[Federal Register Volume 88, Number 126 (Monday, July 3, 2023)]
[Notices]
[Pages 42844-42868]
[FR Doc No: 2023-13999]

Vol. 88

Monday,

No. 126

July 3, 2023

Part III

Securities and Exchange Commission

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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; Notice

Federal Register / Vol. 88, No. 126 / Monday, July 3, 2023 /
Notices

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97814; File No. SR-MIAX-2023-25]

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

June 27, 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 June 16, 2023, Miami International Securities Exchange, LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Fee Schedule
(``Fee Schedule'') to amend certain connectivity and port fees.
    The text of the proposed rule change is available on the Exchange's
website at 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\
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    \3\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
    \4\ 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.
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    Beginning in late January 2023, the Exchange also recently
determined a substantial operational need to no longer operate 10Gb ULL
connectivity on a single shared network with MIAX Pearl. The Exchange
bifurcated 10Gb ULL connectivity due to ever-increasing capacity
constraints and to enable it to continue to satisfy the anticipated
access needs for Members and other market participants.\9\ Since the
time of the 2021 increase discussed above, the Exchange experienced
ongoing increases in expenses, particularly internal expenses.\10\ As
discussed more fully below, the Exchange recently calculated increased
annual aggregate costs of $12,034,554 for providing 10Gb ULL
connectivity on a single unshared network (an overall increase over its
prior cost to provide 10Gb ULL connectivity on a shared network with
MIAX Pearl) and $2,157,178 for providing Limited Service MEI Ports.
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    \9\ See MIAX Options and MIAX Pearl Options--Announce planned
network changes related to shared 10G ULL extranet, issued August
12, 2022, available at https://www.miaxglobal.com/alert/2022/08/12/miax-options-and-miax-pearl-options-announce-planned-network-changes-0. The Exchange will continue to provide access to both the
Exchange and MIAX Pearl over a single shared 1Gb connection. See
Securities Exchange Act Release Nos. 96553 (December 20, 2022), 87
FR 79379 (December 27, 2022) (SR-PEARL-2022-60); 96545 (December 20,
2022) 87 FR 79393 (December 27, 2022) (SR-MIAX-2022-48).
    \10\ For example, the New York Stock Exchange, Inc.'s (``NYSE'')
Secure Financial Transaction Infrastructure (``SFTI'') network,
which contributes to the Exchange's connectivity cost, increased its
fees by approximately 9% since 2021. Similarly, since 2021, the
Exchange, and its affiliates, experienced an increase in data center
costs of approximately 17% and an increase in hardware and software
costs of approximately 19%. These percentages are based on the
Exchange's actual 2021 and proposed 2023 budgets.
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    Much of the cost relates to monitoring and analysis of data and
performance of the network via the subscriber's connection with
nanosecond granularity, and continuous improvements in network
performance with the goal of improving the subscriber's experience. The
costs associated with maintaining and enhancing a state-of-the-art
network is a significant expense for the Exchange, and thus the
Exchange believes that it is reasonable and appropriate to help offset
those increased costs by amending fees for connectivity services.
Subscribers expect the Exchange to provide this level of support so
they continue to receive the performance they expect. This
differentiates the Exchange from its competitors.
    The Exchange now proposes to amend the Fee Schedule to amend the
fees for 10Gb ULL connectivity and Limited Service MEI Ports in order
to recoup cost related to bifurcating 10Gb connectivity to the Exchange
and MIAX Pearl as well as the ongoing costs and increase in expenses
set forth below in the Exchange's cost analysis.\11\ The Exchange
proposes to implement the changes to the Fee Schedule pursuant to this
proposal immediately. The Exchange initially filed the proposal on
December 30, 2022 (SR-MIAX-2022-50) (the ``Initial Proposal'').\12\ On

February 23, 2023, the Exchange withdrew the Initial Proposal and
replaced it with a revised proposal (SR-MIAX-2023-08) (the ``Second
Proposal'').\13\ On April 20, 2023, the Exchange withdrew the Second
Proposal and replaced it with a revised proposal (SR-MIAX-2023-18) (the
``Third Proposal'').\14\ On June 16, 2023, the Exchange withdrew the
Third Proposal and replaced it with this further revised proposal (SR-
MIAX-2023-25).\15\
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    \11\ The Exchange notes that MIAX Pearl Options will make a
similar filing to increase its 10Gb ULL connectivity fees.
    \12\ See Securities Exchange Act Release No. 96629 (January 10,
2023), 88 FR 2729 (January 17, 2023) (SR-MIAX-2022-50).
    \13\ See Securities Exchange Act Release No. 97081 (March 8,
2023), 88 FR 15782 (March 14, 2023) (SR-MIAX-2023-08).
    \14\ See Securities Exchange Act Release No. 97419 (May 2,
2023), 88 FR 29777 (May 8, 2023) (SR-MIAX-2023-18).
    \15\ The Exchange met with Commission Staff to discuss the Third
Proposal during which the Commission Staff provided feedback and
requested additional information, including, most recently,
information about total costs related to certain third party
vendors. Such vendor cost information is subject to confidentiality
restrictions. The Exchange has provided this information to
Commission Staff under separate cover with a request for
confidentiality. While the Exchange will continue to be responsive
to Commission Staff's information requests, the Exchange believes
that the Commission should, at this point, issue substantially more
detailed guidance for exchanges to follow in the process of pursuing
a cost-based approach to fee filings, and that, for the purposes of
fair competition, detailed disclosures by exchanges, such as those
that the Exchange is providing now, should be consistent across all
exchanges, including for those that have resisted a cost-based
approach to fee filings, in the interests of fair and even
disclosure and fair competition.
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    The Exchange previously included a cost analysis in the Initial,
Second, and Third Proposals. As described more fully below, the
Exchange provides an updated cost analysis that includes, among other
things, additional descriptions of how the Exchange allocated costs
among it and its affiliated exchanges (MIAX Pearl (separately among
MIAX Pearl Options and MIAX Pearl Equities) and MIAX Emerald \16\
(together with MIAX Pearl Options and MIAX Pearl Equities, the
``affiliated markets'')) to ensure no cost was allocated more than
once, as well as additional detail supporting its cost allocation
processes and explanations as to why a cost allocation in this proposal
may differ from the same cost allocation in a similar proposal
submitted by one of its affiliated exchanges. Although the baseline
cost analysis used to justify the proposed fees was made in the
Initial, Second, and Third Proposals, the fees themselves have not
changed since the Initial, Second, or Third Proposals and the Exchange
still proposes fees that are intended to cover the Exchange's cost of
providing 10Gb ULL connectivity and Limited Service MEI Ports with a
reasonable mark-up over those costs.
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    \16\ The term ``MIAX Emerald'' means MIAX Emerald, LLC. See
Exchange Rule 100.
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* * * * *
    Starting in 2017, following the United States Court of Appeals for
the District of Columbia's Susquehanna Decision \17\ 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.\18\ 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.\19\ 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'').\20\ 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.'' \21\ The Commission
denied requests by various exchanges and plan participants for
reconsideration of the Remand Order.\22\ 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.'' \23\ Both the
Remand Order and the Order Denying Reconsideration were appealed to the
D.C. Circuit.
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    \17\ See Susquehanna International Group, LLP v. Securities &
Exchange Commission, 866 F.3d 442 (D.C. Circuit 2017) (the
``Susquehanna Decision'').
    \18\ Id.
    \19\ See Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 84432, 2018 WL 5023228 (October 16, 2018) (the ``SIFMA
Decision'').
    \20\ 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).
    \21\ Id. at page 2.
    \22\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 85802, 2019 WL 2022819 (May 7, 2019) (the ``Order
Denying Reconsideration'').
    \23\ Order Denying Reconsideration, 2019 WL 2022819, at *13.
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    While the above appeal to the D.C. Circuit was pending, on March
29, 2019, the Commission issued an order disapproving a proposed fee
change by BOX Exchange LLC (``BOX'') to establish connectivity fees
(the ``BOX Order''), which significantly increased the level of
information needed for the Commission to believe that an exchange's
filing satisfied its obligations under the Act with respect to changing
a fee.\24\ Despite approving hundreds of access fee filings in the
years prior to the BOX Order (described further below) utilizing a
``market-based'' test, the Commission changed course and disapproved
BOX's proposal to begin charging connectivity at one-fourth the rate of
competing exchanges' pricing.
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    \24\ See Securities Exchange Act Release No. 85459 (March 29,
2019), 84 FR 13363 (April 4, 2019) (SR-BOX-2018-24, SR-BOX-2018-37,
and SR-BOX-2019-04) (Order Disapproving Proposed Rule Changes to
Amend the Fee Schedule on the BOX Market LLC Options Facility to
Establish BOX Connectivity Fees for Participants and Non-
Participants Who Connect to the BOX Network). The Commission noted
in the BOX Order that it ``historically applied a `market-based'
test in its assessment of market data fees, which [the Commission]
believe[s] present similar issues as the connectivity fees proposed
herein.'' Id. at page 16. Despite this admission, the Commission
disapproved BOX's proposal to begin charging $5,000 per month for
10Gb connections (while allowing legacy exchanges to charge rates
equal to 3-4 times that amount utilizing ``market-based'' fee
filings from years prior).
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    Also while the above appeal was pending, on May 21, 2019, the
Commission Staff issued guidance ``to assist the national securities
exchanges and FINRA . . . in preparing Fee Filings that meet their
burden to demonstrate that proposed fees are consistent with the
requirements of the Securities Exchange Act.'' \25\ 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.'' \26\ 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.'' \27\
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    \25\ 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'').
    \26\ Id.
    \27\ Id.
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    Following the BOX Order and Staff Guidance, on August 6, 2020, the
D.C. Circuit vacated the Commission's SIFMA Decision in NASDAQ Stock

Market, LLC v. SEC \28\ and remanded for further proceedings consistent
with its opinion.\29\ 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.'' \30\
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.\31\ 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.''
\32\ 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.\33\
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    \28\ 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.
    \29\ 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.
    \30\ Id. at *2; see also id. (``[T]he sole purpose of the
challenged remand has disappeared.'').
    \31\ 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'').
    \32\ Id.
    \33\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 90087 (October 5, 2020).
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    As a result of the Commission's loss of the NASDAQ v. 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.'' \34\
As such, all of those fees remained in place and amounted to a baseline
set of fees for those exchanges that had the benefit of getting their
fees in place before the Commission Staff's fee review process
materially changed. The net result of this history and lack of
resolution in the D.C. Circuit Court resulted in an uneven competitive
landscape where the Commission subjects all new non-transaction fee
filings to the new Revised Review Process, while allowing the
previously challenged fee filings, mostly submitted by incumbent
exchanges prior to 2019, to remain in effect and not subject to the
``record'' or ``review'' earlier intended by the Commission.
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    \34\ See supra note 29, at page 2.
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    While the Exchange appreciates that the Staff Guidance articulates
an important policy goal of improving disclosures and requiring
exchanges to justify that their market data and access fee proposals
are fair and reasonable, the practical effect of the Revised Review
Process, Staff Guidance, and the Commission's related practice of
continuous suspension of new fee filings, is anti-competitive,
discriminatory, and has put in place an un-level playing field, which
has negatively impacted smaller, nascent, non-legacy exchanges (``non-
legacy exchanges''), while favoring larger, incumbent, entrenched,
legacy exchanges (``legacy exchanges'').\35\ 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 \36\ 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.\37\ These fees
remain in effect today.
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    \35\ 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.
    \36\ 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.
    \37\ See, e.g., Securities Exchange Act Release Nos. 74417
(March 3, 2015), 80 FR 12534 (March 9, 2015) (SR-ISE-2015-06); 83016
(April 9, 2018), 83 FR 16157 (April 13, 2018) (SR-PHLX-2018-26);
70285 (August 29, 2013), 78 FR 54697 (September 5, 2013) (SR-
NYSEMKT-2013-71); 76373 (November 5, 2015), 80 FR 70024 (November
12, 2015) (SR-NYSEMKT-2015-90); 79729 (January 4, 2017), 82 FR 3061
(January 10, 2017) (SR-NYSEARCA-2016-172).
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    The net result is that the non-legacy exchanges are effectively now
blocked by the Commission Staff from adopting or increasing fees to
amounts comparable to the legacy exchanges (which were not subject to
the Revised Review Process and Staff Guidance), despite providing
enhanced disclosures and rationale to support their proposed fee
changes that far exceed any such support provided by legacy exchanges.
Simply put, legacy exchanges were able to increase their non-
transaction fees during an extended period in which the Commission
applied a ``market-based'' test that only relied upon the assumed
presence of significant competitive forces, while exchanges today are
subject to a cost-based test requiring extensive cost and revenue
disclosures, a process that is complex, inconsistently applied, and
rarely results in a successful outcome, i.e., non-suspension. The
Revised Review Process and Staff Guidance changed decades-long
Commission Staff standards for review, resulting in unfair
discrimination and placing an undue burden on inter-market competition
between legacy exchanges and non-legacy exchanges.
    Commission Staff now require exchange filings, including from non-
legacy exchanges such as the Exchange, to provide detailed cost-based
analysis in place of competition-based arguments to support such
changes. However, even with the added detailed cost and expense
disclosures, the Commission Staff continues to either suspend such
filings and institute disapproval proceedings, or put the exchanges in
the unenviable position of having to repeatedly withdraw and re-file
with additional detail in order to continue to charge those fees.\38\
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 \39\ and $80,383,000 for 2021.\40\ Cboe
C2 Exchange, Inc. (``C2'') reported ``access and capacity fee'' revenue
of $19,016,000 for 2020 \41\ and $22,843,000 for 2021.\42\ Cboe BZX
Exchange, Inc. (``BZX'') reported ``access and capacity fee'' revenue
of $38,387,000 for 2020 \43\ and $44,800,000 for 2021.\44\ Cboe EDGX
Exchange, Inc. (``EDGX'') reported ``access and capacity fee'' revenue
of $26,126,000 for 2020 \45\ and $30,687,000 for 2021.\46\ 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.\47\ 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.'' \48\
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    \38\ 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.
    \39\ 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.
    \40\ See Cboe 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001155.pdf.
    \41\ See C2 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000469.pdf.
    \42\ See C2 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001156.pdf.
    \43\ See BZX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000465.pdf.
    \44\ See BZX 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001152.pdf.
    \45\ See EDGX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000467.pdf.
    \46\ See EDGX 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001154.pdf.
    \47\ 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.
    \48\ See PHLX Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000475.pdf. The Exchange
notes that this type of Form 1 accounting appears to be designed to
obfuscate the true financials of such exchanges and has the effect
of perpetuating fee and revenue advantages of legacy exchanges.
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    The much higher non-transaction fees charged by the legacy
exchanges provides them with two significant competitive advantages.
First, legacy exchanges are able to use their additional non-
transaction revenue for investments in infrastructure, vast marketing
and advertising on major media outlets,\49\ 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.
---------------------------------------------------------------------------

    \49\ 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 . . .'',\50\ this is not the reality experienced by
exchanges such as MIAX. As such, non-legacy exchanges are forced to
rely on an opaque cost-based justification standard. However, because
the Staff Guidance is devoid of detail on what must be contained in
cost-based justification, this standard is nearly impossible to meet
despite repeated good-faith efforts by the Exchange to provide
substantial amount of cost-related details. For example, the Exchange
has attempted to increase fees using a cost-based justification
numerous times, having submitted over six filings.\51\ However, despite
providing 100+ page filings describing in extensive detail its costs
associated with providing the services described in the filings,
Commission Staff continues to suspend such filings, with the rationale
that the Exchange has not provided sufficient detail of its costs and
without ever being precise about what additional data points are
required. The Commission Staff appears to be interpreting the
reasonableness standard set forth in Section 6(b)(4) of the Act \52\ in
a manner that is not possible to achieve. This essentially nullifies
the cost-based approach for exchanges as a legitimate alternative as
laid out in the Staff Guidance. By refusing to accept a reasonable
cost-based argument to justify non-transaction fees (in addition to
refusing to accept a competition-based argument as described above), or
by failing to provide the detail required to achieve that standard, the
Commission Staff is effectively preventing non-legacy exchanges from
making any non-transaction fee changes, which benefits the legacy
exchanges and is anticompetitive to the non-legacy exchanges. This does
not meet the fairness standard under the Act and is discriminatory.
---------------------------------------------------------------------------

    \50\ See supra note 25, at note 1.
    \51\ 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).
    \52\ 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,\53\ 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; \54\ 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.
---------------------------------------------------------------------------

    \53\ 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.
    \54\ In light of the arguments above regarding disparate
standards of review for historical legacy non-transaction fees and
current non-transaction fees for non-legacy exchanges, a fee parity
alternative would be one possible way to avoid the current unfair
and discriminatory effect of the Staff Guidance and Revised Review
Process. See, e.g., CSA Staff Consultation Paper 21-401, Real-Time
Market Data Fees, available at https://www.bcsc.bc.ca/-/media/PWS/Resources/Securities_Law/Policies/Policy2/21401_Market_Data_Fee_CSA_Staff_Consulation_Paper.pdf.
---------------------------------------------------------------------------

    In light of the above, disapproval of this would not meet the
fairness standard under the Act, would be discriminatory and places a
substantial burden on competition. The Exchange would be uniquely
disadvantaged by not being able to increase its access fees to
comparable levels (or lower levels than current market rates) to those
of other options exchanges for connectivity. If the Commission Staff
were to disapprove this proposal, that action, and not market forces,
would substantially affect whether the Exchange can be successful in
its competition with other options exchanges. Disapproval of this
filing could also be viewed as an arbitrary and capricious decision
should the Commission Staff continue to ignore its past treatment of
non-transaction fee filings before implementation of the Revised Review
Process and Staff Guidance and refuse to allow such filings to be
approved despite significantly enhanced arguments and cost
disclosures.\55\
---------------------------------------------------------------------------

    \55\ The Exchange's costs have clearly increased and continue to
increase, particularly regarding capital expenditures, as well as
employee benefits provided by third parties (e.g., healthcare and
insurance). Yet, practically no fee change proposed by the Exchange
to cover its ever-increasing costs has been acceptable to the
Commission Staff since 2021. The only other fair and reasonable
alternative would be to require the numerous fee filings
unquestioningly approved before the Staff Guidance and Revised
Review Process to ``develop a record,'' and to ``explain their
conclusions, based on that record, in a written decision that is
sufficient to enable us to perform our review,'' and to ensure a
comparable review process with the Exchange's filing.
---------------------------------------------------------------------------

* * * * *
10Gb ULL Connectivity Fee Change
    The Exchange recently filed a proposal to no longer operate 10Gb
connectivity to the Exchange on a single shared network with its
affiliate, MIAX Pearl Options. This change is an operational necessity
due to ever-increasing capacity constraints and to accommodate
anticipated access needs for Members and other market participants.\56\
This proposal: (i) sets forth the applicable fees for the bifurcated
10Gb ULL network; (ii) removes provisions in the Fee Schedule that
provide for a shared 10Gb ULL network; and (iii) specifies that market
participants may continue to connect to both the Exchange and MIAX
Pearl Options via the 1Gb network.
---------------------------------------------------------------------------

    \56\ See supra note 9.
---------------------------------------------------------------------------

    The Exchange bifurcated the Exchange and MIAX Pearl Options 10Gb
ULL networks on January 23, 2023. The Exchange issued an alert on
August 12, 2022 publicly announcing the planned network change and
implementation plan and dates to provide market participants adequate
time to prepare.\57\ Upon bifurcation of the 10Gb ULL network,
subscribers need to purchase separate connections to the Exchange and
MIAX Pearl Options at the applicable rate. The Exchange's proposed
amended rate for 10Gb ULL connectivity is described below. Prior to the
bifurcation of the 10Gb ULL networks, subscribers to 10Gb ULL
connectivity would be able to connect to both the Exchange and MIAX
Pearl Options at the applicable rate set forth below.
---------------------------------------------------------------------------

    \57\ 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 \58\ via a 10Gb ULL fiber connection and to specify
that this fee is for a dedicated connection to the Exchange and no
longer provides access to MIAX Pearl Options. Specifically, the
Exchange proposes to amend Sections 5)a)-b) of the Fee Schedule to
increase the 10Gb ULL connectivity fee for Members and non-Members from
$10,000 per month to $13,500 per month (``10Gb ULL Fee'').\59\ The
Exchange also proposes to amend the Fee Schedule to reflect the
bifurcation of the 10Gb ULL network and specify that only the 1Gb
network provides access to both the Exchange and MIAX Pearl Options.
---------------------------------------------------------------------------

    \58\ The Exchange's system networks consist of the Exchange's
extranet, internal network, and external network.
    \59\ Market participants that purchase additional 10Gb ULL
connections as a result of this change will not be subject to the
Exchange's Member Network Connectivity Testing and Certification Fee
under Section 4)c) of the Exchange's fee schedule. See Section 4)c)
of the Exchange's Fee Schedule available at https://www.miaxglobal.com/markets/us-options/miax-options/fees (providing
that ``Network Connectivity Testing and Certification Fees will not
be assessed in situations where the Exchange initiates a mandatory
change to the Exchange's system that requires testing and
certification. Member Network Connectivity Testing and Certification
Fees will not be assessed for testing and certification of
connectivity to the Exchange's Disaster Recovery Facility.'').
---------------------------------------------------------------------------

    The Exchange proposes to make the following changes to reflect the
bifurcated 10Gb ULL network for the Exchange and MIAX Pearl Options.
The Exchange proposes to amend the explanatory paragraphs below the
network connectivity fee tables in Sections 5)a)-b) of the Fee Schedule
to specify that, with the bifurcated 10Gb ULL network, Members (and
non-Members) utilizing the MENI to connect to the trading platforms,
market data systems, test systems, and disaster recovery facilities of
the Exchange and MIAX Pearl Options via a single, can only do so via a
shared 1Gb connection.
    The Exchange will continue to assess monthly Member and non-Member
network connectivity fees for connectivity to the primary and secondary
facilities in any month the Member or non-Member is credentialed to use
any of the Exchange APIs or market data feeds in the production
environment. The Exchange will continue to pro-rate the fees when a
Member or non-Member makes a change to the connectivity (by adding or
deleting connections) with such pro-rated fees based on the number of
trading days that the Member or non-Member has been credentialed to
utilize any of the Exchange APIs or market data feeds in the production
environment through such connection, divided by the total number of
trading days in such month multiplied by the applicable monthly rate.

Limited Service MEI Ports
Background
    The Exchange also proposes to amend Section 5)d) of the Fee
Schedule to adopt a tiered-pricing structure for Limited Service MEI
Ports available to Market Makers. The Exchange allocates two (2) Full
Service MEI Ports \60\ and two (2) Limited Service MEI Ports \61\ per
matching engine \62\ 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.\63\
---------------------------------------------------------------------------

    \60\ 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.
    \61\ 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.
    \62\ 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.
    \63\ 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 \64\ in
accordance with its fair access requirements under Section 6(b)(5) of
the Act.\65\
---------------------------------------------------------------------------

    \64\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
    \65\ 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 May 2023 trading results, the
Exchange handles more than 12.3 billion quotes on an average day, and
more than 271 billion quotes over the entire month. Of that total,
Market Makers with the maximum amount of Limited Service MEI Ports
generated more than 156 billion quotes (and more than 7 billion quotes
on an average day), and Market Makers who utilized only the two free
Limited Service MEI Ports generated approximately 78 billion quotes
(and approximately 3.5 billion quotes on an average day). Also for May
2023, Market Makers who utilized 7 to 9 Limited Service MEI ports
submitted an average of 1.3 billion quotes per day and Market Makers
who utilized 5-6 Limited Service MEI Ports submitted an average of 356
million quotes on an average day. In May 2023, the Exchange did not
have any Market Makers that utilized only 3-4 Limited Service MEI
Ports.
    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.\66\ 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.
---------------------------------------------------------------------------

    \66\ 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,\67\ which is designed to
recover a portion of the costs associated with directly accessing the
Exchange.
---------------------------------------------------------------------------

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

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

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

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

    \71\ See supra note 24.
    \72\ See supra note 25.
---------------------------------------------------------------------------

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

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

    The proposed fees are reasonable because they promote parity among
exchange pricing for access, which promotes competition, including in
the Exchanges' ability to competitively price transaction fees, invest
in infrastructure, new products and other innovations, all while
allowing the Exchange to recover its costs to provide dedicated access
via 10Gb ULL connectivity (driven by the bifurcation of the 10Gb ULL
network) and Limited Service MEI Ports. As discussed above, the Revised
Review Process and Staff Guidance have created an uneven playing field
between legacy and non-legacy exchanges by severely restricting non-
legacy exchanges from being able to increase non-transaction related
fees to provide them with additional necessary revenue to better
compete with legacy exchanges, which largely set fees prior to the
Revised Review Process. The much higher non-transaction fees charged by
the legacy exchanges provides them with two significant competitive
advantages: (i) additional non-transaction revenue that may be used to
fund areas other than the non-transaction service related to the fee,
such as investments in infrastructure, advertising, new products and
other innovations; and (ii) greater flexibility to lower their
transaction fees by using the revenue from the higher non-transaction
fees to subsidize transaction fee rates. The latter is more immediately
impactful in competition for order flow and market share, given the
variable nature of this cost on Member firms. The absence of a
reasonable path forward to increase non-transaction fees to comparable
(or lower rates) limits the Exchange's flexibility to, among other
things, make additional investments in infrastructure and advertising,
diminishes the ability to remain competitive on transaction fees, and
hinders the ability to compete for order flow and market share. Again,
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).\76\ As a new exchange entrant, the Exchange chose
to offer connectivity and ports free of charge to encourage market
participants to trade on the Exchange and experience, among things, the
quality of the Exchange's technology and trading functionality. This
practice is not uncommon. New exchanges often do not charge fees or
charge lower fees for certain services such as memberships/trading
permits to attract order flow to an exchange, and later amend their
fees to reflect the true value of those services, absorbing all costs
to provide those services in the meantime. Allowing new exchange
entrants time to build and sustain market share through various pricing
incentives before increasing non-transaction fees encourages market
entry and fee parity, which promotes competition among exchanges. It
also enables new

exchanges to mature their markets and allow market participants to
trade on the new exchanges without fees serving as a potential barrier
to attracting memberships and order flow.\77\
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

    \83\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep.
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that
the national market system evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed.'').
    \84\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \85\ Id.
    \86\ See supra note 25.
---------------------------------------------------------------------------

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

----------------------------------------------------------------------------------------------------------------
                                                                                Monthly fee (per
               Exchange                           Type of connection or port             connection or per port)
----------------------------------------------------------------------------------------------------------------
MIAX (as proposed) (equity options     10Gb ULL connection.............................  $13,500.
 market share of 6.60% for the month   Limited Service MEI Ports.......................  1-2 ports: FREE (not
 of May 2023).\87\                                                                        changed in this
                                                                                proposal).
                                                                                3-4 ports: $150 each.
                                                                                5-6 ports: $200 each.
                                                                                7 or more ports: $250
                                                                                each.

NASDAQ \88\ (equity options market     10Gb Ultra fiber connection.....................  $15,000 per connection.
 share of 6.59% for the month of May   SQF Port \90\...................................  1-5 ports: $1,500 per
 2023).\89\                                                                               port.
                                                                                6-20 ports: $1,000 per
                                                                                port.
                                                                                21 or more ports: $500
                                                                                per port.
NASDAQ ISE LLC (``ISE'') \91\ (equity  10Gb Ultra fiber connection.....................  $15,000 per connection.
 options market share of 6.18% for     SQF Port........................................  $1,100 per port.
 the month of May 2023).\92\
NYSE American LLC (``NYSE American'')  10Gb LX LCN connection..........................  $22,000 per connection.
 \93\ (equity options market share of  Order/Quote Entry Port..........................  1-40 ports: $450 per
 7.34% for the month of May                                                               port.
 2023).\94\                                                                              41 or more ports: $150
                                                                                per port.
NASDAQ GEMX, LLC (``GEMX'') \95\       10Gb Ultra connection...........................  $15,000 per connection.
 (equity options market share of       SQF Port........................................  $1,250 per port
 2.00% for the month of May
 2023).\96\
----------------------------------------------------------------------------------------------------------------

    There is no requirement, regulatory or otherwise, that any broker-
dealer connect to and access any (or all of) the available options
exchanges. Market participants may choose to become a member of one or
more options exchanges based on the market participant's assessment of
the business opportunity relative to the costs of the Exchange. With
this, there is elasticity of demand for exchange membership. As an
example, the Exchange's affiliate, MIAX Pearl Options, experienced a
decrease in membership as the result of similar fees proposed herein.
One MIAX Pearl Options Market Maker terminated their MIAX Pearl Options
membership effective January 1, 2023, as a direct result of the
proposed connectivity and port fee changes proposed by MIAX Pearl
Options.
---------------------------------------------------------------------------

    \87\ See supra note 78.
    \88\ See NASDAQ Pricing Schedule, Options 7, Section 3, Ports
and Other Services and NASDAQ Rules, General 8: Connectivity,
Section 1. Co-Location Services.
    \89\ See supra note 78.
    \90\ Similar to the Exchange's MEI Ports, SQF ports are
primarily utilized by Market Makers.
    \91\ See ISE Pricing Schedule, Options 7, Section 7,
Connectivity Fees and ISE Rules, General 8: Connectivity.
    \92\ See supra note 78.
    \93\ See NYSE American Options Fee Schedule, Section V.A. Port
Fees and Section V.B. Co-Location Fees.
    \94\ See supra note 78.
    \95\ See GEMX Pricing Schedule, Options 7, Section 6,
Connectivity Fees and GEMX Rules, General 8: Connectivity.
    \96\ See supra note 78.
---------------------------------------------------------------------------

    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.\97\ 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.\98\
---------------------------------------------------------------------------

    \97\ 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.''
    \98\ 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.\99\ 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.
---------------------------------------------------------------------------

    \99\ See Securities Exchange Act Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change to Amend the
Fee Schedule on the BOX Options Market LLC Facility To Adopt
Electronic Market Maker Trading Permit Fees). The Exchange believes
that BOX's observation demonstrates that market making firms can,
and do, select which exchanges they wish to access, and,
accordingly, options exchanges must take competitive considerations
into account when setting fees for such access.
---------------------------------------------------------------------------

    Not only is there not an actual regulatory requirement to connect
to every options exchange, the Exchange believes there is also no ``de
facto'' or practical requirement as well, as further evidenced by the
broker-dealer membership analysis of the options exchanges discussed
above. As noted above, this is evidenced by the fact that one MIAX
Pearl Options Market Maker terminated their MIAX Pearl Options
membership effective January 1, 2023 as a direct result of the proposed
connectivity and port fee changes on MIAX Pearl Options (which are
similar to the changes proposed herein). Indeed, broker-dealers choose
if and how to access a particular exchange and because it is a choice,
the Exchange must set reasonable pricing, otherwise prospective members
would not connect and existing members would disconnect from the
Exchange. The decision to become a member of an exchange, particularly
for registered market makers, is complex, and not solely based on the
non-transactional costs assessed by an exchange. As noted herein,
specific factors include, but are not limited to: (i) an exchange's
available liquidity in options series; (ii) trading functionality
offered on a particular market; (iii) product offerings; (iv) customer
service on an exchange; and (v) transactional pricing. Becoming a
member of the exchange does not ``lock'' a potential member into a
market or diminish the overall competition for exchange services.
    In lieu of becoming a member at each options exchange, a market
participant may join one exchange and elect to have their orders routed
in the event that a better price is available on an away market.
Nothing in the Order Protection Rule requires a firm to become a Member
at--or establish connectivity to--the Exchange.\100\ If the Exchange is

not at the national best bid or offer (``NBBO''),\101\ 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.\102\
---------------------------------------------------------------------------

    \100\ 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.
    \101\ See Exchange Rule 100.
    \102\ Members may elect to not route their orders by utilizing
the Do Not Route order type. See Exchange Rule 516(g).
---------------------------------------------------------------------------

    With respect to the submission of orders, Members may also choose
not to purchase any connection from the Exchange, and instead rely on
the port of a third party to submit an order. For example, a third-
party broker-dealer Member of the Exchange may be utilized by a retail
investor to submit orders into an exchange. An institutional investor
may utilize a broker-dealer, a service bureau,\103\ or request
sponsored access \104\ through a member of an exchange in order to
submit a trade directly to an options exchange.\105\ 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.
---------------------------------------------------------------------------

    \103\ 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.
    \104\ 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.
    \105\ 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).\106\ 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.\107\ Particularly, in the
event that a market participant views the Exchange's direct
connectivity and access fees as more or less attractive than competing
markets, that market participant can choose to connect to the Exchange
indirectly or may choose not to connect to the Exchange and connect
instead to one or more of the other 15 options markets. Accordingly,
the Exchange believes that the proposed fees are fair and reasonable
and constrained by competitive forces.
---------------------------------------------------------------------------

    \106\ 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).
    \107\ The Exchange notes that resellers, such as SFTI, are not
required to publicize, let alone justify or file with the Commission
their fees, and as such could charge the market participant any fees
it deems appropriate (including connectivity fees higher than the
Exchange's connectivity fees), even if such fees would otherwise be
considered potentially unreasonable or uncompetitive fees.
---------------------------------------------------------------------------

    The Exchange is obligated to regulate its Members and secure access
to its environment. In order to properly regulate its Members and
secure the trading environment, the Exchange takes measures to ensure
access is monitored and maintained with various controls. Connectivity
and ports are methods utilized by the Exchange to grant Members secure
access to communicate with the Exchange and exercise trading rights.
When a market participant elects to be a Member, and is approved for
membership by the Exchange, the Member is granted trading rights to
enter orders and/or quotes into Exchange through secure connections.
    Again, there is no legal or regulatory requirement that a market
participant become a Member of the Exchange. This is again evidenced by
the fact that one MIAX Pearl Options Market Maker terminated their MIAX
Pearl Options membership effective January 1, 2023 as a direct result
of the proposed connectivity and port fee changes on MIAX Pearl
Options. If a market participant chooses to become a Member, they may
then choose to purchase connectivity beyond the one connection that is
necessary to quote or submit orders on the Exchange. Members may freely
choose to rely on one or many connections, depending on their business
model.
Bifurcation of 10Gb ULL Connectivity and Related Fees
    The Exchange began to operate on a single shared network with MIAX
Pearl Options when MIAX Pearl commenced operations as a national
securities exchange on February 7, 2017.\108\ The Exchange and MIAX
Pearl Options operated on a single shared network to provide Members
with a single convenient set of access points for both exchanges. Both
the Exchange and MIAX Pearl Options offer two methods of connectivity,
1Gb and 10Gb ULL connections. The 1Gb connection services are supported
by a discrete set of switches providing 1Gb access ports to Members.
The 10Gb ULL connection services are supported by a second and mutually
exclusive set of switches providing 10Gb ULL access ports to Members.
Previously, both the 1Gb and 10Gb ULL shared extranet ports allowed
Members to use one connection to access both exchanges, namely their
trading platforms, market data systems, test systems, and disaster
recovery facilities.
---------------------------------------------------------------------------

    \108\ See Securities Exchange Act Release No. 80061 (February
17, 2017), 82 FR 11676 (February 24, 2017) (establishing MIAX Pearl
Fee Schedule and establishing that the MENI can also be configured
to provide network connectivity to the trading platforms, market
data systems, test systems, and disaster recovery facility of the
MIAX Pearl's affiliate, MIAX, via a single, shared connection).
---------------------------------------------------------------------------

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

10Gb ULL network,\109\ the connectivity needs of Members and market
participants has increased every year since the launch of MIAX Pearl
Options and the operations of the Exchange and MIAX Pearl Options on a
single shared 10Gb ULL network is no longer feasible. This required
constant System expansion to meet Member demand for additional ports
and 10Gb ULL connections has resulted in limited available System
headroom, which eventually became operationally problematic for both
the Exchange and its customers.
---------------------------------------------------------------------------

    \109\ 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).
---------------------------------------------------------------------------

    As stated above, the shared network is not an unlimited resource
and its expansion was constrained by MIAX's and MIAX Pearl Options'
ability to provide fair and equitable access to all market participants
of both markets. Due to the ever-increasing connectivity demands, the
Exchange found it necessary to bifurcate 10Gb ULL connectivity to the
Exchange's and MIAX Pearl Options' Systems and networks to be able to
continue to meet ongoing and future 10Gb ULL connectivity and access
demands.\110\
---------------------------------------------------------------------------

    \110\ Currently, the Exchange maintains sufficient headroom to
meet ongoing and future requests for 1Gb connectivity. Therefore,
the Exchange did not propose to alter 1Gb connectivity and continues
to provide 1Gb connectivity over a shared network.
---------------------------------------------------------------------------

    Unlike the switches that provide 1Gb connectivity, the availability
for additional 10Gb ULL connections on each switch had significantly
decreased. This was mostly driven by the connectivity demands of
latency sensitive Members (e.g., Market Makers and liquidity removers)
that sought to maintain connectivity across multiple 10Gb ULL switches.
Based on the Exchange's experience, such Members did not typically use
a shared 10Gb ULL connection to reach both the Exchange and MIAX Pearl
Options due to related latency concerns. Instead, those Members
maintain dedicated separate 10Gb ULL connections for the Exchange and
separate dedicated 10Gb ULL connections for MIAX Pearl Options. This
resulted in a much higher 10Gb ULL usage per switch by those Members on
the shared 10Gb ULL network than would otherwise be needed if the
Exchange and MIAX Pearl Options had their own dedicated 10Gb ULL
networks. Separation of the Exchange and MIAX Pearl Options 10Gb ULL
networks naturally lends itself to reduced 10Gb ULL port consumption on
each switch and, therefore, increased 10Gb ULL port availability for
current Members and new Members.
    Prior to bifurcating the 10Gb ULL network, the Exchange and MIAX
Pearl Options continued to add switches to meet ongoing demand for 10Gb
ULL connectivity. That was no longer sustainable because simply adding
additional switches to expand the current shared 10Gb ULL network would
not adequately alleviate the issue of limited available port
connectivity. While it would have resulted in a gain in overall port
availability, the existing switches on the shared 10Gb ULL network in
use would have continued to suffer from lack of port headroom given
many latency sensitive Members' needs for a presence on each switch to
reach both the Exchange and MIAX Pearl Options. This was because those
latency sensitive Members sought to have a presence on each switch to
maximize the probability of experiencing the best network performance.
Those Members routinely decide to rebalance orders and/or messages over
their various connections to ensure each connection is operating with
maximum efficiency. Simply adding switches to the extranet would not
have resolved the port availability needs on the shared 10Gb ULL
network since many of the latency sensitive Members were unwilling to
relocate their connections to a new switch due to the potential
detrimental performance impact. As such, the impact of adding new
switches and rebalancing ports would not have been effective or
responsive to customer needs. The Exchange has found that ongoing and
continued rebalancing once additional switches are added has had, and
would have continued to have had, a diminishing return on increasing
available 10Gb ULL connectivity.
    Based on its experience and expertise, the Exchange found the most
practical way to increase connectivity availability on its switches was
to bifurcate the existing 10Gb ULL networks for the Exchange and MIAX
Pearl Options by migrating the exchanges' connections from the shared
network onto their own set of switches. Such changes accordingly
necessitated a review of the Exchange's previous 10Gb ULL connectivity
fees and related costs. The proposed fees are necessary to allow the
Exchange to cover ongoing costs related to providing and maintaining
such connectivity, described more fully below. The ever increasing
connectivity demands that necessitated this change further support that
the proposed fees are reasonable because this demand reflects that
Members and non-Members believe they are getting value from the 10Gb
ULL connections they purchase.
    The Exchange announced on August 12, 2022 the planned network
change and the January 23, 2023 implementation date to provide market
participants adequate time to prepare.\111\ Since August 12, 2022, the
Exchange has worked with current 10Gb ULL subscribers to address their
connectivity needs ahead of the January 23, 2023 date. Based on those
interactions and subscriber feedback, the Exchange experienced a
minimal net increase of six (6) overall 10Gb ULL connectivity
subscriptions across the Exchange and MIAX Pearl Options. This
immaterial increase in overall connections reflects a minimal fee
impact for all types of subscribers and reflects that subscribers
elected to reallocate existing 10Gb ULL connectivity directly to the
Exchange or MIAX Pearl Options, or choose to decrease or cease
connectivity as a result of the change.
---------------------------------------------------------------------------

    \111\ See supra note 9.
---------------------------------------------------------------------------

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

assessing those fees in a transparent way against its own aggregate
costs of providing the related service, and in carefully and
transparently assessing the impact on Members--both generally and in
relation to other Members, i.e., to assure the fee will not create a
financial burden on any participant and will not have an undue impact
in particular on smaller Members and competition among Members in
general. The Exchange believes that this level of diligence and
transparency is called for by the requirements of Section 19(b)(1)
under the Act,\112\ and Rule 19b-4 thereunder,\113\ with respect to the
types of information exchanges should provide when filing fee changes,
and Section 6(b) of the Act,\114\ which requires, among other things,
that exchange fees be reasonable and equitably allocated,\115\ not
designed to permit unfair discrimination,\116\ and that they not impose
a burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.\117\ 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.\118\ The Exchange reiterates that the legacy exchanges with whom
the Exchange vigorously competes for order flow and market share, were
not subject to any such diligence or transparency in setting their
baseline non-transaction fees, most of which were put in place before
the Revised Review Process and Staff Guidance.
---------------------------------------------------------------------------

    \112\ 15 U.S.C. 78s(b)(1).
    \113\ 17 CFR 240.19b-4.
    \114\ 15 U.S.C. 78f(b).
    \115\ 15 U.S.C. 78f(b)(4).
    \116\ 15 U.S.C. 78f(b)(5).
    \117\ 15 U.S.C. 78f(b)(8).
    \118\ See supra note 25.
---------------------------------------------------------------------------

    As detailed below, the Exchange recently calculated its aggregate
annual costs for providing physical 10Gb ULL connectivity to the
Exchange at $12,034,554 (or approximately $1,002,880 per month, rounded
up to the nearest dollar when dividing the annual cost by 12 months)
and its aggregate annual costs for providing Limited Service MEI Ports
at $2,157,178 (or approximately $179,765 per month, rounded down to the
nearest dollar when dividing the annual cost by 12 months). In order to
cover the aggregate costs of providing connectivity to its users (both
Members and non-Members) \119\ going forward and to make a modest
profit, as described below, the Exchange proposes to modify its Fee
Schedule to charge a fee of $13,500 per month for each physical 10Gb
ULL connection and to remove language providing for a shared 10Gb ULL
network between the Exchange and MIAX Pearl Options. The Exchange also
proposes to modify its Fee Schedule to charge tiered rates for
additional Limited Service MEI Ports.
---------------------------------------------------------------------------

    \119\ 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'').\120\ 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'').
---------------------------------------------------------------------------

    \120\ The Exchange frequently updates it Cost Analysis as
strategic initiatives change, costs increase or decrease, and market
participant needs and trading activity changes. The Exchange's most
recent Cost Analysis was conducted ahead of this filing.
---------------------------------------------------------------------------

    As an initial step, the Exchange determined the total cost for the
Exchange and the affiliated markets for each cost driver as part of its
2023 budget review process. The 2023 budget review is a company-wide
process that occurs over the course of many months, includes meetings
among senior management, department heads, and the Finance Team. Each
department head is required to send a ``bottom up'' budget to the
Finance Team allocating costs at the profit and loss account and vendor
levels for the Exchange and its affiliated markets based on a number of
factors, including server counts, additional hardware and software
utilization, current or anticipated functional or non-functional
development projects, capacity needs, end-of-life or end-of-service
intervals, number of members, market model (e.g., price time or pro-
rata, simple only or simple and complex markets, auction functionality,
etc.), which may impact message traffic, individual system
architectures that impact platform size,\121\ storage needs, dedicated
infrastructure versus shared infrastructure allocated per platform
based on the resources required to support each platform, number of
available connections, and employees allocated time. All of these
factors result in different allocation percentages among the Exchange
and its affiliated markets, i.e., the different percentages of the
overall cost driver allocated to the Exchange and its affiliated
markets will cause the dollar amount of the overall cost allocated
among the Exchange and its affiliated markets to also differ. Because
the Exchange's parent company currently owns and operates four separate
and distinct marketplaces, the Exchange must determine the costs
associated with each actual market--as opposed to the Exchange's parent
company simply concluding that all costs drivers are the same at each
individual marketplace and dividing total cost by four (4) (evenly for
each marketplace). Rather, the Exchange's parent company determines an
accurate cost for each marketplace, which results in different
allocations and amounts across exchanges for the same cost drivers, due
to the unique factors of each marketplace as described above. This
allocation methodology also ensures that no cost would be allocated
twice or double-counted between the Exchange and its affiliated
markets. The Finance Team then consolidates the budget and sends it to
senior management, including the Chief Financial Officer and Chief
Executive Officer, for review and approval. Next, the budget is
presented to the Board of Directors and the Finance and Audit
Committees for each exchange for their approval. The above steps
encompass the first step of the cost allocation process.
---------------------------------------------------------------------------

    \121\ For example, the Exchange maintains 24 matching engines,
MIAX Pearl Options maintains 12 matching engines, MIAX Pearl
Equities maintains 24 matching engines, and MIAX Emerald maintains
12 matching engines.
---------------------------------------------------------------------------

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

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

------------------------------------------------------------------------
                                    Allocated    Allocated
           Cost drivers            annual cost    monthly      % Of all
                                      \122\      cost \123\
------------------------------------------------------------------------
Human Resources..................   $3,867,297     $322,275           25
Connectivity (external fees,            70,163        5,847         60.6
 cabling, switches, etc.)........
Internet Services and External         424,584       35,382         73.3
 Market Data.....................
Data Center......................      718,950       59,912         60.6
Hardware and Software Maintenance      727,734       60,645         49.8
 and Licenses....................
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. While some costs were attempted to be allocated as
equally as possible among the Exchange and its affiliated markets, the
Exchange notes that some of its cost allocation percentages for certain
cost drivers differ when compared to the same cost drivers for the
Exchange's affiliated markets in their similar proposed fee changes for
connectivity and ports. This is because the Exchange's cost allocation
methodology utilizes the actual projected costs of the Exchange (which
are specific to the Exchange and are independent of the

costs projected and utilized by the Exchange's affiliated markets) to
determine its actual costs, which may vary across the Exchange and its
affiliated markets based on factors that are unique to each
marketplace. The Exchange provides additional explanation below
(including the reason for the deviation) for the significant
differences.
---------------------------------------------------------------------------

    \122\ The Annual Cost includes figures rounded to the nearest
dollar.
    \123\ 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.
---------------------------------------------------------------------------

Human Resources
    For personnel costs (Human Resources), the Exchange calculated an
allocation of employee time for employees whose functions include
providing and maintaining physical connectivity and performance thereof
(primarily the Exchange's network infrastructure team, which spends
most of their time performing functions necessary to provide physical
connectivity) and for which the Exchange allocated a weighted average
of 42% of each employee's time from the above group assigned to the
Exchange based on the above-described allocation methodology. The
Exchange also allocated Human Resources costs to provide physical
connectivity to a limited subset of personnel with ancillary functions
related to establishing and maintaining such connectivity (such as
information security, sales, membership, and finance personnel), for
which the Exchange allocated cost on an employee-by-employee basis
(i.e., only including those personnel who support functions related to
providing physical connectivity) and then applied a smaller allocation
to such employees (less than 18%). The Exchange notes that it and its
affiliated markets have 184 employees (excluding employees at non-
options/equities exchange subsidiaries of Miami International Holdings,
Inc. (``MIH''), the holding company of the Exchange and its affiliated
markets), and each department leader has direct knowledge of the time
spent by each employee with respect to the various tasks necessary to
operate the Exchange. Specifically, twice a year, and as needed with
additional new hires and new project initiatives, in consultation with
employees as needed, managers and department heads assign a percentage
of time to every employee and then allocate that time amongst the
Exchange and its affiliated markets to determine each market's
individual Human Resources expense. Then, managers and department heads
assign a percentage of each employee's time allocated to the Exchange
into buckets including network connectivity, ports, market data, and
other exchange services. This process ensures that every employee is
100% allocated, ensuring there is no double counting between the
Exchange and its affiliated markets.
    The estimates of Human Resources cost were therefore determined by
consulting with such department leaders, determining which employees
are involved in tasks related to providing physical connectivity, and
confirming that the proposed allocations were reasonable based on an
understanding of the percentage of their time such employees devote to
tasks related to providing physical connectivity.\124\ This includes
personnel from the Exchange departments that are predominately involved
in providing 1Gb and 10Gb ULL connectivity: Business Systems
Development, Trading Systems Development, Systems Operations and
Network Monitoring, Network and Data Center Operations, Listings,
Trading Operations, and Project Management, of which the Exchange
allocated 42% of each of their employee's time assigned to the
Exchange, as stated above. The Exchange notes that senior level
executives' time was only allocated to the Human Resources costs to the
extent that they are involved in overseeing tasks related to providing
physical connectivity. The Human Resources cost was calculated using a
blended rate of compensation reflecting salary, equity and bonus
compensation, benefits, payroll taxes, and 401(k) matching
contributions.
---------------------------------------------------------------------------

    \124\ The Exchange notes that while 12.9 full time equivalents
(``FTEs'') were allocated in this filing to the Exchange and a
similar number of FTEs in a similar filing by the Exchange's
affiliate, MIAX Emerald (11.7 FTEs), the overall cost percentage
allocated for each differs due to the individual level of
compensation for each employee assigned to work on projects for the
exchanges.
---------------------------------------------------------------------------

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

Networks via 10Gb ULL connectivity. Specifically, the Exchange utilizes
content service providers to receive market data from OPRA, other
exchanges and market data providers. The Exchange understands that
these service providers provide services to most, if not all, of the
other U.S. exchanges and other market participants. Market data
provided these service providers is critical to the Exchanges daily
operations and performance of its System Networks to which market
participants connect to via 10Gb ULL connectivity. Without these
services providers, the Exchange would not be able to receive market
data and, therefore, would not be able to operate and support its
System Networks. The Exchange does not employ a separate fee to cover
its content service provider expense and recoups that expense, in part,
by charging for 10Gb ULL connectivity.
    Lastly, the Exchange notes that the actual dollar amounts allocated
as part of the second step of the 2023 budget process differ among the
Exchange and its affiliated markets for the internet Services and
External Market Data cost driver, even though but for MIAX Emerald, the
allocation percentages are generally consistent across markets (e.g.,
MIAX Emerald, MIAX, MIAX Pearl Options and MIAX Pearl Equities
allocated 84.8%, 73.3%, 73.3% and 72.5%, respectively, to the same cost
driver). This is because: (i) a different percentage of the overall
internet Services and External Market Data cost driver was allocated to
MIAX Emerald and its affiliated markets due to the factors set forth
under the first step of the 2023 budget review process described above
(unique technical architecture, market structure, and business
requirements of each marketplace); and (ii) MIAX Emerald itself
allocated a larger portion of this cost driver to 10Gb ULL connectivity
because of recent initiatives to improve the latency and determinism of
its systems. The Exchange notes while the percentage MIAX Emerald
allocated to the internet Services and External Market Data cost driver
is greater than the Exchange and its other affiliated markets, the
overall dollar amount allocated to the Exchange under the initial step
of the 2023 budget process is lower than its affiliated markets.
However, the Exchange believes that this is not, in dollar amounts, a
significant difference. This is because the total dollar amount of
expense covered by this cost driver is relatively small compared to
other cost drivers and is due to nuances in exchange architecture that
require different initial allocation amount under the first step of the
2023 budget process described above. Thus, non-significant differences
in percentage allocation amounts in a smaller cost driver create the
appearance of a significant difference, even though the actual
difference in dollar amounts is small. For instance, despite the
difference in cost allocation percentages for the internet Services and
External Market Data cost driver across the Exchange and MIAX Emerald,
the actual dollar amount difference is approximately only $4,000 per
month, a non-significant amount.
Data Center
    Data Center costs includes an allocation of the costs the Exchange
incurs to provide physical connectivity in the third-party data centers
where it maintains its equipment (such as dedicated space, security
services, cooling and power). The Exchange notes that it does not own
the Primary Data Center or the Secondary Data Center, but instead,
leases space in data centers operated by third parties. The Exchange
has allocated a high percentage of the Data Center cost (60.6%) to
physical 10Gb ULL connectivity because the third-party data centers and
the Exchange's physical equipment contained therein is the most direct
cost in providing physical access to the Exchange. In other words, for
the Exchange to operate in a dedicated space with connectivity by
market participants to a physical trading platform, the data centers
are a very tangible cost, and in turn, if the Exchange did not maintain
such a presence then physical connectivity would be of no value to
market participants.
Hardware and Software Maintenance and Licenses
    Hardware and Software Licenses includes hardware and software
licenses used to operate and monitor physical assets necessary to offer
physical connectivity to the Exchange.\125\
---------------------------------------------------------------------------

    \125\ This expense may be less than the Exchange's affiliated
markets, specifically MIAX Pearl (the options and equities markets),
because, unlike the Exchange, MIAX Pearl (the options and equities
markets) maintains an additional gateway to accommodate its member's
access and connectivity needs. This added gateway contributes to the
difference in allocations between the Exchange and MIAX Pearl. This
expense also differs in dollar amount among the Exchange, MIAX Pearl
(options and equities), and MIAX Emerald because each market may
maintain and utilize a different amount of hardware and software
based on its market model and infrastructure needs. The Exchange
allocated a percentage of the overall cost based on actual amounts
of hardware and software utilized by that market, which resulted in
different cost allocations and dollar amounts.
---------------------------------------------------------------------------

Depreciation
    All physical assets, software, and hardware used to provide 10Gb
ULL connectivity, which also includes assets used for testing and
monitoring of Exchange infrastructure, were valued at cost, and
depreciated or leased over periods ranging from three to five years.
Thus, the depreciation cost primarily relates to servers necessary to
operate the Exchange, some of which are owned by the Exchange and some
of which are leased by the Exchange in order to allow efficient
periodic technology refreshes. The Exchange also included in the
Depreciation cost driver certain budgeted improvements that the
Exchange intends to capitalize and depreciate with respect to 10Gb ULL
connectivity in the near-term. As with the other allocated costs in the
Exchange's updated Cost Analysis, the Depreciation cost was therefore
narrowly tailored to depreciation related to 10Gb ULL connectivity. As
noted above, the Exchange allocated 61.6% of its allocated depreciation
costs to providing physical 10Gb ULL connectivity.
    The Exchange also notes that this allocation differs from its
affiliated markets due to a number of factors, such as the age of
physical assets and software (e.g., older physical assets and software
were previously depreciated and removed from the allocation), or
certain system enhancements that required new physical assets and
software, thus providing a higher contribution to the depreciated cost.
For example, the percentages the Exchange and its affiliate, MIAX
Emerald, allocated to the depreciation of hardware and software used to
provide 10Gb ULL connectivity are nearly identical. However, the
Exchange's dollar amount is greater than that of MIAX Emerald by
approximately $32,000 per month due to two factors: first, the Exchange
has undergone a technology refresh since the time MIAX Emerald launched
in February 2019, leading to it having more hardware that software that
is subject to depreciation. Second, the Exchange maintains 24 matching