, a non-significant amount.
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.\113\ The Exchange notes that
this allocation is less than MIAX Pearl Options by a significant
amount, and slightly less than MIAX Emerald, 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. 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, MIAX Pearl Options 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. 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.
---------------------------------------------------------------------------

    \113\ This expense may be less than the Exchange's affiliated
markets, specifically MIAX Pearl (the options and equities markets),
because, unlike the Exchange, MIAX Pearl (the options and equities
markets) maintains an additional gateway to accommodate its member's
access and connectivity needs. This added gateway contributes to the
difference in allocations between the Exchange and MIAX Pearl. This
expense also differs in dollar amount among the Exchange, MIAX Pearl
(options and equities), 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 61.6% 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
Emerald, allocated to the depreciation of hardware and software used to
provide 10Gb ULL connectivity are nearly identical. However, the
Exchange's dollar amount is greater than that of MIAX Emerald by
approximately $32,000 per month due to two factors: first, the Exchange
has undergone a technology refresh since the time MIAX Emerald launched
in February 2019, leading to it having more hardware that software that
is subject to depreciation. Second, the Exchange maintains 24 matching
engines while MIAX Emerald maintains only 12 matching engines. This
also results in more of the Exchange's hardware and software being
subject to depreciation than MIAX Emerald's hardware and software due
to the greater amount of equipment and software necessary to support
the greater number of matching engines on the Exchange.
Allocated Shared Expenses
    Finally, as with other exchange products and services, a portion of
general shared expenses was allocated to overall physical connectivity
costs. These general shared costs are integral to exchange operations,
including its ability to provide physical connectivity. Costs included
in general shared expenses include office space and office expenses
(e.g., occupancy and overhead expenses), utilities, recruiting and
training, marketing and advertising costs, professional fees for legal,
tax and accounting services (including external and internal audit
expenses), and telecommunications. Similarly, the cost of paying
directors to serve on the Exchange's Board of Directors is also
included in the Exchange's general shared expense cost driver.\114\
These general shared expenses are incurred by the Exchange's parent
company, MIH, as a direct result of operating the Exchange and its
affiliated markets.
---------------------------------------------------------------------------

    \114\ The Exchange notes that MEMX allocated a precise amount of
10% of the overall cost for directors to providing physical
connectivity. See Securities Exchange Act Release No. 95936