[Federal Register Volume 88, Number 10 (Tuesday, January 17, 2023)]
[Notices]
[Pages 2729-2748]
[FR Doc No: 2023-00660]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96629; File No. SR-MIAX-2022-50]

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

January 10, 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 December 30, 2022, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 (the ``Fee Schedule'') to amend certain
connectivity and port fees.
    The text of the proposed rule change is available on the Exchange's
website at http://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
fees for 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\
---------------------------------------------------------------------------

    \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\ MIAX Express Interface 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.
    \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.
---------------------------------------------------------------------------

    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
is bifurcating 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 2021 increase discussed above, the Exchange experienced ongoing
increases in expenses, particularly internal expenses. 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.
---------------------------------------------------------------------------

    \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.miaxoptions.com/alerts/2022/08/12/miax-options-and-miax-pearl-options-announce-planned-network-changes-related-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).
---------------------------------------------------------------------------

    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.\10\
---------------------------------------------------------------------------

    \10\ The Exchange notes that MIAX Pearl will make a similar
filing to increase its 10Gb ULL connectivity fees.
---------------------------------------------------------------------------

* * * * *
    Starting in 2017, following the United States Court of Appeals for
the District of Columbia's Susquehanna Decision \11\ 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.\12\ 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.\13\ 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'').\14\ 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.'' \15\ The Commission denied requests by various
exchanges and plan participants for reconsideration of the Remand
Order.\16\ 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.'' \17\ Both the Remand Order and the
Order Denying Reconsideration were appealed to the D.C. Circuit.
---------------------------------------------------------------------------

    \11\ See Susquehanna International Group, LLP v. Securities &
Exchange Commission, 866 F.3d 442 (D.C. Circuit 2017) (the
``Susquehanna Decision'').
    \12\ Id.
    \13\ See Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 84432, 2018 WL 5023228 (October 16, 2018) (the ``SIFMA
Decision'').
    \14\ 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).
    \15\ Id. at page 2.
    \16\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 85802, 2019 WL 2022819 (May 7, 2019) (the ``Order
Denying Reconsideration'').
    \17\ Order Denying Reconsideration, 2019 WL 2022819, at *13.
---------------------------------------------------------------------------

    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.\18\ 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.
---------------------------------------------------------------------------

    \18\ 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).
---------------------------------------------------------------------------

    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.'' \19\ 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.'' \20\ 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.'' \21\
---------------------------------------------------------------------------

    \19\ 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'').
    \20\ Id.
    \21\ Id.
---------------------------------------------------------------------------

    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 \22\ and remanded for further proceedings consistent
with its opinion.\23\ 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.'' \24\
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.\25\ 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.''
\26\ 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.\27\
---------------------------------------------------------------------------

    \22\ 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.
    \23\ 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.
    \24\ Id. at *2; see also id. (``[T]he sole purpose of the
challenged remand has disappeared.'').
    \25\ 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'').
    \26\ Id.
    \27\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 90087 (October 5, 2020).
---------------------------------------------------------------------------

    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.'' \28\
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, particularly those submitted by new exchanges, 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.
---------------------------------------------------------------------------

    \28\ See supra note 14, at page 2.
---------------------------------------------------------------------------

    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'').\29\ 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 \30\ 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.\31\ These fees
remain in effect today.
---------------------------------------------------------------------------

    \29\ 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.
    \30\ 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.
    \31\ 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).
---------------------------------------------------------------------------

    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.\32\
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 \33\ and $80,383,000 for
2021.\34\ Cboe C2 Exchange, Inc. (``C2'') reported ``access and
capacity fee'' revenue of $19,016,000 for 2020 \35\ and $22,843,000 for
2021.\36\ Cboe BZX Exchange, Inc. (``BZX'') reported ``access and
capacity fee'' revenue of $38,387,000 for 2020 \37\ and $44,800,000 for
2021.\38\ Cboe EDGX Exchange, Inc. (``EDGX'') reported ``access and
capacity fee'' revenue of $26,126,000 for 2020 \39\ and $30,687,000 for
2021.\40\ 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.\41\ 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.'' \42\
---------------------------------------------------------------------------

    \32\ 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.
    \33\ 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.
    \34\ See Cboe 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001155.pdf.
    \35\ See C2 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000469.pdf.
    \36\ See C2 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001156.pdf.
    \37\ See BZX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000465.pdf.
    \38\ See BZX 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001152.pdf.
    \39\ See EDGX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000467.pdf.
    \40\ See EDGX 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001154.pdf.
    \41\ 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.
    \42\ See PHLX Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000475.pdf.
---------------------------------------------------------------------------

    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,\43\ 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), 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. While one could debate whether the
pricing of non-transaction fees are subject to the same market forces
as transaction fees, 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.
---------------------------------------------------------------------------

    \43\ See, e.g., CNBC Debuts New Set on NYSE Floor, available at
https://www.cnbc.com/id/46517876.
---------------------------------------------------------------------------

    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 . . .'',\44\ 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 good-faith efforts by the Exchange to provide substantial
amount of cost-related details. The Exchange has attempted to increase
fees using a cost-based justification numerous times, having submitted
over six filings.\45\ 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. The Commission Staff appears
to be interpreting the reasonableness standard set forth in Section
6(b)(4) of the Act \46\ 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 anticompetitive to the non-legacy
exchanges. This does not meet the fairness standard under the Act and
is discriminatory.
---------------------------------------------------------------------------

    \44\ See supra note 19, at note 1.
    \45\ 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).
    \46\ 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,\47\ 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; \48\ 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.
---------------------------------------------------------------------------

    \47\ 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.
    \48\ 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 place 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.\49\
---------------------------------------------------------------------------

    \49\ 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.
---------------------------------------------------------------------------

    Lastly, the Exchange notes that the Commission Staff has allowed
similar fee increases by other exchanges to remain in effect by
publishing those

filings for comment and allowing the exchange to withdraw and re-file
numerous times.\50\ Recently, the Commission Staff has not afforded the
Exchange the same flexibility.\51\ This again is evidence that the
Commission Staff is not treating non-transaction fee filings in a
consistent manner and is holding exchanges to different levels of
scrutiny in reviewing filings.
---------------------------------------------------------------------------

    \50\ See, e.g., Securities Exchange Act Release Nos. 93937
(January 10, 2022), 87 FR 2466 (January 14, 2022) (SR-MEMX-2021-22);
94419 (March 15, 2022), 87 FR 16046 (March 21, 2022) (SR-MEMX-2022-
02); SR-MEMX-2022-12 (withdrawn before being noticed); 94924 (May
16, 2022), 87 FR 31026 (May 20, 2022) (SR-MEMX-2022-13); 95299 (July
15, 2022), 87 FR 43563 (July 21, 2022) (SR-MEMX-2022-17); SR-MEMX-
2022-24 (withdrawn before being noticed); 95936 (September 27,
2022), 87 FR 59845 (October 3, 2022) (SR-MEMX-2022-26); 94901 (May
12, 2022), 87 FR 30305 (May 18, 2022) (SR-MRX-2022-04); SR-MRX-2022-
06 (withdrawn before being noticed); 95262 (July 12, 2022), 87 FR
42780 (July 18, 2022) (SR-MRX-2022-09); 95710 (September 8, 2022),
87 FR 56464 (September 14, 2022) (SR-MRX-2022-12); 96046 (October
12, 2022), 87 FR 63119 (October 18, 2022) (SR-MRX-2022-20); 95936
(September 27, 2022), 87 FR 59845 (October 3, 2022) (SR-MEMX-2022-
26); and 96430 (December 1, 2022), 87 FR 75083 (December 7, 2022)
(SR-MEMX-2022-32).
    \51\ See Securities Exchange Act Release Nos. 94719 (April 14,
2022), 87 FR 23600 (April 20, 2022) (SR-MIAX-2022-14) and 94720
(April 14, 2022), 87 FR 23586 (April 20, 2022) (SR-MIAX-2022-16).
---------------------------------------------------------------------------

* * * * *
10Gb ULL Connectivity Fee Change
    The Exchange recently filed a proposal to no longer operate 10Gb
connectivity to the Exchange on a single shared network with its
affiliate, MIAX Pearl. This change is an operational necessity due to
ever-increasing capacity constraints and to accommodate anticipated
access needs for Members and other market participants.\52\ This
proposal: (i) sets forth the applicable fees for the bifurcated 10Gb
ULL network; and (ii) removes provisions in the Fee Schedule that
provides for a shared 10Gb ULL network; and (iii) specifies that market
participants may continue to connect to both the Exchange and MIAX
Pearl via the 1Gb network.
---------------------------------------------------------------------------

    \52\ See supra note 9.
---------------------------------------------------------------------------

    The Exchange plans to bifurcate the Exchange and MIAX Pearl 10Gb
ULL networks in the first quarter of 2023, currently anticipated to be
effective 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.\53\ Upon bifurcation of the 10Gb ULL network,
subscribers would need to purchase separate connections to the Exchange
and MIAX at the applicable rate. The Exchange's proposed amended rate
for 10Gb ULL connectivity is described below. Until the 10Gb ULL
network is bifurcated, subscribers to 10Gb ULL connectivity would be
able to connect to both the Exchange and MIAX Pearl at the applicable
rate set forth below.
---------------------------------------------------------------------------

    \53\ 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 \54\ 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. 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'').\55\ 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.
---------------------------------------------------------------------------

    \54\ The Exchange's system networks consist of the Exchange's
extranet, internal network, and external network.
    \55\ 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.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_10192022.pdf (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. 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 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.
    Implementation of 10Gb ULL Fee. The proposed 10Gb ULL fee will be
effective January 1, 2023. From January 1, 2023 until January 22, 2023,
subscribers to 10Gb ULL connectivity will continue to receive access to
both the Exchange and MIAX Pearl via a single 10Gb ULL connection. Upon
bifurcation of the 10Gb ULL network on January 23, 2023, subscribers
that elect to continue to access both the Exchange and MIAX Pearl via a
10Gb ULL connection will need to purchase separate 10Gb ULL connections
from each exchange. Existing subscribers of 10Gb ULL connections on the
Exchange that also purchase a new 10Gb ULL connection to access MIAX
Pearl would pay a pro-rated portion of the monthly fee for the added
connection for the remainder of the month.
Limited Service MEI Ports
Background
    The Exchange also proposes to amend Section 5)d) of the Fee
Schedule to adopt a tiered-pricing structure for Limited Service MEI
Ports available to Market Makers. The Exchange allocates two (2) Full
Service MEI Ports \56\ and two (2) Limited Service MEI Ports \57\ per
matching engine \58\ 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. Currently, Market Makers are 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.\59\
---------------------------------------------------------------------------

    \56\ 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.
    \57\ 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.
    \58\ 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.
    \59\ 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 move from a flat monthly fee per
Limited Service MEI Port for each matching engine to a tiered-pricing
structure for Limited Service MEI Ports for each matching engine under
which the monthly fee would vary depending on the number of Limited
Service MEI Ports each Market Maker elects to purchase. Specifically,
the Exchange will continue to provide the first and second Limited
Service MEI Ports for each matching engine free of charge. For Limited
Service MEI Ports, the Exchange proposes to adopt the following tiered-
pricing structure: (i) the third and fourth Limited Service MEI Ports
for each matching engine will increase from the current flat monthly
fee of $100 to $150 per port; (ii) the fifth and sixth Limited Service
MEI Ports for each matching engine will increase from the current flat
monthly fee of $100 to $200 per port; and (iii) the seventh or more
Limited Service MEI Ports will increase from the current monthly flat
fee of $100 to $250 per port. The Exchange believes a tiered-pricing
structure will encourage Market Makers to be more efficient when
determining how to connect to the Exchange. This should also enable the
Exchange to better monitor and provide access to the Exchange's network
to ensure sufficient capacity and headroom in the System \60\ in
accordance with its fair access requirements under Section 6(b)(5) of
the Act.\61\
---------------------------------------------------------------------------

    \60\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See the Definitions
Section of the Fee Schedule and Exchange Rule 100.
    \61\ See 15 U.S.C. 78f(b). The Exchange may offer access on
terms that are not unfairly discriminatory among its Members, and
ensure sufficient capacity and headroom in the System. The Exchange
monitors the System's performance and makes adjustments to its
System based on market conditions and Member demand.
---------------------------------------------------------------------------

    The Exchange offers various types of ports with differing prices
because each port accomplishes different tasks, are suited to different
types of Members, and consume varying capacity amounts of the network.
For instance, Market Makers who take the maximum amount of Limited
Service MEI Ports account for approximately greater than 99% of message
traffic over the network, while Market Makers with fewer Limited
Service MEI Ports account for approximately less than 1% of message
traffic over the network. In the Exchange's experience, Market Makers
who only utilize the two free Limited Service MEI Ports do not have a
business need for the high performance network solutions required by
Market Makers who take the maximum amount of Limited Service MEI Ports.
The Exchange's high performance network solutions and supporting
infrastructure (including employee support), provides unparalleled
system throughput and the capacity to handle approximately 18 million
quote messages per second. Based on November 2022 trading results, on
an average day, the Exchange handles over approximately 8.8 billion
quotes, and more than 185 billion quotes over the entire month. Of that
total, Market Makers with the maximum amount of Limited Service MEI
Ports generate approximately 5 billion quotes, and Market Makers who
utilize the two free Limited Service MEI Ports generate approximately
1.5 billion quotes. Also for November 2022, Market Makers who utilized
3 to 4 Limited Service MEI ports submitted an average of 1,152,654,133
quotes per day and Market Makers who utilized 5 to 9 Limited Service
MEI ports submitted an average of 1,172,105,181 quotes per day. To
achieve a consistent, premium network performance, the Exchange must
build out and maintain a network that has the capacity to handle the
message rate requirements of its most heavy network consumers. These
billions of messages per day consume the Exchange's resources and
significantly contribute to the overall network connectivity expense
for storage and network transport capabilities. The Exchange must also
purchase additional storage capacity on an ongoing basis to ensure it
has sufficient capacity to store these messages as part of it
surveillance program and to satisfy its record keeping requirements
under the Exchange Act.\62\ Thus, as the number of connections a Market
Maker has increases, certain other costs incurred by the Exchange that
are correlated to, though not directly affected by, connection costs
(e.g., storage costs, surveillance costs, service expenses) also
increase. The Exchange sought to design the proposed tiered-pricing
structure to set the amount of the fees to relate to the number of
connections a firm purchases. The more connections purchased by a
Market Maker likely results in greater expenditure of Exchange
resources and increased cost to the Exchange. With this in mind, the
Exchange proposes no fee or lower fees for those Market Makers who
receive fewer Limited Service MEI Ports since those Market Makers
generally tend to send the least amount of orders and messages over
those connections. Given this difference in network utilization rate,
the Exchange believes that it is reasonable, equitable, and not
unfairly discriminatory that Market Makers who take the most Limited
Service MEI Ports pay for the vast majority of the shared network
resources from which all Member and non-Member users benefit, but is
designed and maintained from a capacity standpoint to specifically
handle the message rate and performance requirements of those Market
Makers.
---------------------------------------------------------------------------

    \62\ 17 CFR 240.17a-1 (recordkeeping rule for national
securities exchanges, national securities associations, registered
clearing agencies and the Municipal Securities Rulemaking Board).
---------------------------------------------------------------------------

    The Exchange proposes to increase its monthly Limited Service MEI
Port fees since it has not done so since 2016,\63\ which is designed to
recover a portion of the costs associated with directly accessing the
Exchange.
---------------------------------------------------------------------------

    \63\ See Securities Exchange Act Release No. 79666 (December 22,
2016), 81 FR 96133 (December 29, 2016) (SR-MIAX-2016-47).
---------------------------------------------------------------------------

    Implementation of Limited Service MEI Port fees. This proposed fee
changes will be effective January 1, 2023.
2. Statutory Basis
    The Exchange believes that the proposed fees are consistent with
Section 6(b) of the Act \64\ in general, and furthers the objectives of
Section 6(b)(4) of the Act \65\ 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 \66\ 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.
---------------------------------------------------------------------------

    \64\ 15 U.S.C. 78f(b).
    \65\ 15 U.S.C. 78f(b)(4).
    \66\ 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 \67\ and
the Staff Guidance \68\, 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.
---------------------------------------------------------------------------

    \67\ See supra note 18.
    \68\ See supra note 19.
---------------------------------------------------------------------------

    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.''
\69\ 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.'' \70\ 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.'' \71\
---------------------------------------------------------------------------

    \69\ Id.
    \70\ Id.
    \71\ 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 relates
fees to provide them with additional necessary revenue to better
compete. 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 (or use 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,
while one could debate whether the pricing of non-transaction fees are
subject to the same market forces as transaction fees, 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).\72\ 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.\73\
---------------------------------------------------------------------------

    \72\ See Securities Exchange Act Release No. 68415 (December 12,
2012), 77 FR 74905 (December 18, 2012) (SR-MIAX-2012-01).
    \73\ 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,\74\ the
Exchange adopted a nominal $10 fee for each additional Limited Service
MEI Port.\75\ The Exchange last increased the fees for its 10Gb ULL
fiber connections from $9,300 to $10,000 per month on January 1,
2021.\76\ 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.
---------------------------------------------------------------------------

    \74\ The Exchange experienced a monthly average equity options
trading volume of 1.87% for the month of November 2013. See Market
at a Glance, available at www.miaxoptions.com.
    \75\ See Securities Exchange Act Release No. 70903 (November 20,
2013), 78 FR 70615 (November 26, 2013) (SR-MIAX-2013-52).
    \76\ 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.
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'. . . '' \77\
---------------------------------------------------------------------------

    \77\ 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.'' \78\
---------------------------------------------------------------------------

    \78\ 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.' '' \79\ 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.'' \80\ 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.'' \81\ 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.'' \82\
---------------------------------------------------------------------------

    \79\ 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.'').
    \80\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \81\ Id.
    \82\ See Staff Guidance, supra note 19.
---------------------------------------------------------------------------

    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 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 are 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.
    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 market data rates in place at competing options exchanges
were filed with the Commission for immediate effectiveness and remain
in place today.
---------------------------------------------------------------------------

    \83\ See supra note 74.
    \84\ See NASDAQ Pricing Schedule, Options 7, Section 3, Ports
and Other Services and NASDAQ Rules, General 8: Connectivity,
Section 1. Co-Location Services.
    \85\ See supra note 74.
    \86\ See ISE Pricing Schedule, Options 7, Section 7,
Connectivity Fees and ISE Rules, General 8: Connectivity.
    \87\ See supra note 74.
    \88\ See NYSE American Options Fee Schedule, Section V.A. Port
Fees and Section V.B. Co-Location Fees.
    \89\ See supra note 74.
    \90\ See GEMX Pricing Schedule, Options 7, Section 6,
Connectivity Fees and GEMX Rules, General 8: Connectivity.
    \91\ See supra note 74.

------------------------------------------------------------------------
                                     Type of          Monthly fee (per
           Exchange               connection or      connection or per
                                       port                port)
------------------------------------------------------------------------
MIAX (as proposed) (equity      10Gb ULL           $13,500.
 options market share of 5.64%   connection.       1-2 ports: FREE (not
 for the month of November      Limited Service     changed in this
 2022) \83\.                     MEI Ports.         proposal).
                                                   3-4 ports: $150 each.
                                                   5-6 ports: $200 each.
                                                   7 or more ports: $250
                                                    each.
NASDAQ \84\ (equity options     10Gb Ultra fiber   $15,000 per
 market share of 6.61% for the   connection..       connection.
 month of November 2022) \85\.  SQF Port.........  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'') \86\   10Gb Ultra fiber   $15,000 per
 (equity options market share    connection.        connection.
 of 5.76% for the month of      SQF Port.........  $1,100 per port.
 November 2022) \87\.

NYSE American LLC (``NYSE       10Gb LX LCN        $22,000 per
 American'') \88\ (equity        connection.        connection.
 options market share of 6.41%  Order/Quote Entry  Ports 1-40. $450 per
 for the month of November       Port.              port.
 2022) \89\.                                       Ports 41 and greater.
                                                    $150 per port.
NASDAQ GEMX, LLC (``GEMX'')     10Gb Ultra         $15,000 per
 \90\ (equity options market     connection.        connection.
 share of 1.79% for the month   SQF Portection...  $1,250 per port.
 of November 2022) \91\.
------------------------------------------------------------------------

    The Exchange notes that, in regard to Limited Service MEI Ports,
other exchanges charge on a per port basis and require firms to connect
to multiple matching engines, thereby multiplying the cost to access
their full market.\92\
---------------------------------------------------------------------------

    \92\ See Specialized Quote Interface Specification, Nasdaq PHLX,
Nasdaq Options Market, Nasdaq BX Options, Version 6.5a, Section 2,
Architecture (revised August 16, 2019), available at http://www.nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/SQF6.5a-2019-Aug.pdf. The Exchange notes that it is
unclear whether the NASDAQ exchanges include connectivity to each
matching engine for the single fee or charge per connection, per
matching engine. See also NYSE Technology FAQ and Best Practices:
Options, Section 5.1 (How many matching engines are used by each
exchange?) (September 2020). The Exchange notes that NYSE provides a
link to an Excel file detailing the number of matching engines per
options exchange, with Arca and Amex having 19 and 17 matching
engines, respectively.
---------------------------------------------------------------------------

    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, LLC (``MIAX Pearl''),
experienced a decrease in membership as the result of similar fees
proposed herein. One MIAX Pearl Member notified MIAX Pearl that it will
terminate their MIAX Pearl membership effective January 1, 2023, as a
direct result of the proposed connectivity and port fee changes on MIAX
Pearl.
    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.\93\ 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.\94\
---------------------------------------------------------------------------

    \93\ 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.''
    \94\ 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.\95\ The Exchange and its affiliates,
MIAX Pearl and MIAX Emerald, have a total of 47 members. Of those 47
total members, 35 are members of all three affiliated exchanges, four
are members of only two (2) affiliated exchanges, and eight (8) are
members of only one affiliated exchange. 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.
---------------------------------------------------------------------------

    \95\ 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 Member will terminate their MIAX Pearl membership effective
January 1, 2023 as a direct result of the proposed connectivity and
port fee changes on MIAX Pearl (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.\96\ If the Exchange is
not at the NBBO, 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.\97\
---------------------------------------------------------------------------

    \96\ 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.
    \97\ 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 at all 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,\98\ or request
sponsored access \99\ through a member of an exchange in order to
submit a trade directly to an options exchange.\100\ 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.
---------------------------------------------------------------------------

    \98\ 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.
    \99\ 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.
    \100\ 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).\101\ 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.\102\ 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 16 options markets. Accordingly,
the Exchange believes that the proposed fees are fair and reasonable
and constrained by competitive forces.
---------------------------------------------------------------------------

    \101\ See, e.g., Nasdaq Price List--U.S. Direct Connection and
Extranet Fees, available at, U.S. 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).
    \102\ 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, or, if it is a Member, 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 stresses that bifurcating the 10Gb ULL connectivity
between the Exchange and MIAX Pearl was not designed with the objective
to generate an overall increase in access fee revenue. Rather, the
proposed change is 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. Due to the ever-
increasing connectivity demands, the Exchange found it necessary to
bifurcate 10Gb ULL connectivity to the Exchange's and MIAX Pearl's
Systems and networks to continue to meet ongoing and future 10Gb ULL
connectivity and access demands. Such changes accordingly necessitated
a review of the Exchange's previous 10Gb ULL connectivity fees and
related costs. The proposed fees are reasonable as they are intended 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 also
proves 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 January 23, 2023 implementation date to provide market
participants adequate time to prepare.\103\ 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 expects a minimal
net increase of approximately six (6) overall 10Gb ULL connectivity
subscriptions across the Exchange and MIAX Pearl. This anticipated
immaterial increase in overall connections reflect 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, or chose to decrease or cease connectivity as a result of
the change.
---------------------------------------------------------------------------

    \103\ 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 exchanges from innovating technology to
the benefit of market participants if it believes the Commission would
later prevent that exchange from monetizing its

innovation, 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 as aggressively 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 services, the Exchange
seeks to be especially diligent in assessing those fees in a
transparent way against its own aggregate costs of providing the
related service, and also 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,\104\ and Rule 19b-4
thereunder,\105\ with respect to the types of information SROs should
provide when filing fee changes, and Section 6(b) of the Act,\106\
which requires, among other things, that exchange fees be reasonable
and equitably allocated,\107\ not designed to permit unfair
discrimination,\108\ and that they not impose a burden on competition
not necessary or appropriate in furtherance of the purposes of the
Act.\109\ 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.\110\ The Exchange
notes 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.
---------------------------------------------------------------------------

    \104\ 15 U.S.C. 78s(b)(1).
    \105\ 17 CFR 240.19b-4.
    \106\ 15 U.S.C. 78f(b).
    \107\ 15 U.S.C. 78f(b)(4).
    \108\ 15 U.S.C. 78f(b)(5).
    \109\ 15 U.S.C. 78f(b)(8).
    \110\ See Staff Guidance, supra note 19.
---------------------------------------------------------------------------

    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 \111\) 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. The Exchange also proposes
to modify its Fee Schedule to charge tiered rates for additional
Limited Service MEI Ports.
---------------------------------------------------------------------------

    \111\ 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'').\112\ 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'').
Next, the Exchange adopted an allocation methodology with various
principles to guide how much of a particular cost should be allocated
to each core service. 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 1Gb and 10Gb ULL
connectivity (62%), with smaller allocations to all ports (15%), and
the remainder to the provision of transaction execution, membership
services and market data services (23%). The allocation methodology was
developed through conversations with senior management familiar with
each area of the Exchange's operations. After adopting this allocation
methodology, the Exchange then applied an estimated allocation of each
cost driver to each core service, resulting in the cost allocations
described below.
---------------------------------------------------------------------------

    \112\ 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.
---------------------------------------------------------------------------

    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 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.
    Through the Exchange's extensive updated Cost Analysis, 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 services, and, if such expense did so relate, what portion
(or percentage) of such expense actually supports the provision of
connectivity services, and thus bears a relationship that is, ``in
nature and closeness,'' directly related to network connectivity
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 cost drivers to provide
10Gb ULL connectivity and Limited Service MEI Port services, including
both physical 10Gb connections and Limited Service MEI Ports, result in
an aggregate monthly cost of approximately $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 such area
(e.g., as set forth below, the Exchange allocated approximately 25.6%
of its overall Human Resources cost to offering physical connectivity).
---------------------------------------------------------------------------

    \113\ The Annual Cost includes figures rounded to the nearest
dollar.
    \114\ 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.

----------------------------------------------------------------------------------------------------------------
                                                                                Monthly cost
                         Cost drivers                           Annual cost \113\        \114\         % of all
----------------------------------------------------------------------------------------------------------------
Human Resources...............................................         $3,867,297           $322,275          25
Connectivity (external fees, cabling, switches, etc.).........             70,163              5,847        60.6
Internet Services, including 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
----------------------------------------------------------------------------------------------------------------

    Below are additional details regarding each of the line-item costs
considered by the Exchange to be related to offering physical 10Gb ULL
connectivity.
Human Resources
    For personnel costs (Human Resources), the Exchange calculated an
allocation of employee time for employees whose functions include
providing and maintaining physical connectivity and performance thereof
(primarily the Exchange's network infrastructure team, which spends
most of their time performing functions necessary to provide physical
connectivity) and for which the Exchange allocated a percentage of 42%
of each employee's time. 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 and finance personnel), for
which the Exchange allocated cost on an employee-by-employee basis
(i.e., only including those personnel who do support functions related
to providing physical connectivity) and then applied a smaller
allocation to such employees (less than 18%). The Exchange notes that
it has 184 employees and each department leader has direct knowledge of
the time spent by those spent by each employee with respect to the
various tasks necessary to operate the Exchange. The estimates of Human
Resources cost were therefore determined by consulting with such
department leaders, determining which employees are involved in tasks
related to providing physical connectivity, and confirming that the
proposed allocations were reasonable based on an understanding of the
percentage of their time such employees devote to tasks related to
providing physical connectivity. The Exchange notes that senior level
executives were only allocated Human Resources costs to the extent the
Exchange believed 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 and Internet Services
    The Connectivity cost includes external fees paid to connect to
other exchanges and third parties, cabling and switches required to
operate the Exchange. The Connectivity line-item 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 and content service
providers for connectivity and data feeds for the entire U.S. options
industry, as well as content, connectivity, 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
and content service providers to connect to other national securities
exchanges, the Options Price Reporting Authority (``OPRA''), and to
receive market data from 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. Connectivity and 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 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 and content service provider expense and
recoups that expense, in part, by charging for 10Gb ULL connectivity.
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 of
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.
External Market Data
    External Market Data includes fees paid to third parties, including
other exchanges, to receive and consume market data from other markets.
The Exchange included External Market Data fees to the provision of
10Gb ULL connectivity as such market data is necessary here to offer
certain services related to such connectivity, such as certain risk
checks that are performed prior to execution, and checking for other
conditions (e.g., re-pricing of orders to avoid lock or crossed
markets, trading collars). This allocation was included as part of the
internet Services cost described above. Thus, as market data from other
exchanges is consumed at the matching engine level, (to which 10Gb ULL
connectivity provides access to) in order to validate orders before
additional entering the matching engine or being executed, the Exchange
believes it is reasonable to allocate a small amount of such costs to
10Gb ULL connectivity.
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.
Monthly Depreciation
    All physical assets and software, which also includes assets used
for testing and monitoring of Exchange infrastructure, were valued at
cost, depreciated or leased over periods ranging from three to five
years. Thus, the depreciation cost primarily relates to servers
necessary to operate the Exchange, some of which are owned by the
Exchange and some of which are leased by the Exchange in order to allow
efficient periodic technology refreshes. As noted above, the Exchange
allocated 61.6% of all depreciation costs to providing physical 10Gb
ULL connectivity. The Exchange notes, however, that it did not allocate
depreciation costs for any depreciated software necessary to operate
the Exchange to physical connectivity, as such software does not impact
the provision of physical connectivity.
Allocated Shared Expenses
    Finally, a limited portion of general shared expenses was allocated
to overall physical connectivity costs as without these general shared
costs the Exchange would not be able to operate in the manner that it
does and provide physical connectivity. The costs included in general
shared expenses include general expenses of the Exchange, including
office space and office expenses (e.g., occupancy and overhead
expenses), utilities, recruiting and training, marketing and
advertising costs, professional fees for legal, tax and accounting
services (including external and internal audit expenses), and
telecommunications costs. The Exchange notes that the cost of paying
directors to serve on its Board of Directors is also included in the
Exchange's general shared expenses.\115\ The Exchange notes that the
49.1% allocation of general shared expenses for physical 10Gb ULL
connectivity is higher than that allocated to general shared expenses
for Limited Service MEI Ports based on its allocation methodology that
weighted costs attributable to each Core Service based on an
understanding of each area. While physical connectivity has several
areas where certain tangible costs are heavily weighted towards
providing such service (e.g., Data Centers, as described above),
Limited Service MEI Ports do not require as many broad or indirect
resources as other Core Services. The total monthly cost for 10Gb ULL
connectivity of $1,002,880 was divided by the number of physical 10Gb
ULL connections the Exchange maintained at the time that proposed
pricing was determined (93), to arrive at a cost of approximately
$10,784 per month, per physical 10Gb ULL connection.
---------------------------------------------------------------------------

    \115\ The Exchange notes that MEMX allocated a precise amount of
10% of the overall cost for directors to providing physical
connectivity. The Exchange does not calculate is expenses at that
granular a level. Instead, director costs are included as part of
the overall general allocation.
---------------------------------------------------------------------------

Costs Related to Offering Limited Service MEI Ports
    The following chart details the individual line-item costs
considered by the Exchange to be related to offering Limited Service
MEO Ports as well as the percentage of the Exchange's overall costs
such costs represent for such area (e.g., as set forth below, the
Exchange allocated approximately 5.8% of its overall Human Resources
cost to offering Limited Service MEI Ports).

----------------------------------------------------------------------------------------------------------------
                                                                     Annual cost      Monthly cost
                          Cost drivers                                  \116\             \117\        % of all
----------------------------------------------------------------------------------------------------------------
Human Resources.................................................          $898,480           $74,873        5.8%
Connectivity (external fees, cabling, switches, etc.)...........             4,435               370         3.8
Internet Services, including External Market Data...............            41,601             3,467         7.2
Data Center.....................................................            85,214             7,101         7.2
Hardware and Software Maintenance and Licenses..................           104,859             8,738         7.2
Depreciation....................................................           237,335            19,778         6.3
Allocated Shared Expenses.......................................           785,254            65,438         9.8
                                                                 -----------------------------------------------
    Total.......................................................         2,157,178           179,765         7.1
----------------------------------------------------------------------------------------------------------------

Human Resources
    With respect to Limited Service MEI Ports, the Exchange calculated
Human Resources cost by taking an allocation of employee time for
employees whose functions include providing Limited Service MEI Ports
and maintaining performance thereof (including a broader range of
employees such as technical operations personnel, market operations
personnel, and software engineering personnel) as well as a limited
subset of personnel with ancillary functions related to maintaining
such connectivity (such as sales, membership, and finance personnel).
The estimates of Human Resources cost were again determined by
consulting with department leaders, determining which employees are
involved in tasks related to providing Limited Service MEI Ports and
maintaining performance thereof, and confirming that the proposed
allocations were reasonable based on an understanding of the percentage
of their time such employees devote to tasks related to providing
Limited Service MEI Ports and maintaining performance thereof. The
Exchange notes that senior level executives were only allocated Human
Resources costs to the extent the Exchange believed they are involved
in overseeing tasks related to providing Limited Service MEI Ports and
maintaining performance thereof. The Human Resources cost was again
calculated using a blended rate of compensation reflecting salary,
equity and bonus compensation, benefits, payroll taxes, and 401(k)
matching contributions.
---------------------------------------------------------------------------

    \116\ See supra note 113 (describing rounding of Annual Costs).
    \117\ See supra note 114 (describing rounding of Monthly Costs
based on Annual Costs).
---------------------------------------------------------------------------

Connectivity and Internet Services
    The Connectivity cost includes external fees paid to connect to
other exchanges, cabling and switches, as described above. For purposes
of Limited Service MEI Ports, the Exchange also includes a portion of
its costs related to External Market Data, as described below.
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 as well as related costs (the Exchange
does not own the Primary Data Center or the Secondary Data Center, but
instead, leases space in data centers operated by third parties).
External Market Data
    External Market Data includes fees paid to third parties, including
other exchanges, to receive and consume market data from other markets.
The Exchange included External Market Data fees to the provision of
Limited Service MEI Ports as such market data is also necessary here
(in addition to physical connectivity) to offer certain services
related to such ports, such as validating orders on entry against the
national best bid and national best offer and checking for other
conditions (e.g., whether a symbol is halted). This allocation was
included as part of the internet Services cost described above.\118\
Thus, as market data from other Exchanges is consumed at the Limited
Service MEI Port level in order to validate orders before additional
processing occurs with respect to such orders, the Exchange believes it
is reasonable to allocate a small amount of such costs to Limited
Service MEI Ports.
---------------------------------------------------------------------------

    \118\ The Exchange notes that MEMX separately allocated 7.5% of
its external market data costs to providing physical connectivity.
---------------------------------------------------------------------------

Hardware and Software Maintenance and Licenses
    Hardware and Software Licenses includes hardware and software
licenses used to monitor the health of the order entry services
provided by the Exchange, as described above.
Monthly Depreciation
    All physical assets and software, which also includes assets used
for testing and monitoring of order entry infrastructure, were valued
at cost, depreciated or leased over periods ranging from three to five
years. Thus, the depreciation cost primarily relates to servers
necessary to operate the Exchange, some of which is owned by the
Exchange and some of which is leased by the Exchange in order to allow
efficient periodic technology refreshes. The Exchange allocated 6.3% of
all depreciation costs to providing Limited Service MEI Ports. In
contrast to physical connectivity, described above, the Exchange did
allocate depreciation costs for depreciated software necessary to
operate the Exchange to Limited Service MEI Ports because such software
is related to the provision of such connectivity.
Allocated Shared Expenses
    Finally, a limited portion of general shared expenses was allocated
to overall Limited Service MEI Ports costs as without these general
shared costs the Exchange would not be able to operate in the manner
that it does and provide Limited Service MEI Ports. The costs included
in general shared expenses include general expenses of the Exchange,
including office space and office expenses (e.g., occupancy and
overhead expenses), utilities, recruiting and training, marketing and
advertising costs, professional fees for legal, tax and accounting
services (including external and internal audit expenses), and
telecommunications costs. The Exchange again notes that the cost of
paying directors to serve on its Board of Directors is included in the
calculation of Allocated Shared Expenses, and thus a portion of such
overall cost amounting to less than 10% of the overall cost for
directors was allocated to providing Limited Service MEI Ports. The
Exchange notes that the 9.8% allocation of general shared expenses for
Limited Service MEI Ports is lower than that allocated to general
shared expenses for physical connectivity based on its allocation
methodology that weighted costs attributable to each Core Service based
on an understanding of each area. While Limited Service MEI Ports have
several areas where certain tangible costs are heavily weighted towards
providing such service (e.g., Data Centers, as described above), 10Gb
ULL connectivity requires a broader level of support from Exchange
personnel in different areas, which in turn leads to a broader general
level of cost to the Exchange. The total monthly cost of $179,765 was
divided by the number of chargeable Limited Service MEI Ports
(excluding the two free Limited Service MEI Ports per matching engine
that each Member receives) the Exchange maintained at the time that
proposed pricing was determined (1303), to arrive at a cost of
approximately $138 per month, per charged Limited Service MEI Port.
Cost Analysis--Additional Discussion
    In conducting its Cost Analysis, the Exchange did not allocate any
of its expenses in full to any core services (including physical
connectivity or Limited Service MEI Ports) and did not double-count any
expenses. Instead, as described above, the Exchange allocated
applicable cost drivers across its core services and used the same Cost
Analysis to form the basis of this proposal and the filings the
Exchange submitted proposing fees for proprietary data feeds offered by
the Exchange. For instance, in calculating the Human Resources expenses
to be allocated to physical connections, the Exchange has a team of
employees dedicated to network infrastructure and with respect to such
employees the Exchange allocated network infrastructure

personnel with a high percentage of the cost of such personnel (42%)
given their focus on functions necessary to provide physical
connections. The salaries of those same personnel were allocated only
8.4% to Limited Service MEI Ports and the remaining 49.6% was allocated
to 1Gb connectivity, other port services, transaction services,
membership services and market data. The Exchange did not allocate any
other Human Resources expense for providing physical connections to any
other employee group, outside of a smaller allocation of 17.8% for 10Gb
ULL connectivity or 18.2% for the entire network, of the cost
associated with certain specified personnel who work closely with and
support network infrastructure personnel. In contrast, the Exchange
allocated much smaller percentages of costs (5% or less) across a wider
range of personnel groups in order to allocate Human Resources costs to
providing Limited Service MEI Ports. This is because a much wider range
of personnel are involved in functions necessary to offer, monitor and
maintain Limited Service MEI Ports but the tasks necessary to do so are
not a primary or full-time function.
    In total, the Exchange allocated 25.6% of its personnel costs to
providing physical connections and 5.8% of its personnel costs to
providing Limited Service MEI Ports, for a total allocation of 31.4%
Human Resources expense to provide these specific connectivity
services. In turn, the Exchange allocated the remaining 68.6% of its
Human Resources expense to membership services, transaction services,
other port services and market data. Thus, again, the Exchange's
allocations of cost across core services were based on real costs of
operating the Exchange and were not double-counted across the core
services or their associated revenue streams.
    As another example, the Exchange allocated depreciation expense to
all core services, including physical connections and Limited Service
MEI Ports, but in different amounts. The Exchange believes it is
reasonable to allocate the identified portion of such expense because
such expense includes the actual cost of the computer equipment, such
as dedicated servers, computers, laptops, monitors, information
security appliances and storage, and network switching infrastructure
equipment, including switches and taps that were purchased to operate
and support the network. Without this equipment, the Exchange would not
be able to operate the network and provide connectivity services to its
Members and non-Members and their customers. However, the Exchange did
not allocate all of the depreciation and amortization expense toward
the cost of providing connectivity services, but instead allocated
approximately 67.9% of the Exchange's overall depreciation and
amortization expense to connectivity services (61.6% attributed to 10Gb
ULL physical connections and 6.3% to Limited Service MEI Ports). The
Exchange allocated the remaining depreciation and amortization expense
(approximately 32.1%) toward the cost of providing transaction
services, membership services, other port services and market data.
    The Exchange notes that its revenue estimates are based on
projections across all potential revenue streams and will only be
realized to the extent such revenue streams actually produce the
revenue estimated. The Exchange does not yet know whether such
expectations will be realized. For instance, in order to generate the
revenue expected from connectivity, the Exchange will have to be
successful in retaining existing clients that wish to maintain physical
connectivity and/or Limited Service MEI Ports or in obtaining new
clients that will purchase such services. Similarly, the Exchange will
have to be successful in retaining a positive net capture on
transaction fees in order to realize the anticipated revenue from
transaction pricing.
    The Exchange notes that the Cost Analysis is based on the
Exchange's 2023 fiscal year of operations and projections. As such, the
Exchange believes that its costs will remain relatively similar in
future years. It is possible however that such costs will either
decrease or increase. To the extent the Exchange sees growth in use of
connectivity services it will receive additional revenue to offset
future cost increases.
    However, if use of connectivity services is static or decreases,
the Exchange might not realize the revenue that it anticipates or needs
in order to cover applicable costs. Accordingly, the Exchange is
committing to conduct a one-year review after implementation of these
fees. The Exchange expects that it may propose to adjust fees at that
time, to increase fees in the event that revenues fail to cover costs
and a reasonable mark-up of such costs. Similarly, the Exchange would
propose to decrease fees in the event that revenue materially exceeds
our current projections. In addition, the Exchange will periodically
conduct a review to inform its decision making on whether a fee change
is appropriate (e.g., to monitor for costs increasing/decreasing or
subscribers increasing/decreasing, etc. in ways that suggest the then-
current fees are becoming dislocated from the prior cost-based
analysis) and would propose to increase fees in the event that revenues
fail to cover its costs and a reasonable mark-up, or decrease fees in
the event that revenue or the mark-up materially exceeds our current
projections. In the event that the Exchange determines to propose a fee
change, the results of a timely review, including an updated cost
estimate, will be included in the rule filing proposing the fee change.
More generally, the Exchange believes that it is appropriate for an
exchange to refresh and update information about its relevant costs and
revenues in seeking any future changes to fees, and the Exchange
commits to do so.
Projected Revenue \119\
---------------------------------------------------------------------------

    \119\ For purposes of calculating revenue for 10Gb ULL
connectivity, the Exchange used projected revenues for February
2023, the first full month for which it will provide dedicated 10Gb
ULL connectivity to the Exchange and cease operating a shared 10Gb
ULL network with MIAX Pearl.
---------------------------------------------------------------------------

    The proposed fees will allow the Exchange to cover certain costs
incurred by the Exchange associated with providing and maintaining
necessary hardware and other network infrastructure as well as network
monitoring and support services; without such hardware, infrastructure,
monitoring and support the Exchange would be unable to provide the
connectivity services. Much of the cost relates to monitoring and
analysis of data and performance of the network via the subscriber's
connection(s). The above cost, namely those associated with hardware,
software, and human capital, enable the Exchange to measure network
performance with nanosecond granularity. These same costs are also
associated with time and money spent seeking to continuously improve
the network performance, improving the subscriber's experience, based
on monitoring and analysis activity. The Exchange routinely works to
improve the performance of the network's hardware and software. The
costs associated with maintaining and enhancing a state-of-the-art
exchange network is a significant expense for the Exchange, and thus
the Exchange believes that it is reasonable and appropriate to help
offset those costs by amending fees for connectivity services.
Subscribers, particularly those of 10Gb ULL connectivity, expect the
Exchange to provide this level of support to connectivity so they
continue to receive the performance they expect. This differentiates
the Exchange from its competitors. As detailed above, the

Exchange has five primary sources of revenue that it can potentially
use to fund its operations: transaction fees, fees for connectivity
services, membership and regulatory fees, and market data fees.
Accordingly, the Exchange must cover its expenses from these five
primary sources of revenue.
    The Exchange's Cost Analysis estimates the annual cost to provide
10Gb ULL connectivity services at $12,034,554. Based on current 10Gb
ULL connectivity services usage, the Exchange would generate annual
revenue of approximately $15,066,000. This represents a modest profit
of 20% when compared to the cost of providing 10Gb ULL connectivity
services. The Exchange's Cost Analysis estimates the annual cost to
provide Limited Service MEI Port services at $2,157,178. Based on
current Limited Service MEI Port services usage, the Exchange would
generate annual revenue of approximately $3,300,600. This represents a
modest profit of 35% when compared to the cost of providing Limited
Service MEI Port services. Even if the Exchange earns those amounts or
incrementally more, the Exchange believes the proposed fees are fair
and reasonable because they will not result in excessive pricing or
supra-competitive profit, when comparing the total expense of the
Exchange associated with providing 10Gb ULL connectivity and Limited
Service MEI Port services versus the total projected revenue of the
Exchange associated with network 10Gb ULL connectivity and Limited
Service MEI Port services.
* * * * *
    The Exchange has operated at a cumulative net annual loss since it
launched operations in 2012.\120\ The Exchange has operated at a net
loss due to a number of factors, one of which is choosing to forgo
revenue by offering certain products, such as connectivity, at lower
rates than other options exchanges to attract order flow and encourage
market participants to experience the high determinism, low latency,
and resiliency of the Exchange's trading systems. The Exchange should
not now be penalized for seeking to raise its fees in light of
necessary technology changes and its increased costs after offering
such products as discounted prices. Therefore, the Exchange believes
the proposed fees are reasonable because they are based on both
relative costs to the Exchange to provide dedicated 10Gb ULL