[Federal Register Volume 87, Number 95 (Tuesday, May 17, 2022)]
[Notices]
[Pages 29963-29977]
[FR Doc No: 2022-10509]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94892; File No. SR-EMERALD-2022-18]

Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing of a Proposed Rule Change To Establish Fees for the Exchange's
cToM Market Data Product; Suspension of and Order Instituting
Proceedings To Determine Whether To Approve or Disapprove the Proposed
Rule Change

May 11, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 29, 2022, MIAX Emerald, LLC (``MIAX Emerald'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change as described in Item II below, which Item has been
prepared by the Exchange. The Exchange filed the proposed rule change
pursuant to Section 19(b)(3)(A)(ii) of the Act,\3\ and Rule 19b-4(f)(2)
thereunder.\4\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons and is,

pursuant to Section 19(b)(3)(C) of the Act, hereby: (i) Temporarily
suspending the proposed rule change; and (ii) instituting proceedings
to determine whether to approve or disapprove the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 Exchange's Fee
Schedule (``Fee Schedule'') to establish fees for the market data
product known as MIAX Emerald Complex Top of Market (``cToM''). The
fees became operative on April 29, 2022. The text of the proposed rule
change is available on the Exchange's website at http://www.miaxoptions.com/rule-filings/emerald, at MIAX's principal office,
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Description of 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 [sic] 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 previously adopted rules governing the trading of
Complex Orders \5\ on the MIAX Emerald System \6\ in 2018,\7\ ahead of
the Exchange's planned launch, which took place on March 1, 2019.
Shortly thereafter, the Exchange adopted the market data product, cToM,
and provided cToM free of charge for over two years to incentivize
market participants to subscribe and absorbed all costs associated with
producing the cToM data product.\8\ As discussed more fully below, the
Exchange recently calculated its annual aggregate costs for providing
cToM to subscribers to be $236,284, or $19,690 per month. Because the
Exchange has offered cToM free of charge, the Exchange has borne 100%
of the costs for the compilation and dissemination of cToM to
subscribers. The Exchange now proposes to amend Section 6)a) of the Fee
Schedule to establish fees for the cToM data product in order to recoup
a portion, but not all, of these ongoing costs.
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    \5\ See Exchange Rule 518(a)(5) for the definition of Complex
Orders.
    \6\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
    \7\ See Securities Exchange Act Release Nos. 84891 (December 20,
2018), 83 FR 67421 (December 28, 2018) (In the Matter of the
Application of MIAX EMERALD, LLC for Registration as a National
Securities Exchange; Findings, Opinion, and Order of the
Commission); and 85345 (March 18, 2019), 84 FR 10848 (March 22,
2019) (SR-EMERALD-2019-13) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend Exchange Rule 518,
Complex Orders).
    \8\ See Securities Exchange Act Release No. 85207 (February 27,
2019), 84 FR 7963 (March 5, 2019) (SR-EMERALD-2019-09) (providing a
complete description of the cToM data feed).
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Background
    In summary, cToM provides subscribers with the same information as
the MIAX Emerald Top of Market (``ToM'') data product as it relates to
the Strategy Book,\9\ i.e., the Exchange's best bid and offer for a
complex strategy, with aggregate size, based on displayable order and
quoting interest in the complex strategy on the Exchange. However, cToM
provides subscribers with the following additional information that is
not included in ToM: (i) The identification of the complex strategies
currently trading on the Exchange; (ii) complex strategy last sale
information; and (iii) the status of securities underlying the complex
strategy (e.g., halted, open, or resumed). cToM is therefore a distinct
market data product from ToM in that it includes additional information
that is not available to subscribers that receive only the ToM data
feed. ToM subscribers are not required to subscribe to cToM, and cToM
subscribers are not required to subscribe to ToM.\10\
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    \9\ The ``Strategy Book'' is the Exchange's electronic book of
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \10\ See supra note 8.
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Proposal
    The Exchange now proposes to amend Section 6(a) of the Fee Schedule
to charge monthly fees to Distributors \11\ of cToM. Specifically, the
Exchange proposes to assess Internal Distributors $1,250 per month and
External Distributors $1,750 per month for the cToM data feed.\12\ The
proposed fees are identical to the fees that the Exchange, and its
affiliate, Miami International Securities Exchange (``MIAX''),
currently charge for their ToM data products, both of which were
previously published by the Commission and remain in effect today.\13\
The Exchange does not propose to adopt redistribution fees for the cToM
data feed. However, the recipient of the cToM data feed would be
required to become a data subscriber and would be subject to the
applicable fees. The Exchange also does not propose to charge any
additional fees based on a subscriber's use of the cToM data feed,
e.g., displayed versus non-displayed use, and does not propose to
impose any individual per user fees.
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    \11\ A ``Distributor'' of MIAX Emerald data is any entity that
receives a feed or file of data either directly from MIAX Emerald or
indirectly through another entity and then distributes it either
internally (within that entity) or externally (outside that entity).
All Distributors are required to execute a MIAX Emerald Distributor
Agreement. See Section 6(a) of the Fee Schedule.
    \12\ The Exchange also proposes to make a minor related change
to remove ``(as applicable)'' from the explanatory paragraph in
Section 6(a) as it will not change fees for both the ToM and cToM
data feeds.
    \13\ See Securities Exchange Act Release Nos. 91145 (February
17, 2021), 86 FR 11033 (February 23, 2021) (SR-EMERALD-2021-05);
73942 (December 24, 2014), 80 FR 71 (January 2, 2015) (SR-MIAX-2014-
66).
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    As it does today for ToM, the Exchange proposes to assess cToM fees
on Internal and External Distributors in each month the Distributor is
credentialed to use cToM in the production environment. Also, as the
Exchange does today for ToM, market data fees for cToM will be reduced
for new Distributors for the first month during which they subscribe to
cToM, based on the number of trading days that have been held during
the month prior to the date on which that subscriber has been
credentialed to use cToM in the production environment. Such new
Distributors will be assessed a pro-rata percentage of the fees listed
in the table in Section 6(a) of the Fee Schedule, which is the
percentage of the number of trading days remaining in the affected
calendar month as of the date on which they have been credentialed to
use cToM in the production environment, divided by the total number of
trading days in the affected calendar month.
    The Exchange believes that other exchanges' fees for complex market
data are useful examples and provides the below table for comparison
purposes only to show how the Exchange's proposed fees compare to fees
currently charged by other options exchanges for similar complex market
data. As shown by the below table, the Exchange's proposed fees for
cToM are similar to or less than fees charged for similar data products
provided by other options exchanges.

------------------------------------------------------------------------
             Exchange                            Monthly fee
------------------------------------------------------------------------
MIAX Emerald (as proposed)........  $1,250--Internal Distributor,
                                     $1,750--External Distributor.
NYSE American, LLC (``Amex'') \14\  $1,500--Access Fee, $1,000--
                                     Redistribution Fee (this fee is in
                                     addition to the Access Fee
                                     resulting in a $2,500 monthly fee
                                     for external distribution).
NYSE Arca, Inc. (``Arca'') \15\...  $1,500--Access Fee, $1,000--
                                     Redistribution Fee (this fee is in
                                     addition to the Access Fee
                                     resulting in a $2,500 monthly fee
                                     for external distribution).
NASDAQ PHLX LLC (``PHLX'') \16\...  $3,000--Internal Distributor,
                                     $3,500--External Distributor.
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    The Exchange also proposes to amend the paragraph below the table
of fees for ToM and cToM in Section 6(a) of the Fee Schedule to make a
minor, non-substantive correction by deleting the phrase ``(as
applicable)'' in the first sentence following the table of fees for ToM
and cToM. The purpose of this proposed change is to remove unnecessary
text from the Fee Schedule.
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    \14\ See NYSE American Options Proprietary Market Data Fees,
American Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Market_Data_Fee_Schedule.pdf.
    \15\ See NYSE Arca Options Proprietary Market Data Fees, Arca
Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf.
    \16\ See PHLX Price List--U.S. Derivatives Data, PHLX Orders
Fees, at http://www.nasdaqtrader.com/Trader.aspx?id=DPPriceListOptions#PHLX.
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cToM Content Is Available From Alternative Sources
    cToM is also not the exclusive source for Complex Order information
from the Exchange and market participants may choose to subscribe to
the Exchange's other data products to receive such information. It is a
business decision of market participants whether to subscribe to the
cToM data product or not. Market participants that choose not to
subscribe to cToM can derive much, if not all, of the same information
provided in the cToM feed from other Exchange sources, including, for
example, the MIAX Emerald Order Feed (``MOR'').\17\ The following cToM
information is provided to subscribers of MOR: The Exchange's best bid
and offer for a complex strategy, with aggregate size, based on
displayable order and quoting interest in the complex strategy on the
Exchange; the identification of the complex strategies currently
trading on the Exchange; and the status of securities underlying the
complex strategy (e.g., halted, open, or resumed). In addition to the
cToM information contained in MOR, complex strategy last sale
information can be derived from the Exchange's ToM data feed.
Specifically, market participants may deduce that last sale information
for multiple trades in related options series that are disseminated via
the ToM data feed with the same timestamp are likely part of a Complex
Order transaction and last sale.
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    \17\ See MIAX website, Market Data & Offerings, at https://www.miaxoptions.com/market-data-offerings (last visited April 1,
2022). In general, MOR provides real-time ulta-low latency updates
on the following information: New Simple Orders added to the MIAX
Emerald Order Book; updates to Simple Orders resting on the MIAX
Emerald Order Book; new Complex Orders added to the Strategy Book
(i.e., the book of Complex Orders); updates to Complex Orders
resting on the Strategy Book; MIAX Emerald listed series updates;
MIAX Emerald Complex Strategy definitions; the state of the MIAX
Emerald System; and MIAX Emerald's underlying trading state.
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Implementation
    The proposed rule change will be effective May 2, 2022. The
Exchange initially filed this proposal on June 30, 2021 with the
proposed fees effective beginning July 1, 2021.\18\ Between August 2021
and February 2022, the Exchange withdrew and refiled the proposed rule
change, each time to meaningfully attempt to provide additional
justification for the proposed fee changes, provide enhanced details
regarding the Exchange's cost methodology, and address questions
contained in the Commission's suspension order.\19\ No comment letters
were submitted on any filings made to date regarding the proposed cToM
fees. The Commission again suspended the proposed fees on February 15,
2022.\20\ The Exchange then provided the cToM data feed free of charge
for the month of March 2022 and absorbed all associated costs.
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    \18\ See Securities Exchange Act Release No. 92358 (July 9,
2021), 86 FR 37361 (July 15, 2021) (SR-EMERALD-2021-21).
    \19\ See Securities Exchange Act Release Nos. 92789 (August 27,
2021), 86 FR 49364 (September 2, 2021) (SR-MIAX-2021-28, SR-EMERALD-
2021-21) (``Suspension Order 1''); 93471 (October 29, 2021), 86 FR
60947 (November 4, 2021) (SR-EMERALD-2021-32); 93427 (October 26,
2021), 86 FR 60310 (November 1, 2021) (SR-EMERALD-2021-34); and
93811 (December 17, 2021), 86 FR 73051 (December 23, 2021) (SR-
EMERALD-2021-44).
    \20\ See Securities Exchange Act Release No. 94263 (February 15,
2022), 87 FR 9766 (February 22, 2022) (SR-EMERALD-2022-06)
(``Suspension Order 2'').
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    On March 30, 2022, the Exchange withdrew the proposed rule change
that was previously suspended by the Commission on February 15, 2022.
After providing the cToM data product free of charge for the month of
March 2022, on April 1, 2022, the Exchange submitted a revised proposal
for immediate effectiveness. This revised proposal provided additional
details regarding the Exchange's cost methodology, revenue projections,
and responded to various questions and requests for information
contained in the Commission's suspension orders. The Exchange withdrew
that revised proposal and submitted a further revised filing on April
29, 2022. The newest revised filing builds upon the additional details
regarding the Exchange's cost methodology and revenue projections, as
well as the Exchange's responses to various questions and requests for
information contained in the Commission's suspension orders.
2. Statutory Basis
    The Exchange believes that the proposed fees are consistent with
Section 6(b) of the Act \21\ in general, and furthers the objectives of
Section 6(b)(4) of the Act \22\ 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 \23\ 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.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(4).
    \23\ 15 U.S.C. 78f(b)(5).
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    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 as set forth in recent Commission and
Commission Staff guidance. On March 29, 2019, the Commission issued an
Order disapproving a proposed fee change by the BOX Market LLC Options
Facility to establish connectivity fees for its BOX

Network (the ``BOX Order'').\24\ 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\ Based on both the BOX Order and the
Guidance, 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 Guidance; (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; and (iv) identical to the prices the Exchange
currently charges for its ToM data product and the prices the
Exchange's affiliate, MIAX, charges for its ToM product, both of which
were previously published by the Commission and remain in effect
today.\26\
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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).
    \25\ See Staff Guidance on SRO Rule Filings Relating to Fees
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
    \26\ See supra note 13.
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    In adopting Regulation NMS, the Commission granted self-regulatory
organizations (``SROs'') and broker-dealers increased authority and
flexibility to offer new and unique market data to the public. It was
believed that this authority would expand the amount of data available
to consumers, and also spur innovation and competition for the
provision of market data. Particularly, cToM further broadens the
availability of U.S. option market data to investors consistent with
the principles of Regulation NMS. The data product also promotes
increased transparency through the dissemination of cToM. Particularly,
cToM provides subscribers with the same information as ToM, but
includes the following additional information: (i) The identification
of the complex strategies currently trading on the Exchange; (ii)
complex strategy last sale information; and (iii) the status of
securities underlying the complex strategy (e.g., halted, open, or
resumed). The Exchange believes cToM provides a valuable tool that
subscribers can use to gain substantial insight into the trading
activity in Complex Orders, but also emphasizes such data is not
necessary for trading. Moreover, other exchanges offer similar data
products.\27\
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    \27\ See supra notes 14 through 16.
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The Proposed Fees Will Not Result in a Supra-Competitive Profit
    The Exchange believes that exchanges, in setting fees of all types,
should meet very high standards of transparency to demonstrate why each
new fee or fee 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.
    In the 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.''
\28\ The 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.'' \29\ In the Guidance, the Commission Staff further states that,
``[i]f an SRO seeks to support its claims that a proposed fee is fair
and reasonable because it will permit recovery of the SRO's costs, or
will not result in excessive pricing or supra-competitive profit,
specific information, including quantitative information, should be
provided to support that argument.'' \30\ The Exchange does not assert
that the proposed fees are constrained by competitive forces. Rather,
the Exchange asserts that the proposed fees are reasonable because they
will permit recovery of the Exchange's costs in producing and
disseminating cToM data and will not result in the Exchange generating
a supra-competitive profit.
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    \28\ See Guidance, supra note 25.
    \29\ Id.
    \30\ Id.
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    The Guidance defines ``supra-competitive profit'' as ``profits that
exceed the profits that can be obtained in a competitive market.'' \31\
The Commission Staff further states in the Guidance that ``the SRO
should provide an analysis of the SRO's baseline revenues, costs, and
profitability (before the proposed fee change) and the SRO's expected
revenues, costs, and profitability (following the proposed fee change)
for the product or service in question.'' \32\ The Exchange provides
this analysis below.
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    \31\ Id.
    \32\ Id.
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    The proposed fees are based on a cost-plus model. The Exchange
believes that it is important to demonstrate that the proposed fees are
based on its costs and reasonable business needs and believes the
proposed fees will allow the Exchange to begin to offset expenses.
However, as discussed more fully below, such fees may also result in
the Exchange recouping less than, or more than, all of its costs of
providing the cToM data feed because of the uncertainty of forecasting
subscriber decision making with respect to firms' market data needs.
The Exchange believes that the proposed fees will not result in
excessive pricing or supra-competitive profit based on the total
expenses the Exchange incurs versus the total revenue the Exchange
projects to collect, and therefore meets the standards in the Act as
interpreted by the Commission and the Commission Staff in the BOX Order
and the Guidance.
    The suspension orders sought additional information and comments on
various aspects of the prior proposed fee changes. In many respects,
the Commission's questions about the prior proposed fee changes raise
broader questions around the factors the Commission should consider and
the type of data and analysis an exchange should provide in considering
whether market data, port fees, or connectivity fees are fair and
reasonable under a cost-based methodology. The suspension orders also
sought more specific information regarding the allocation of third-
party expenses, such as the overall estimated cost for each category of
external expenses or at minimum the total applicable third-party
expenses and percentage allocation or statements regarding the
Exchange's overall estimated costs for the internal expense categories
and general shared expenses figure. The Exchange added this additional
information below.
    In this filing, the Exchange offers a conceptual framework for
further considering the Commission's questions that draws on the
Exchange's own experience over several years of analyzing its own
costs. The elements of that framework are as follows:
    First, the Exchange created a flat, simple fee structure that
imposes a single monthly fee for Internal Distributors and External
Distributors, without added fees based on the way the data is used or
individual per user fees. The Exchange believes this relatively simple,
flat fee structure is

transparent and easy for users to apply, and this difference also helps
show that it meets the objectives of the Act.
    The Exchange then conducted an extensive cost review in which the
Exchange analyzed nearly every expense item in the Exchange's general
expense ledger to determine whether each such expense relates to the
cToM data feed. That methodology does not allow for ``double-counting''
of the same costs for different classes of exchange products--for
example transaction services, other market data products, physical
connectivity, ``logical'' port connections or regulatory resources.
    The Exchange then sought to narrowly allocate specific costs to the
market data products to which the proposed fees would apply. In this
filing, the Exchange provided more detail about how that allocation was
determined and included information about tangential cost items that
were not included. In determining what portion (or percentage) to
allocate to producing and disseminating the cToM data feed, each
Exchange department head, in coordination with other Exchange
personnel, determined the expenses that support producing and
distributing the cToM data feed. This included numerous meetings
between the Exchange's Chief Information Officer, Chief Financial
Officer, Head of Strategic Planning and Operations, Chief Technology
Officer, various members of the Legal Department, and other group
leaders. The analysis also included each department head meeting with
the divisions of teams within each department to determine the amount
of time and resources allocated by employees within each division
towards producing and distributing the cToM data feed. The Exchange
reviewed each individual expense to determine if such expense was
related to producing and disseminating the cToM data feed. Once the
expenses were identified, the Exchange department heads, with the
assistance of the Exchange's internal finance department, reviewed such
expenses holistically on an Exchange-wide level to determine what
portion of that expense supports producing and disseminating the cToM
data feed. The sum of all such portions of expenses represents the
total cost to the Exchange to produce and disseminate the cToM data
feed. For the avoidance of doubt, no expense amount is allocated twice.
Specifically, no expense amount is allocated to more than one expense
category within this filing and no expense amount that is allocated as
a cost to produce and disseminate the cToM data feed in this filing has
been or will be allocated as a cost to provide any other exchange
product or service in any other fee filing. In the suspension orders,
the Commission questioned whether further explanation of the Exchange's
cost analysis was necessary. The Exchange provides further details
concerning its cost analysis in response to this question.
    The Exchange believes exchanges, like all businesses, should be
provided flexibility when developing and applying a methodology to
allocate costs and resources they deem necessary to operate their
business, including providing market data and access services. The
Exchange notes that costs and resource allocations may vary from
business to business and, likewise, costs and resource allocations may
differ from exchange to exchange when it comes to providing market data
and access services. It is a business decision that must be evaluated
by each exchange as to how to allocate internal resources and what
costs to incur internally or via third parties that it may deem
necessary to support its business and its provision of market data and
access services to market participants.
    Finally, the Exchange acknowledges that it is difficult to predict
how much revenue the Exchange will receive from the proposed fees with
precision. The analysis conducted by the Exchange is designed to make a
fair and reasonable assessment of costs and resources allocated to
support the production and dissemination of the cToM data feed
associated with the proposed fees. The Exchange further acknowledges
that this assessment can only capture a moment in time and that costs
and resource allocations may change. That is why the Exchange
historically, and on an ongoing basis, reviews its costs and resource
allocations to ensure it appropriately allocates resources to properly
provide services to the Exchange's constituents. As part of this
proposed rule change, and as described further below, the Exchange is
committing to conduct an annual cost review with respect to fees that
are cost justified in this proposed rule change beginning one year from
the date of this proposal, and annually thereafter. The Exchange
expects that it may propose to adjust fees at that time, either to
increase fees in the event that revenues fail to reasonably cover costs
at the estimated margin set forth below, or to decrease fees in the
event that revenue materially exceeds the Exchange's current
projections. In the event that the Exchange determines to propose a fee
change, updated cost estimates will be included in a rule filing
proposing the fee change.
    The Exchange believes applying this framework to the proposed fees
shows that they are consistent with the requirements of the Act,
leaving aside that the proposed fees are relatively similar to, or less
than, fees charged by other exchanges for similar market data products.
Exchange Costs and Cost Methodology
    The Exchange notes that there are material costs associated with
providing the infrastructure and headcount to fully support the
production and dissemination of the cToM data feed. As described below,
the Exchange incurs technology expense related to establishing and
maintaining Information Security services, enhanced network monitoring
and customer reporting, as well as Regulation SCI-mandated processes
associated with its network technology.\33\ The Exchange believes the
proposed fees are a reasonable attempt to offset a portion of those
costs associated with producing and disseminating the cToM data feed.
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    \33\ Both fixed and variable expenses have significant impact on
the Exchange's overall costs to provide the cToM data feed. For
example, to accommodate new Members, the Exchange may need to
purchase additional hardware to support those Members and provide
the cToM data feed. Further, as the total number of Members
increases, the Exchange and its affiliates may need to increase
their data center footprint and consume more power, resulting in
increased costs charged by their third-party data center provider.
Accordingly, the cost to the Exchange and its affiliates to provide
access to its Members is not fixed.
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    The Exchange estimated its total annual expense to provide the cToM
data feed based on the following general expense categories: (1)
External expenses, which include fees paid to third parties for certain
products and services; (2) internal expenses relating to the internal
costs to produce and disseminate the cToM data feed; and (3) general
shared expenses.\34\ The below table details each of these individual
external and internal annual costs considered by the Exchange to be
directly related to offering cToM to subscribers, and not any other
product or service offered by the Exchange. The below table also
details the general shared expense allocated to this proposal. Each of
these expenses are discussed in more detail further below.
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    \34\ The percentage allocations used in this proposed rule
change may differ from past filings from the Exchange or its
affiliates due to adjustments to internal resource allocations and
different system architecture of the Exchange as compared to its
affiliates.
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    For 2022, the total annual expense for producing and disseminating
the cToM data feed is estimated to be $236,284, or $19,690 per month.
The Exchange utilized its estimated 2022 revenue and

costs, which utilize the same methodology set forth in the Exchange's
previously-issued Audited Unconsolidated Financial Statements.\35\
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    \35\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the
information technology and communication costs line item under the
section titled ``Operating Expenses Incurred Directly or Allocated
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing
its financial statements for 2018. See Securities Exchange Act
Release No. 87877 (December 31, 2019), 85 FR 738 (January 7, 2020)
(SR-EMERALD-2019-39). Accordingly, the third-party expense described
in this filing is attributed to the same line item for the
Exchange's 2022 Form 1 Amendment, which will be filed in 2023. In
its suspension orders, the Commission also asked should the Exchange
use cost projections or actual costs estimated for 2021 in a filing
made in 2022, or make cost projections for 2022. The Exchange
utilized expenses from its most recent audited financial statement
as those numbers are more reliable than more recent unaudited
numbers, which may be subject to change.

------------------------------------------------------------------------
                            External expenses
-------------------------------------------------------------------------
                                           Percentage of total expense
                Category                         amount allocated
------------------------------------------------------------------------
Data Center Provider...................  0.20%.
Fiber Connectivity Provider............  0.20%.
Hardware and Software Providers........  0.20%.
                                        --------------------------------
    Total of External Expenses.........  $5,434.\36\
------------------------------------------------------------------------

                            Internal expenses
-------------------------------------------------------------------------
                Category                     Expense amount allocated
------------------------------------------------------------------------
Employee Compensation..................  $209,610 (representing 2% of
                                          total $9,900,032 expense)
Depreciation and Amortization..........  $4,055 (representing 0.12% of
                                          total $3,363,841 expense)
Occupancy..............................  $11,410 (representing 2% of
                                          total $538,916 expense)
                                        --------------------------------
    Total of Internal Expenses.........  $225,075
                                        --------------------------------
    Total Allocated Shared Expenses....  $5,775 (representing 0.2% of
                                          total $2,872,232 expense)
                                        --------------------------------
        Total External + Internal +      $236,284
         Allocated Shared Expenses.
------------------------------------------------------------------------

    In its suspension orders, the Commission solicited commenters'
views on whether the Exchange has provided sufficient detail on the
identity and nature of services provided by third parties. The
Commission further solicited commenters' views on whether the Exchange
has provided sufficient detail on the elements that go into producing
and distributing the cToM data feed, including how shared costs are
allocated and attributed to the cToM data feed, to permit an
independent review and assessment of the reasonableness of purported
cost-based fees and the corresponding profit margin thereon. In
response, the Exchange provides additional detail regarding the
identity and nature of services provided by third parties, the elements
that go into producing and distributing the cToM data feed, and how
expenses are allocated. The Exchange believes this additional detail is
sufficient to support a finding that the proposed fees are consistent
with the Exchange Act.
---------------------------------------------------------------------------

    \36\ The Exchange does not believe it is appropriate to disclose
the actual amount it pays to each individual third party provider as
those fee arrangements are competitive or the Exchange is
contractually prohibited from disclosing that amount.
---------------------------------------------------------------------------

    The Exchange notes that it only has a single source of revenue,
distribution fees, to recover those costs associated with providing and
disseminating the cToM data feed. For clarity, the Exchange took a
conservative approach in determining the expense and the percentage of
that expense to be allocated to providing the cToM data feed. The
Exchange describes below the analysis conducted for each expense and
the resources or determinations that were considered when determining
the amount necessary to allocate to each expense. The Exchange notes
that, without the specific third party and internal expense items, the
Exchange would not be able to provide and distribute cToM data feed.
Each of these expense items, including physical hardware, software,
employee compensation and benefits, occupancy costs, and the
depreciation and amortization of equipment, were identified through a
line-by-line cost analysis and determined to be integral to providing
and distributing the cToM data feed for the reasons discussed below.
Only a portion of all fees paid to such third parties are included in
the third party expenses described herein, and, again, no expense
amount is allocated twice. For example, the Exchange does not allocate
its entire information technology and communication costs to providing
and distributing the cToM data feed because it determined that a
portion of those costs are attributable to other areas of the
Exchange's operations, such as ports and transaction services, as well
as other market data products provided by the Exchange. This may result
in the Exchange under allocating an expense to provide the cToM data
feed, and such expenses may actually be higher than what the Exchange
allocated as part of this proposal.\37\
---------------------------------------------------------------------------

    \37\ The Exchange notes that expenses associated with its
affiliates, MIAX and MIAX Pearl (the options and equities markets),
are accounted for separately and are not included within the scope
of this filing.
---------------------------------------------------------------------------

    Further, as part of its ongoing assessment of costs and expenses,
the Exchange recently conducted a periodic thorough review of its
expenses and resource allocations, which resulted in revised percentage
allocations in this filing as compared to prior versions of this
proposed fee change that were previously withdrawn by the Exchange. The
revised percentages are, among other things, the result of the shifting
of internal resources in response to business objectives. Therefore,
the percentage allocations used in this proposed rule change may differ
from past filings from the Exchange or its affiliates due to, among
other things, changes in expenses charged by third parties, adjustments
to internal resource allocations, and different system

architecture of the Exchange as compared to its affiliates.\38\
---------------------------------------------------------------------------

    \38\ The Exchange notes that the expense allocations differ from
the Exchange's filing earlier in 2021, SR-EMERALD-2021-05, because
that prior filing pertained to several different market data fees,
which the Exchange had not been charging for since the Exchange
launched operations in March 2019. See Securities Exchange Act
Release No. 91145 (February 17, 2021), 86 FR 11033 (February 23,
2021) (SR-EMERALD-2021-05) (adopting fees for the ToM,
Administrative Information Subscriber (`AIS'), and MOR data feeds,
all of which had been free for market participants for over two
years since inception).
---------------------------------------------------------------------------

External Expense Allocations
    For 2022, annual expenses relating to fees paid by the Exchange to
third parties for products and services necessary to provide the cToM
data feed are estimated to be $5,434.\39\ This includes a portion of
the fees paid to: (1) A third party data center provider, including for
the primary, secondary, and disaster recovery locations of the
Exchange's trading system infrastructure; (2) a fiber connectivity
provider for network services (fiber and bandwidth products and
services) linking the Exchange's and its affiliates' office locations
in Princeton, New Jersey and Miami, Florida, to all data center
locations; and (3) hardware and software providers, which support the
production environment in which Members and non-Members connect to the
network to receive market data.\40\
---------------------------------------------------------------------------

    \39\ See supra note 36.
    \40\ Id. The Exchange did not allocate any expense associated
with the proposed fees towards the Securities Financial Transaction
Infrastructure (``SFTI'') and various other service providers'
because the Exchange's architecture takes advantage of an advance in
design to eliminate the need for a market data distribution gateway
layer. The computation and dissemination via an API is done solely
within the match engine environment and is then delivered via the
Member and non-Member connectivity infrastructure. This architecture
delivers a market data system that is more efficient both in cost
and performance. Accordingly, the Exchange determined not to
allocate any expense associated with SFTI and various other service
providers.
---------------------------------------------------------------------------

Data Center Space and Operations Provider
    The Exchange does not own the primary data center or the secondary
data center, but instead leases space in data centers operated by third
parties where the Exchange houses servers, switches and related
equipment. Data center costs include an allocation of the costs the
Exchange incurs to provide and distribute market data in the third
party data centers where it maintains its equipment as well as related
costs described below. The data center provider operates the data
centers (primary, secondary, and disaster recovery) that host the
Exchange's network infrastructure. Without the retention of a third
party data center, the Exchange would not be able to operate its
systems, provide a trading platform for market participants, and
produce and distribute market data. The Exchange does not employ a
separate fee to cover its data center expense and recoups that expense,
in part, by charging for the cToM data feed.
    The Exchange reviewed its data center footprint and space utilized,
including its total rack space, cage usage, number of servers,
switches, cabling within the data center, heating and cooling of
physical space, storage space, and monitoring and divided its data
center expenses among providing transaction services, market data, and
connectivity based on space utilized by each area.\41\ Based on this
review, the Exchange determined that 0.20% of the total applicable data
center provider expense is applicable to providing the cToM data feed.
The Exchange reviewed space utilized to house rack space, cage usage,
servers, switches, cabling, storage space, heating and cooling of
physical space, and monitoring, and identified that a small portion of
that footprint is dedicated to equipment used to produce and distribute
the cToM data feed.
---------------------------------------------------------------------------

    \41\ The Investors Exchange, Inc. (``IEX'') also allocated data
center costs to produce market data based on space utilized. See
Securities Exchange Act Release No. 94630 (April 7, 2022), 87 FR
21945, at page 21949 (April 13, 2022) (SR-IEX-2022-02) (``IEX Market
Data Fee Proposal'') (noting that ``[d]ata Center costs consist of
the fees charged by the third-party data centers used by IEX and
represent less than 10% the Exchange's total data center costs based
on space utilized'' (emphasis added)).
---------------------------------------------------------------------------

    The Exchange believes this allocation is reasonable because it
represents the costs associated with housing the Exchange's equipment
dedicated to processing and disseminating the cToM data feed. The
Exchange excluded from this allocation a portion of the Exchange's data
center expense that is due to space utilized to provide and maintain
connectivity to the Exchange's System Networks, including providing
cabling within the data center between market participants and the
Exchange. The Exchange also did not allocate the remainder of the data
center expense because it pertains to space utilized by other areas of
the Exchange's operations, such as connectivity, ports and transaction
services, as well as other market data products provided by the
Exchange.
Fiber Connectivity Provider
    The Exchange engages a third party service provider that provides
the internet, fiber and bandwidth connections between the Exchange's
networks, primary and secondary data center, and office locations in
Princeton and Miami. Fiber connectivity is necessary for the Exchange
to switch to its secondary data center in the case of an outage in its
primary data center. Fiber connectivity also allows the Exchange's
National Operations & Control Center (``NOCC'') and Security Operations
Center (``SOC'') in Princeton to communicate with the Exchange's
primary and secondary data centers. As such, all trade data, including
the billions of messages each day, flow through this third party
provider's infrastructure over the Exchange's network. Fiber
connectivity is also necessary for personnel responsible for overseeing
and providing customer service related to producing and distributing
the cToM data feed, receiving relevant data and being able to
communicate between the Exchange's various locations and data centers.
Without the retention of a third party fiber connectivity provider, the
Exchange would not be able to communicate between its data centers and
office locations in a manner necessary to maintain and support the cToM
data feed. Fiber connectivity is a necessary integral means to
disseminate information, including data related to producing and
distributing the cToM data feed, from the Exchange's primary data
center to other Exchange locations. It is necessary for Exchange
employees located in various locations to be able to communicate and
receive the necessary data to maintain and provide customer support
related to the cToM data feed. The Exchange would not be able to
operate and support the network and produce and distribute the cToM
data feed without third party fiber connectivity. The Exchange does not
employ a separate fee to cover its fiber connectivity expense and
recoups that expense, in part, by charging for cToM data feed.
    The Exchange reviewed it costs to retain fiber connectivity from a
third party, including the ongoing costs to support fiber connectivity,
ensuring adequate bandwidth and infrastructure maintenance to support
exchange operations, and ongoing network monitoring and maintenance and
determined that 0.20% of the total fiber connectivity expense was
applicable to producing and distributing the cToM data feed. The
Exchange reviewed its total fiber connectivity expense and allocated it
among transaction services, connectivity, ports, other market data
products, and administrative operations based on usage. The Exchange
then further divided up its fiber connectivity costs related to market
data and

identified the portion that is attributable to producing and
maintaining the cToM data feed, also based on usage. This allocation
is, therefore, based on the amount of bandwidth and fiber connectivity
the Exchange calculated is utilized to support exchange operations, and
ongoing network monitoring and maintenance that are necessary to
produce and maintain the cToM data feed. The Exchange believes this
allocation is reasonable because it reflects the portion of the fiber
connectivity expense that relates to producing and distributing the
cToM data feed. The Exchange excluded a large portion of the Exchange's
fiber connectivity expense that is due to providing and maintaining
connectivity between the Exchange's System Networks, data centers, and
office locations and is core to the daily operation of the Exchange.
The Exchange also excluded from this allocation fiber connectivity
usage related to system connectivity or other business lines, such as
transaction services and other market data products offered by the
Exchange, or unrelated administrative services. The Exchange also did
not allocate the remainder of this expense because it pertains to other
areas of the Exchange's operations and does not directly relate to
providing the cToM data feed. The Exchange believes this allocation is
reasonable because it represents the Exchange's cost to produce and
distribute the cToM data feed.
Hardware and Software Providers
    The Exchange relies on dozens of third party hardware and software
providers for equipment necessary to produce and disseminate the cToM
data feed. This includes either the purchase or licensing of physical
equipment, such as servers, switches, cabling, and devices needed by
Exchange personnel to monitor servers and the health of market data
products, including the cToM data feed. This consists of real-time
monitoring of system performance, integrity, and latency of market data
products. It also includes the Exchange purchasing or licensing
software necessary for security monitoring, data analysis and Exchange
operations. Hardware and software providers are necessary to produce
and distribute the cToM data feed. Hardware and software equipment and
licenses for that equipment are also necessary to operate and monitor
physical assets necessary to produce and distribute the cToM data feed.
Hardware and software equipment and licenses are key to the operation
of the Exchange and without them the Exchange would not be able to
produce and distribute the cToM data feed. The Exchange does not employ
a separate fee to cover its hardware and software expense and recoups
that expense, in part, by charging for cToM data feed dissemination.
    The Exchange reviewed its hardware and software related costs,
including software patch management, vulnerability management,
administrative activities related to equipment and software management,
professional services for selection, installation and configuration of
equipment and software supporting exchange operations. The Exchange
then divided those costs among transaction services, ports,
connectivity, other market data products, and other Exchange operations
based on whether all of that hardware or software is based on usage.
The Exchange then reviewed the amount allocated to producing and
distributing market data generally and what portion of that hardware
and software equipment or license is used to support the cToM data feed
specifically. Based on this review, the Exchange determined that 0.20%
of the total applicable hardware and software expense is allocated to
producing and distributing the cToM data feed. This percentage reflects
the amount of hardware and software equipment and licenses dedicated to
produce and maintain the cToM data feed.\42\ Hardware and software
equipment and licenses are key to the operation of the Exchange and
production and distribution of market data. Without them, the Exchange
would not be able to develop, and market participants would not be able
to purchase, the cToM data feed. The Exchange only allocated the
portion of this expense to the hardware and software that is related to
the cToM data feed, such as operating servers and equipment necessary
to produce and distribute the cToM data feed. The Exchange, therefore,
did not allocate portions of its hardware and software expense that
related to other areas of the Exchange's business, such as hardware and
software used for connectivity or unrelated administrative services.
The Exchange also did not allocate the remainder of this expense
because it pertains to other areas of the Exchange's operations, such
as ports or transaction services, as well as other market data products
provided by the Exchange, and is not directly related to producing and
disseminating the cToM data feed. The Exchange believes this allocation
is reasonable because it represents the Exchange's cost to produce and
disseminate the cToM data feed, and not any other service, as supported
by its cost review.
---------------------------------------------------------------------------

    \42\ The Exchange notes that IEX used a similar methodology to
allocate hardware costs to market data. See IEX Market Data Fee
Proposal, id. at page 21950 (noting that ``IEX only included
hardware specifically dedicated to the market data feeds in
calculating the costs of providing market data'').
---------------------------------------------------------------------------

Internal Expense Allocations
    For 2022, total internal annual expense relating to the Exchange
producing and distributing the cToM data feed is estimated to be
$225,075. This includes costs associated with: (1) Employee
compensation and benefits for full-time employees that support market
data, including staff in network operations, trading operations,
development, system operations, business, as well as staff in general
corporate departments (such as legal, regulatory, and finance) that
support those employees and functions as well as important system
upgrades; (2) depreciation and amortization of hardware and software
used to produce and distribute the cToM data feed, including equipment,
servers, cabling, purchased software and internally developed software
used in the production environment to support the network for trading;
and (3) occupancy costs for leased office space for staff that support
the cToM data feed.
Employee Compensation and Benefits
    Human personnel are key to exchange operations and supporting the
Exchange's ongoing provision of the cToM data feed. The Exchange
reviewed its employee compensation and benefits expense and the portion
of that expense allocated to providing the cToM data feed. As part of
this review, the Exchange considered employees whose functions include
providing and maintaining the cToM data feed and used a blended rate of
compensation reflecting salary, stock and bonus compensation, bonuses,
benefits, payroll taxes, and 401K matching contributions.\43\
---------------------------------------------------------------------------

    \43\ For purposes of this allocation, the Exchange did not
consider expenses related to office space, supplies, or equipment
use by employees who support cToM data feed.
---------------------------------------------------------------------------

    In its suspension orders, the Commission asked the Exchange provide
more detail about the methodology the Exchange used to determine how
much of an employee's time is devoted to market data related
activities. In considering the cost of personnel, the Exchange
generally considered the time spent on various market data projects and
initiatives through project management tracking tools and analysis of
employee resource allocations, among its Technology Team in the
following areas: Technical

Operations, Software Engineering, Quality Assurance, and
Infrastructure. The Exchange did not consider non-Technology Teams such
as Market Operations, Project Management, Regulatory, Legal, and
Accounting/Finance.\44\
---------------------------------------------------------------------------

    \44\ The Exchange notes that IEX used a similar methodology to
allocate employee compensation related costs to market data. See IEX
Market Data Fee Proposal, supra note 41 at page 29150 (noting that
``[f]or personnel costs, IEX calculated an allocation of employee
time for employees whose functions include providing and maintaining
IEX Data and/or the proprietary market data feeds used to transmit
IEX Data, and used a blended rate of compensation reflecting salary,
stock and bonus compensation, benefits, payroll taxes, and 401(k)
matching contributions'').
---------------------------------------------------------------------------

    Based on this review, the Exchange determined to allocate $209,610
in employee compensation and benefits expense to producing and
distributing the cToM data feed. This represents approximately 2.0% of
the $9,900,032 total projected expense for employee compensation and
benefits. The Exchange determined the cost allocation for employees who
perform work in support of producing and distributing the cToM data
feed to arrive at a full time equivalent (``FTE'') of 0.6 FTEs across
all the identified personnel. The Exchange then multiplied the FTE
times a blended compensation rate for all relevant Exchange personnel
to determine the personnel costs associated with producing and
distributing the cToM data feed. Senior staff also reviewed these time
allocations with department heads and team leaders to determine whether
those allocations were appropriate. These employees are critical to the
Exchange to producing and distributing the cToM data feed. The Exchange
determined the above allocation based on the personnel whose work
focused on functions necessary to producing and distributing the cToM
data feed. The Exchange does not charge a separate fee for employees
who support the cToM data feed and the Exchange seeks to recoup that
expense, in part, by charging for the cToM data feed.
    The Exchange believes it is appropriate to include incentive
compensation in the blended personnel compensation rate on the same
basis as other personnel costs for in-scope employees because incentive
compensation is a part of the total personnel costs associated with the
Exchange's costs to provide the cToM data feed. Moreover, the Exchange
notes that it has taken a conservative approach in determining which
employees to include in its cost analysis, in terms of function and
percent allocation, so that the included personnel costs are directly
and closely tied to the costs of providing the cToM data feed. The FTE
allocation represents just 2.0% of the Exchange's overall personnel
costs. Consistent with the Exchange's conservative methodology to limit
costs allocated to producing and disseminating the cToM data feed, this
approach includes only a de minimis personnel cost allocation for
senior level executives and no allocation for members of the Exchange's
board of directors. Accordingly, the Exchange believes that the
allocated personnel expenses included are appropriately attributable to
producing and disseminating the cToM data feed.
Depreciation and Amortization
    A key expense incurred by the Exchange relates to the depreciation
and amortization of equipment that the Exchange procured to produce and
distribute the cToM data feed. The Exchange reviewed all of its
physical assets and software, owned and leased, and determined whether
each asset is related to providing and maintaining the cToM data feeds,
and added up the depreciation of those assets. All physical assets and
software, which 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. Based on the Exchange's
experience, this depreciation period equals the typical life expectancy
of those assets. In determining the amount of depreciation and
amortization to apply to providing the cToM data feeds, the Exchange
considered the depreciation of hardware and software that are key to
its provision of the cToM data feeds. This includes servers, computers,
laptops, monitors, information security appliances and storage, and
network switching infrastructure equipment, including switches and taps
that were previously purchased to produce and distribute the cToM data
feed. Without them, market participants would not be able to receive
the cToM data feed. The Exchange seeks to recoup a portion of its
depreciation expense by charging for the cToM data feed.
    Based on this review, the Exchange determined to allocate $4,055 in
depreciation and amortization expense to producing and distributing the
cToM data feed. This is only 0.12% of the $3,363,841 total projected
expense for depreciation and amortization. For purposes of the
allocation of these costs to the cToM data feed, the Exchange allocates
the annual depreciation (i.e., one-third or one-fifth of the initial
asset value based on the typical life expectancy of those assets). One-
third or one-fifth of the cost of each asset is included in the annual
costs allocated to the cToM data feed. The Exchange only included
assets specifically dedicated to the cToM data feed in calculating the
costs of providing the cToM data feed. This means that physical assets
used for transaction services, other market data products, or other
Exchange operations were excluded from the calculation.\45\ The
Exchange, therefore, did not allocate portions of depreciation expense
that relates to other areas of the Exchange's business, such as the
depreciation of hardware and software used for connectivity, unrelated
administrative services, or other market data products provided by the
Exchange. All of the expenses outlined in this proposed fee change
refer to the operating expenses of the Exchange. In the suspension
orders, the Commission asked for additional detail or explanation to
ensure that no expense amount is allocated twice. The Exchange did not
included any future capital expenditures within these costs ensuring
that no cost is counted twice. Depreciation and amortization represent
the expense of previously purchased hardware and internally developed
software spread over the useful life of the assets. Due to the fact
that the Exchange has only included operating expense and historical
purchases, there is no double counting of expenses in the Exchange's
cost estimates.
---------------------------------------------------------------------------

    \45\ The Exchange notes that IEX used a similar methodology to
allocate hardware costs to market data. See IEX Market Data Fee
Proposal at note 54, supra note 41 at page 21950 (noting that
``[h]ardware is depreciated on a straight-line three-year period,
which in IEX's experience, is equal to the typical life expectancy
of those assets. As noted above, one-third of the cost of each
hardware asset is included in the annual costs allocated to market
data. IEX only included hardware specifically dedicated to the
market data feeds in calculating the costs of providing market data.
This means that physical assets used for both order entry and market
data were excluded from the calculation'').
---------------------------------------------------------------------------

Occupancy
    The Exchange rents and maintains multiple physical locations to
house staff and equipment necessary to support the production and
dissemination of the cToM data feed. The Exchange's occupancy expense
is not limited to the housing of personnel and includes locations used
to store equipment necessary for Exchange operations. In determining
the amount of its occupancy related expense, the Exchange considered
actual physical space used to house employees whose functions include
producing and distributing the cToM data feed. Similarly, the Exchange
also considered

the actual physical space used to house hardware and other equipment
necessary to provide and maintain the cToM data feed. The Exchange
maintains staff that support producing and distributing the cToM data
feed in various locations and needs to provide workplaces for that
staff as well as space to house hardware and equipment necessary for
those employees to perform those functions.\46\ This equipment includes
computers, servers, and accessories necessary to support producing and
distributing cToM data feed. Based on this review, the Exchange
determined to allocate $11,410 of its occupancy expense to producing
and distributing the cToM data feed. According to the Exchange's
calculations, it allocated approximately 2.0% of the total applicable
occupancy expense to producing and distributing the cToM data feeds.
This is only a portion of the $538,916 total projected expense for
occupancy. The Exchange believes this allocation is reasonable because
it represents the Exchange's cost to rent and maintain a physical
location for the Exchange's staff who operate and support the cToM data
feed. The Exchange considered the rent paid for the Exchange's
Princeton and Miami offices, as well as various related costs, such as
physical security, property management fees, property taxes, and
utilities at each of those locations. The Exchange did not include
occupancy expenses related to housing employees and equipment related
to other Exchange operations, such as transaction and administrative
services.
---------------------------------------------------------------------------

    \46\ For the avoidance of doubt, the Exchange did not include
within this cost any portion of its costs related to third party
fiber connectivity used by Exchange staff in different office
locations to communicate as part of their role in supporting the
cToM data feed.
---------------------------------------------------------------------------

Allocated Shared Expense
    Finally, a limited portion of general shared expenses was allocated
to the cToM data feed costs, as without these general shared costs, the
Exchange would not be able to operate in the manner that it does and
produce and distribute the cToM data feed. The costs included in
general shared expenses include recruiting and training, marketing and
advertising costs, professional fees for legal, tax and accounting
services, and telecommunications costs. For 2022, the Exchange's
general shared expense allocated to the cToM data feed is estimated to
be $5,755. This represents approximately 0.2% of the $2,872,232 total
projected general shared combined expense. The Exchange used the
weighted average of the above allocations to determine the amount of
general shared expenses to allocate to the Exchange. Next, based on
additional management and expense analysis, these fees are allocated to
the proposal.
Revenue and Estimated Profit Margin
    The Exchange only has four primary sources of revenue and cost
recovery mechanisms to fund all of its operations: Transaction fees,
access fees, regulatory fees, and market data fees. Accordingly, the
Exchange must cover all of its expenses from these four primary sources
of revenue and cost recovery mechanisms.
    To determine the Exchange's estimated revenue associated with the
cToM data feed, the Exchange analyzed the number of Members and non-
Members currently receiving the cToM data feed and used a recent
monthly billing cycle representative of current monthly revenue. The
Exchange also provided its baseline by analyzing March 2022, the
monthly billing cycle prior to the proposed cToM data fee, and compared
this to its expenses for that month. As discussed below, the Exchange
does not believe it is appropriate to factor into its analysis future
revenue growth or decline into its estimates for purposes of these
calculations, given the uncertainty of such estimates due to the
continually changing access needs of market participants and potential
changes in internal and third party expenses.
    For the month of March 2022, prior to the effectiveness of the
proposed cToM fees, the Exchange had 13 cToM data feed subscribers, for
which the Exchange charged $0. This resulted in a loss of $19,690 for
that month. For April 2022, the Exchange anticipates that it will have
13 cToM data feed subscribers.\47\ Assuming the Exchange charges the
proposed fees for Distributors, the Exchange would generate revenue of
$16,250 for April 2022. This would result in a loss of $3,440 ($16,250
minus $19,690) for the month of April (a negative 21% margin from March
2022 to April 2022).
---------------------------------------------------------------------------

    \47\ The Exchange notes that the number of cToM subscribers may
change over time. Beginning with June 2021, the month prior to the
original fee change to adopt cToM data fees, the Exchange had the
following number of subscribers each month: June (13 subscribers);
July (13 subscribers); August (12 subscribers); September (15
subscribers); October (12 subscribers); November (12 subscribers);
December (12 subscribers); January (12 subscribers); February (12
subscribers); March (13 subscribers); and April (13 subscribers).
---------------------------------------------------------------------------

    The Exchange believes that conducting the above analysis on a per
month basis is reasonable as the revenue generated from the cToM data
feed is generally remains static from month to month. The Exchange also
conducted the above analysis on a per month basis to comply with the
Commission Staff's Guidance, which requires a baseline analysis to
assist in determining whether the proposal generates a supra-
competitive profit. The Exchange cautions that this margin may also
fluctuate from month to month based on the uncertainty of predicting
how many subscribers may purchase cToM data feed subscriptions from
month to month as Members and non-Members are free to add and drop
subscriptions at any time based on their own business decisions.
    The Exchange believes the proposed margin is reasonable and will
not result in a ``supra-competitive'' profit. The Guidance defines
``supra-competitive profit'' as ``profits that exceed the profits that
can be obtained in a competitive market.'' \48\ Until recently, the
Exchange has operated at a cumulative net annual loss since it launched
operations in 2019.\49\ The Exchange has operated at a net loss due to
a number of factors, one of which is choosing to forgo revenue by
offering certain products, such as the cToM data feed, for free, as
well as other products at lower rates, than other options exchanges to
attract order flow and encourage market participants to experience the
high determinism, low latency, and resiliency of the Exchange's trading
systems. The Exchange previously provided the cToM data feed free of
charge and absorbed all costs associated with providing the cToM data
feed to market participants. In this proposal, the Exchange would
continue to offer the cToM data feed for a fee that still falls short
of covering the Exchange's expenses. The Exchange is not generating a
profit, and therefore, cannot be deemed to be generating a ``supra-
competitive'' profit by now charging for the cToM data feed. The
Exchange should not now be penalized for seeking to adopt fees to at
least cover a portion of its costs after offering the cToM data feed
free of charge. Therefore, the Exchange believes the proposed fees are
reasonable because they are based on both relative costs to the
Exchange to generate and disseminate cToM, the extent to which the
product drives the Exchange's overall costs and the relative value of
the product, as well as the Exchange's

objective to make cToM broadly available to market participants. The
Exchange also believes the proposed fees are reasonable because they
are designed to generate annual revenue to recoup some of the
Exchange's annual costs of providing the cToM data feed.
---------------------------------------------------------------------------

    \48\ See Guidance, supra note 25.
    \49\ The Exchange has incurred a cumulative loss of $22 million
since its inception in 2019 to 2020, the last year for which the
Exchange's Form 1 data is available. See Exchange's Form 1/A,
Application for Registration or Exemption from Registration as a
National Securities Exchange, filed July 28, 2021, available at
https://sec.report/Document/9999999997-21-004557/.
---------------------------------------------------------------------------

    The Exchange notes that its revenue estimate is based on
projections and will only be realized to the extent such revenue
actually produces the revenue estimated. As a generally new entrant to
the hyper-competitive exchange environment, and an exchange focused on
driving competition, the Exchange does not yet know whether such
expectations will be realized. For instance, in order to generate the
revenue expected from the cToM data feed, the Exchange will have to be
successful in retaining existing clients that wish to receive the cToM
data feed or obtaining new clients that will purchase such data. To the
extent the Exchange is successful in encouraging new clients to receive
the cToM data feed, the Exchange does not believe it should be
penalized for such success. The Exchange, like other exchanges, is,
after all, a for-profit business. While the Exchange believes in
transparency around costs and potential margins, the Exchange does not
believe that these estimates should form the sole basis of whether or
not a proposed fee is reasonable or can be adopted. Instead, the
Exchange believes that the information should be used solely to confirm
that an Exchange is not earning supra-competitive profits, and the
Exchange believes this proposal demonstrates this fact.
    Finally, the Exchange believes that the proposed fees are
reasonable because they will not impose onerous audit requirements on
subscribers, because there will be no need to substantiate the number
of users of cToM or the manner in which it is being used, but rather
only whether it is being redistributed internally or to external third
parties.
Annual Review of Fees
    In its suspension orders, the Commission asks whether exchanges
should periodically reevaluate fees on an ongoing and periodic basis in
order to assure that actual revenue aligns with a reasonable cost-plus
model. As described above and as part of this proposed rule change, the
Exchange is committing to conduct a one year review of the fees that
are cost justified as part of this proposed rule change after the date
of this proposal, and annually thereafter. The Exchange expects that it
may propose to adjust fees at that time, either to increase fees in the
event that revenues fail to reasonably cover costs at the estimated
margin set forth above, or to decrease fees in the event that revenue
materially exceeds the Exchange's current projections. In the event
that the Exchange determines to propose a fee change, updated cost
estimates will be included in a rule filing proposing the fee change.
The Exchange believes this approach will further increase transparency
around market data costs and help to ensure that Exchange fees continue
to be reasonably related to costs.
The Proposed Fees Are Reasonable When Compared to the Fees of Other
Options Exchanges With Similar Market Share
    The Exchange does not have visibility into other options exchanges'
costs to provide market data or their fee markup over those costs, and
therefore cannot use other exchange's market data fees as a benchmark
to determine a reasonable markup over the costs of providing market
data. Nevertheless, the Exchange believes the other exchanges' complex
market data fees are useful examples of alternative approaches to
providing and charging for complex market data notwithstanding that the
competing exchanges may have different system architectures that may
result in different cost structures for the provision of complex market
data. To that end, the Exchange believes the proposed cToM data fees
are reasonable because the proposed fees are similar to, or less than
fees charged for complex market data provided by other options
exchanges with comparable market shares.
    As described in the below table, the Exchange's proposed fees
remain less than fees charged for similar market data products provided
by other options exchanges with similar market share. Each of the
market data rates in place at competing options exchanges were filed
with the Commission for immediate effectiveness and remain in place
today.

------------------------------------------------------------------------
             Exchange                            Monthly fee
------------------------------------------------------------------------
MIAX Emerald (as proposed)........  $1,250--Internal Distributor,
                                     $1,750--External Distributor.
Amex \50\.........................  $1,500--Access Fee, $1,000--
                                     Redistribution Fee (this fee is in
                                     addition to the Access Fee
                                     resulting in a $2,500 monthly fee
                                     for external distribution).
Arca \51\.........................  $1,500--Access Fee, $1,000--
                                     Redistribution Fee (this fee is in
                                     addition to the Access Fee
                                     resulting in a $2,500 monthly fee
                                     for external distribution).
PHLX \52\.........................  $3,000--Internal Distributor,
                                     $3,500--External Distributor.
------------------------------------------------------------------------

The Proposed Pricing Is Not Unfairly Discriminatory and Provides for
the Equitable Allocation of Fees, Dues, and Other Charges
---------------------------------------------------------------------------

    \50\ See NYSE American Options Proprietary Market Data Fees,
American Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Options_Market_Data_Fee_Schedule.pdf.
    \51\ See NYSE Arca Options Proprietary Market Data Fees, Arca
Options Complex Fees, at https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf.
    \52\ See PHLX Price List--U.S. Derivatives Data, PHLX Orders
Fees, at http://www.nasdaqtrader.com/Trader.aspx?id=DPPriceListOptions#PHLX.
---------------------------------------------------------------------------

    The Exchange believes that the proposed fees are reasonable, fair,
and equitable, and not unfairly discriminatory because they are
designed to align fees with services provided and will apply equally to
all subscribers. The Exchange believes that it is reasonable, equitable
and not unfairly discriminatory to assess Internal Distributors fees
that are less than the fees assessed for External Distributors for
subscriptions to the cToM data feed because Internal Distributors have
limited, restricted usage rights to the market data, as compared to
External Distributors, which have more expansive usage rights. All
Members and non-Members that determine to receive any market data feed
of the Exchange (or its affiliates, MIAX Pearl and MIAX), must first
execute, among other things, the MIAX Exchange Group Exchange Data
Agreement (the ``Exchange Data Agreement'').\53\ Pursuant to the
Exchange Data Agreement, Internal Distributors are restricted to the
``internal use'' of any market data they receive. This means that
Internal

Distributors may only distribute the Exchange's market data to the
recipient's officers and employees and its affiliates.\54\ External
Distributors may distribute the Exchange's market data to persons who
are not officers, employees or affiliates of the External
Distributor,\55\ and may charge their own fees for the redistribution
of such market data. External Distributors may monetize their receipt
of the cToM data feed by charging their customers fees for receipt of
the Exchange's cToM data. Internal Distributors do not have the same
ability to monetize the Exchange's cToM data feed. Accordingly, the
Exchange believes it is fair, reasonable and not unfairly
discriminatory to assess External Distributors a higher fee for the
Exchange's cToM data feed as External Distributors have greater usage
rights to commercialize such market data and can adjust their own fee
structures if necessary.
---------------------------------------------------------------------------

    \53\ See Exchange Data Agreement, available at https://miaxweb2.pairsite.com/sites/default/files/page-files/MIAX_Exchange_Group_Data_Agreement_09032020.pdf.
    \54\ See id.
    \55\ See id.
---------------------------------------------------------------------------

    The Exchange also utilizes more resources to support External
Distributors versus Internal Distributors, as External Distributors
have reporting and monitoring obligations that Internal Distributors do
not have, thus requiring additional time and effort of Exchange staff.
For example, External Distributors have monthly reporting requirements
under the Exchange's Market Data Policies.\56\ Exchange staff must
then, in turn, process and review information reported by External
Distributors to ensure the External Distributors are redistributing
cToM data in compliance with the Exchange's Market Data Agreement and
Policies.
---------------------------------------------------------------------------

    \56\ Section 6 of the Exchange's Market Data Policies, available
at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Exchange_Group_Market_Data_Policies_07202021.pdf.
---------------------------------------------------------------------------

    The Exchange believes the proposed cToM fees are equitable and not
unfairly discriminatory because the fee level results in a reasonable
and equitable allocation of fees amongst subscribers for similar
services, depending on whether the subscriber is an Internal or
External Distributor. Moreover, the decision as to whether or not to
purchase market data is entirely optional to all market participants.
Potential purchasers are not required to purchase the market data, and
the Exchange is not required to make the market data available.
Purchasers may request the data at any time or may decline to purchase
such data. The allocation of fees among users is fair and reasonable
because, if market participants determine not to subscribe to the data
feed, firms can discontinue their use of the cToM data.
    The Exchange further believes that the proposed fees are
reasonable, fair, and equitable, and non-discriminatory because they
will apply to all subscribers in the same manner based on whether the
data is used for internal purposes or distributed to third parties. All
similarly situated market participants are subject to the same fees.
The fees also do not depend on any distinctions between or among
Members, customers, broker-dealers, or any other entity, because they
are solely determined by the individual market participant based on its
business needs. The Exchange also notes that the proposed monthly cToM
fees for Internal and External Distributors are the same prices that
the Exchange charges for its ToM data product.
    Finally, the Exchange believes that the proposed fees are
consistent with Section 11A of the Exchange Act in that it is designed
to facilitate the economically efficient execution of securities
transactions, fair competition among brokers and dealers, exchange
markets and markets other than exchange markets, and the practicability
of brokers executing investors' orders in the best market.
Specifically, the proposed low cost-based fee will enable a broad range
of market participants to receive the cToM data feed, thereby
facilitating the economically efficient execution of securities
transactions on the Exchange, fair competition between and among such
Members, and the practicability of Members that are brokers executing
investors' orders on the Exchange when it is the best market.
    For the foregoing reasons, the Exchange believes that the proposed
fee is reasonable, equitably allocated, and not unfairly
discriminatory.
* * * * *
    The Exchange believes the proposed change to delete certain text
from Section 6(a) of the Fee Schedule promotes just and equitable
principles of trade and removes impediments to and perfects the
mechanism of a free and open market and a national market system
because the proposed change is a non-substantive edit to the Fee
Schedule to remove unnecessary text. The Exchange believes that this
proposed change will provide greater clarity to Members and the public
regarding the Exchange's Fee Schedule and that it is in the public
interest for the Fee Schedule to be accurate and concise so as to
eliminate the potential for confusion.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes the proposed fees will not result in any
burden on intra-market competition that is not necessary or appropriate
in furtherance of the purposes of the Act because the proposed fees
will allow the Exchange to recoup some of its costs in providing cToM
to market participants. As described above, the Exchange has operated
at a cumulative net annual loss since it launched operations in 2019
\57\ due to providing a low cost alternative to attract order flow and
encourage market participants to experience the high determinism and
resiliency of the Exchange's trading Systems. To do so, the Exchange
chose to waive the fees for some non-transaction related services and
Exchange products or provide them at a very marginal cost, which was
not profitable to the Exchange. This resulted in the Exchange forgoing
revenue it could have generated from assessing any fees or higher fees.
The Exchange could have sought to charge higher fees at the outset, but
that could have served to discourage participation on the Exchange.
Instead, the Exchange chose to provide a low cost exchange alternative
to the options industry which resulted in lower initial revenues. An
example of this is cToM, for which the Exchange only now seeks to adopt
fees at a level similar to or lower than those of other options
exchanges.
---------------------------------------------------------------------------

    \57\ See supra note 49.
---------------------------------------------------------------------------

    Since the Exchange initially launched operations with the cToM data
product in 2019, all Exchange Members and non-Members have had the
ability to receive the Exchange's cToM data free of charge for the past
three years. Since 2019, when the Exchange adopted Complex Order
functionality, the Exchange has spent time and resources building out
additional features for Complex Order functionality in its System to
provide better trading strategies and risk protections for market
participants in order to better compete with other exchanges' complex
functionality and similar data products focused on complex orders.\58\
The Exchange now seeks to recoup its costs for providing cToM to market
participants and believes the proposed

fees will not result in excessive pricing or supra-competitive profit.
---------------------------------------------------------------------------

    \58\ See supra notes 14 through 16.
---------------------------------------------------------------------------

Inter-Market Competition
    The Exchange also does not believe the proposed fees would cause
any unnecessary or inappropriate burden on intermarket competition as
other exchanges are free to introduce their own comparable data product
and lower their prices to better compete with the Exchange's offering.
There is no reason to believe that the newly proposed fees to receive
the cToM data feed would impair other exchange's ability to compete or
cause any unnecessary or inappropriate burden on inter-market
competition. Particularly, the proposed product and fees apply
uniformly to any purchaser, in that it does not differentiate between
subscribers that purchase cToM. The proposed fees are set at a modest
level that would allow any interested Member or non-Member to purchase
such data based on their business needs.
    The Exchange does not believe that the proposed rule change to make
a minor, non-substantive edit to Section 6(a) of the Fee Schedule by
deleting unnecessary text will result in any burden on competition that
is not necessary or appropriate in furtherance of the purposes of the
Act. This proposed rule change is not being made for competitive
reasons, but rather is designed to remedy a minor non-substantive issue
and will provide added clarity to the Fee Schedule. The Exchange
believes that it is in the public interest for the Fee Schedule to be
accurate and concise so as to eliminate the potential for confusion on
the part of market participants. In addition, the Exchange does not
believe the proposal will impose any burden on inter-market competition
as the proposal does not address any competitive issues and is intended
to protect investors by providing further transparency regarding the
Exchange's Fee Schedule.

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

    Written comments were neither solicited nor received.

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\59\ at any time within
60 days of the date of filing of a proposed rule change pursuant to
Section 19(b)(1) of the Act,\60\ the Commission summarily may
temporarily suspend the change in the rules of a self-regulatory
organization (``SRO'') if it appears to the Commission that such action
is necessary or appropriate in the public interest, for the protection
of investors, or otherwise in furtherance of the purposes of the Act.
As discussed below, the Commission believes a temporary suspension of
the proposed rule change is necessary and appropriate to allow for
additional analysis of the proposed rule change's consistency with the
Act and the rules thereunder.
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78s(b)(3)(C).
    \60\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    When exchanges file their proposed rule changes with the
Commission, including fee filings like the Exchange's present proposal,
they are required to provide a statement supporting the proposal's
basis under the Act and the rules and regulations thereunder applicable
to the exchange.\61\ The instructions to Form 19b-4, on which exchanges
file their proposed rule changes, specify that such statement ``should
be sufficiently detailed and specific to support a finding that the
proposed rule change is consistent with [those] requirements.'' \62\
---------------------------------------------------------------------------

    \61\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory
Organization's Statement of the Purpose of, and Statutory Basis for,
the Proposed Rule Change'').
    \62\ Id.
---------------------------------------------------------------------------

    Among other things, exchange proposed rule changes are subject to
Section 6 of the Act, including Sections 6(b)(4), (5), and (8), which
requires the rules of an exchange to (1) provide for the equitable
allocation of reasonable fees among members, issuers, and other persons
using the exchange's facilities; \63\ (2) perfect the mechanism of a
free and open market and a national market system, protect investors
and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers; \64\
and (3) not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\65\
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 78f(b)(4).
    \64\ 15 U.S.C. 78f(b)(5).
    \65\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In temporarily suspending the Exchange's fee change, the Commission
intends to further consider whether the proposed fees for the cToM
market data feed are consistent with the statutory requirements
applicable to a national securities exchange under the Act. In
particular, the Commission will consider whether the proposed rule
change satisfies the standards under the Act and the rules thereunder
requiring, among other things, that an exchange's rules provide for the
equitable allocation of reasonable fees among members, issuers, and
other persons using its facilities; not permit unfair discrimination
between customers, issuers, brokers or dealers; and do not impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.\66\
---------------------------------------------------------------------------

    \66\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------

    Therefore, the Commission finds that it is appropriate in the
public interest, for the protection of investors, and otherwise in
furtherance of the purposes of the Act, to temporarily suspend the
proposed rule change.\67\
---------------------------------------------------------------------------

    \67\ For purposes of temporarily suspending the proposed rule
change, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change

    In addition to temporarily suspending the proposal, the Commission
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C)
\68\ and 19(b)(2)(B) of the Act \69\ to determine whether the proposed
rule change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, the Commission seeks and
encourages interested persons to provide additional comment on the
proposed rule change to inform the Commission's analysis of whether to
disapprove the proposed rule change.
---------------------------------------------------------------------------

    \68\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily
suspends a proposed rule change, Section 19(b)(3)(C) of the Act
requires that the Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule change should be
approved or disapproved.
    \69\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\70\ the Commission is
providing notice of the grounds for possible disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis of whether the Exchange has sufficiently
demonstrated how the proposed rule change is consistent with Sections
6(b)(4),\71\ 6(b)(5),\72\ and 6(b)(8) \73\ of the Act. Section 6(b)(4)
of the Act requires that the rules of a national securities exchange
provide for the equitable allocation of reasonable dues, fees, and
other charges among its members and issuers and other persons using its

facilities. Section 6(b)(5) of the Act requires that the rules of a
national securities exchange be designed, among other things, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system and, in general, to protect investors and the public
interest, and not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. Section 6(b)(8) of the Act
requires that the rules of a national securities exchange not impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \70\ Id.
    \71\ 15 U.S.C. 78f(b)(4).
    \72\ 15 U.S.C. 78f(b)(5).
    \73\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
above, in addition to any other comments they may wish to submit about
the proposed rule change. In particular, the Commission seeks comment
on the following aspects of the proposal and asks commenters to submit
data where appropriate to support their views:
    1. Cost Estimates and Allocation. The Exchange states that it is
not asserting that the proposed fees are constrained by competitive
forces, but rather sets forth a ``cost-plus model,'' employing a
``conservative approach,'' that the expenses are ``directly related''
to cToM data, and not any other product or service offered by the
Exchange, and states that the proposed fees are ``reasonable because
they will permit recovery of the Exchange's costs in providing cToM
data and will not result in the Exchange generating a supra-competitive
profit.'' \74\ In explaining its costs, should the Exchange identify
more specifically which, if any, of its costs are incurred solely to
provide cToM data? Regarding the allocations provided by the Exchange
as described in greater detail above, do commenters believe that the
Exchange provided sufficient detail about how it determined these
allocations and why they are reasonable? Why or why not? Do commenters
believe that the Exchange provided sufficient context to permit an
independent review and assessment of the reasonableness of the cost
allocations? Do commenters believe that the Exchange provided
sufficient detail or explanation to support its claim that ``no expense
amount is allocated twice,'' \75\ whether among the sub-categories of
expenses in this filing, across the Exchange's fee filings for other
products or services, or over time?
---------------------------------------------------------------------------

    \74\ See supra Section II.A.2.
    \75\ See id.
---------------------------------------------------------------------------

    2. Revenue Estimates and Profit Margin Range. The Exchange provides
a single monthly revenue figure as the basis for calculating its
anticipated profit margin. Do commenters believe this is reasonable? If
not, why not? The profit margin is also dependent on the accuracy of
the cost projections which, if inflated (intentionally or
unintentionally), may render the projected profit margin meaningless.
The Exchange acknowledges that this margin may fluctuate from month to
month as Members and non-Members add and drop subscriptions,\76\ and
that costs may increase. The Exchange does not account for the
possibility of cost decreases, however. What are commenters' views on
the extent to which actual costs (or revenues) deviate from projected
costs (or revenues)? Do commenters believe that the Exchange's
methodology for estimating the profit margin is reasonable? Should the
Exchange provide a range of profit margins that it believes are
reasonably possible, and the reasons therefor?
---------------------------------------------------------------------------

    \76\ See id.
---------------------------------------------------------------------------

    3. Reasonableness. The Exchange states that the proposed fees are
reasonable because the Exchange is operating at a negative margin for
this product. Further, the Exchange states that it chose to initially
provide the cToM data product for free and to forego revenue that they
otherwise could have generated from assessing any fees.\77\ What are
commenters' views regarding what factors should be considered in
determining what constitutes a reasonable fee for the cToM market data
product? Do commenters believe it relevant to an assessment of
reasonableness that, according to the Exchange, the Exchange's proposed
fees are similar to or lower than fees charged by competing options
exchanges with similar market share? Should an assessment of
reasonableness include consideration of factors other than costs; and
if so, what factors should be considered, and why?
---------------------------------------------------------------------------

    \77\ See id.
---------------------------------------------------------------------------

    4. Periodic Reevaluation. The Exchange has stated that it will
conduct a one-year review of the cost-based fees subject to this
proposal after the date of the proposal, and annually thereafter. In
light of the impact that the number of subscriptions has on profit
margins, and the potential for costs to decrease (or increase) over
time, what are commenters' views on the need for exchanges to commit to
reevaluate, on an ongoing and periodic basis, their cost-based data
fees to ensure that the fees stay in line with their stated
profitability projections and do not become unreasonable over time, for
example, by failing to adjust for efficiency gains, cost increases or
decreases, and changes in subscribers? How formal should that process
be, how often should that reevaluation occur, and what metrics and
thresholds should be considered? How soon after a new data fee change
is implemented should an exchange assess whether its revenue and/or
cost estimates were accurate and at what threshold should an exchange
commit to file a fee change if its estimates were inaccurate?
    5. Fees for Internal Distributors versus External Distributors. The
Exchange argues that it is reasonable, equitable, and not unfairly
discriminatory to assess Internal Distributors fees that are lower than
the fees assessed for External Distributors for subscriptions to the
cToM data feed ($1,250 per month for Internal Distributors versus
$1,750 per month for External Distributors), since Internal
Distributors have limited, restricted usage rights to the market data,
as compared to External Distributors, which have more expansive usage
rights, including rights to commercialize such market data.\78\ In
addition, the Exchange states that it ``utilizes more resources'' to
support External Distributors as compared to Internal Distributors, as
External Distributors have reporting and monitoring obligations that
Internal Distributors do not have, thus requiring ``additional time and
effort'' of the Exchange's staff.\79\ What are commenters' views on the
adequacy of the information the Exchange provides regarding the
differential between the Internal Distributor and External Distributor
fees? Do commenters believe that the fees for Internal Distributors and
External Distributors, as well as the fee differences between
Distributors, are supported by the Exchange's assertions that it sets
the differentiated pricing structure in a manner that is equitable and
not unfairly discriminatory? Do commenters believe that the Exchange
should demonstrate how the proposed Distributor fee levels correlate
with different costs to better substantiate how the Exchange ``utilizes
more resources'' to support External Distributors versus Internal
Distributors and permit an assessment of the Exchange's statement that
``External Distributors have reporting and monitoring obligations that
Internal Distributors do not have,

thus requiring additional time and effort of Exchange staff''? \80\
---------------------------------------------------------------------------

    \78\ See id.
    \79\ See id.
    \80\ See id.
---------------------------------------------------------------------------

    Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the [Act]
and the rules and regulations issued thereunder . . . is on the [SRO]
that proposed the rule change.'' \81\ The description of a proposed
rule change, its purpose and operation, its effect, and a legal
analysis of its consistency with applicable requirements must all be
sufficiently detailed and specific to support an affirmative Commission
finding,\82\ and any failure of an SRO to provide this information may
result in the Commission not having a sufficient basis to make an
affirmative finding that a proposed rule change is consistent with the
Act and the applicable rules and regulations.\83\ Moreover,
``unquestioning reliance'' on an SRO's representations in a proposed
rule change would not be sufficient to justify Commission approval of a
proposed rule change.\84\
---------------------------------------------------------------------------

    \81\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
    \82\ See id.
    \83\ See id.
    \84\ See Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 446-47 (D.C. Cir. 2017) (rejecting the
Commission's reliance on an SRO's own determinations without
sufficient evidence of the basis for such determinations).
---------------------------------------------------------------------------

    The Commission believes it is appropriate to institute proceedings
to allow for additional consideration and comment on the issues raised
herein, including as to whether the proposal is consistent with the
Act, any potential comments or supplemental information provided by the
Exchange, and any additional independent analysis by the Commission.

V. Request for Written Comments

    The Commission requests written views, data, and arguments with
respect to the concerns identified above, as well as any other relevant
concerns. In particular, the Commission invites the written views of
interested persons concerning whether the proposal is consistent with
Sections 6(b)(4), 6(b)(5), and 6(b)(8), or any other provision of the
Act, or the rules and regulations thereunder. The Commission asks that
commenters address the sufficiency and merit of the Exchange's
statements in support of the proposal, in addition to any other
comments they may wish to submit about the proposed rule change.
Although there do not appear to be any issues relevant to approval or
disapproval that would be facilitated by an oral presentation of views,
data, and arguments, the Commission will consider, pursuant to Rule
19b-4, any request for an opportunity to make an oral presentation.\85\
---------------------------------------------------------------------------

    \85\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by an SRO. See Securities
Acts Amendments of 1975, Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-EMERALD-2022-18 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-EMERALD-2022-18. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-EMERALD-2022-18 and should be submitted
on or before June 7, 2022. Rebuttal comments should be submitted by
June 21, 2022.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the
Act,\86\ that File Number SR-EMERALD-2022-18 be and hereby is,
temporarily suspended. In addition, the Commission is instituting
proceedings to determine whether the proposed rule change should be
approved or disapproved.
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    \86\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\87\
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    \87\ 17 CFR 200.30-3(a)(12), (57), and (58).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10509 Filed 5-16-22; 8:45 am]
BILLING CODE 8011-01-P