[Federal Register Volume 84, Number 173 (Friday, September 6, 2019)]
[Notices]
[Pages 46997-47007]
[FR Doc No: 2019-19221]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86836; File No. SR-MIAX-2019-38]

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

August 30, 2019.
    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 August 23, 2019, Miami International Securities Exchange LLC (``MIAX
Options'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Options Fee
Schedule (the ``Fee Schedule'') to modify certain of the Exchange's
system connectivity fees.
    The Exchange previously filed the proposal on June 26, 2019 (SR-
MIAX-2019-31). That filing has been withdrawn and replaced with the
current filing (SR-MIAX-2019-38).
    The text of the proposed rule change is available on the Exchange's
website at http://www.miaxoptions.com/rule-filings, at MIAX's principal
office, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange is refiling its proposal to amend the Fee Schedule
regarding connectivity to the Exchange in order to provide greater
detail and clarity concerning the Exchange's cost allocation, as it
pertains to the Exchange's expenses for network connectivity services.
In order to determine the Exchange's costs associated with providing
network connectivity services, the Exchange conducted an extensive cost
allocation review process in which the Exchange did a line-by-line
analysis of the Exchange's general expense ledger to determine which of
those expenses relate to the provision of network connectivity
services, and, if related, what portion (or allocation) of such expense
should be attributed to the cost of providing network connectivity
services. The Exchange is now presenting the results of the cost
allocation review in a way that corresponds directly with income
statement expense line items to provide greater transparency into its
actual costs associated with providing network connectivity services.
Based on this analysis, the Exchange believes that its proposed fee
increases are fair and reasonable because they will permit recovery of
less than all of the Exchange's costs for providing connectivity and
will not result in excessive pricing or supracompetitive profit, when
comparing the Exchange's total annual expense associated with providing
the network connectivity services versus the total projected annual
revenue the Exchange projects to collect for providing the network
connectivity services.
    Specifically, the Exchange proposes to amend Sections 5(a) and (b)
of the Fee Schedule to increase the network connectivity fees for the 1
Gigabit (``Gb'') fiber connection, the 10Gb fiber connection, and the
10Gb ultra-low latency (``ULL'') fiber connection, which are charged to
both Members \3\ and non-Members of the Exchange for connectivity to
the Exchange's primary/secondary facility. The Exchange also proposes
to increase the network connectivity fees for the 1Gb and 10Gb fiber
connections for connectivity to the Exchange's disaster recovery
facility. Each of these connections are shared connections, and thus
can be utilized to access both the Exchange and the Exchange's
affiliate, MIAX PEARL, LLC (``MIAX PEARL''). These proposed fee
increases are collectively referred to herein as the ``Proposed Fee
Increases.''
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    \3\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
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    The Exchange initially filed the Proposed Fee Increases on July 31,
2018, designating the Proposed Fee Increases effective August 1,
2018.\4\ The First Proposed Rule Change was published for comment in
the Federal Register on August 13, 2018.\5\ The Commission received one
comment letter on the proposal.\6\ The Proposed Fee Increases remained
in effect until they were temporarily suspended pursuant to a
suspension order (the ``Suspension Order'') issued by the Commission on
September 17, 2018.\7\ The Suspension Order also instituted proceedings
to determine whether to approve or disapprove the First Proposed Rule
Change.\8\
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    \4\ See Securities Exchange Act Release No. 83786 (August 7,
2018), 83 FR 40106 (August 13, 2018) (SR-MIAX-2018-19) (the ``First
Proposed Rule Change'').
    \5\ Id.
    \6\ See Letter from Tyler Gellasch, Executive Director, The
Healthy Markets Association (``Healthy Markets''), to Brent J.
Fields, Secretary, Commission, dated September 4, 2018 (``Healthy
Markets Letter'').
    \7\ See Securities Exchange Act Release No. 34-84175 (September
17, 2018), 83 FR 47955 (September 21, 2018) (SR-MIAX-2018-19)
(Suspension of and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove a Proposed Rule Change To Amend the
Fee Schedule Regarding Connectivity Fees for Members and Non-
Members).
    \8\ Id.
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    The Healthy Markets Letter argued that the Exchange did not provide
sufficient information in its filing to support a finding that the
proposal is consistent with the Act. Specifically, the Healthy Markets
Letter objected to the Exchange's reliance on the fees of other
exchanges to demonstrate that its fee increases are consistent with the
Act. In addition, the Healthy Markets Letter argued that the Exchange
did not offer any details to support its basis for asserting that the
proposed fee increases are consistent with the Act.
    On October 5, 2018, the Exchange withdrew the First Proposed Rule
Change.\9\ The Exchange refiled the Proposed Fee Increases on September
18, 2018, designating the Proposed Fee Increases immediately
effective.\10\ The Second Proposed Rule Change was published for
comment in the Federal Register on October 10, 2018.\11\ The Commission
received one comment letter on the proposal.\12\ The Proposed Fee
Increases remained in effect until they were temporarily suspended
pursuant to a suspension order (the ``Second Suspension Order'') issued
by the Commission on October 3, 2018.\13\ The Second Suspension Order
also instituted proceedings to determine whether to approve or
disapprove the Second Proposed Rule Change.\14\
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    \9\ See Securities Exchange Act Release No. 84398 (October 10,
2018), 83 FR 52264 (October 16, 2018) (SR-MIAX-2018-19 (Notice of
Withdrawal of a Proposed Rule Change To Amend the Fee Schedule
Regarding Connectivity Fees for Members and Non-Members).
    \10\ See Securities Exchange Act Release No. 84357 (October 3,
2018), 83 FR 50976 (October 10, 2018) (SR-MIAX-2018-25) (the
``Second Proposed Rule Change'') (Notice of Filing of a Proposed
Rule Change To Amend the Fee Schedule Regarding Connectivity Fees
for Members and Non-Members; Suspension of and Order Instituting
Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change).
    \11\ Id.
    \12\ See Letter from Theodore R. Lazo, Managing Director and
Associate General Counsel, and Ellen Greene, Managing Director
Financial Services Operations, The Securities Industry and Financial
Markets Association (``SIFMA''), to Brent J. Fields, Secretary,
Commission, dated October 15, 2018 (``SIFMA Letter'').
    \13\ See supra note 10.
    \14\ Id.
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    The SIFMA Letter argued that the Exchange did not provide
sufficient information in its filing to support a finding that the
proposal should be

approved by the Commission after further review of the proposed fee
increases. Specifically, the SIFMA Letter objected to the Exchange's
reliance on the fees of other exchanges to justify its own fee
increases. In addition, the SIFMA Letter argued that the Exchange did
not offer any details to support its basis for asserting that the
proposed fee increases are reasonable. On November 23, 2018, the
Exchange withdrew the Second Proposed Rule Change.\15\
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    \15\ See Securities Exchange Act Release No. 84650 (November 26,
2018), 83 FR 61705 (November 30, 2018) (SR-MIAX-2018-25) (Notice of
Withdrawal of a Proposed Rule Change To Amend the Fee Schedule
Regarding Connectivity Fees for Members and Non-Members.).
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    The Exchange refiled the Proposed Fee Increases on March 1, 2019,
designating the Proposed Fee Increases immediately effective.\16\ The
Third Proposed Rule Change was published for comment in the Federal
Register on March 20, 2019.\17\ The Third Proposed Rule Change provided
new information, including additional detail about the market
participants impacted by the Proposed Fee Increases, as well as the
additional costs incurred by the Exchange associated with providing the
connectivity alternatives, in order to provide more transparency and
support relating to the Exchange's belief that the Proposed Fee
Increases are reasonable, equitable, and non-discriminatory, and to
provide sufficient information for the Commission to determine that the
Proposed Fee Increases are consistent with the Act.
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    \16\ See Securities Exchange Act Release No. 85318 (March 14,
2019), 84 FR 10363 (March 20, 2019) (SR-MIAX-2019-10) (the ``Third
Proposed Rule Change'') (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule).
    \17\ Id.
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    On March 29, 2019, the Commission issued its Order Disapproving
Proposed Rule Changes to Amend the Fee Schedule on the BOX Market LLC
Options Facility to Establish BOX Connectivity Fees for Participants
and Non-Participants Who Connect to the BOX Network (the ``BOX
Order'').\18\ In the BOX Order, the Commission highlighted a number of
deficiencies it found in three separate rule filings by BOX Exchange
LLC (``BOX'') to increase BOX's connectivity fees that prevented the
Commission from finding that BOX's proposed connectivity fees were
consistent with the Act. These deficiencies relate to topics that the
Commission believes should be discussed in a connectivity fee filing.
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    \18\ See Securities Exchange Act Release No. 85459 (March 29,
2019), 84 FR 13363 (April 4, 2019) (SR-BOX-2018-24, SR-BOX-2018-37,
and SR-BOX-2019-04).
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    After the BOX Order was issued, the Commission received four
comment letters on the Third Proposed Rule Change.\19\
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    \19\ See Letter from Joseph W. Ferraro III, SVP & Deputy General
Counsel, MIAX, to Vanessa Countryman, Acting Secretary, Commission,
dated April 5, 2019 (``MIAX Letter''); Letter from Theodore R. Lazo,
Managing Director and Associate General Counsel, SIFMA, to Vanessa
Countryman, Acting Secretary, Commission, dated April 10, 2019
(``Second SIFMA Letter''); Letter from John Ramsay, Chief Market
Policy Officer, Investors Exchange LLC (``IEX''), to Vanessa
Countryman, Acting Secretary, Commission, dated April 10, 2019
(``IEX Letter''); and Letter from Tyler Gellasch, Executive
Director, Healthy Markets, to Brent J. Fields, Secretary,
Commission, dated April 18, 2019 (``Second Healthy Markets
Letter'').
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    The Second SIFMA Letter argued that the Exchange did not provide
sufficient information in its Third Proposed Rule Change to support a
finding that the proposal should be approved by the Commission after
further review of the proposed fee increases. Specifically, the Second
SIFMA Letter argued that the Exchange's market data fees and
connectivity fees were not constrained by competitive forces, the
Exchange's filing lacked sufficient information regarding cost and
competition, and that the Commission should establish a framework for
determining whether fees for exchange products and services are
reasonable when those products and services are not constrained by
significant competitive forces.
    The IEX Letter argued that the Exchange did not provide sufficient
information in its Third Proposed Rule Change to support a finding that
the proposal should be approved by the Commission and that the
Commission should extend the time for public comment on the Third
Proposed Rule Change. Despite the objection to the Proposed Fee
Increases, the IEX Letter did find that ``MIAX has provided more
transparency and analysis in these filings than other exchanges have
sought to do for their own fee increases.'' \20\ The IEX Letter
specifically argued that the Proposed Fee Increases were not
constrained by competition, the Exchange should provide data on the
Exchange's actual costs and how those costs relate to the product or
service in question, and whether and how MIAX considered changes to
transaction fees as an alternative to offsetting exchange costs.
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    \20\ See IEX Letter, pg. 1.
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    The Second Healthy Markets Letter did not object to the Third
Proposed Rule Change and the information provided by the Exchange in
support of the Proposed Fee Increases. Specifically, the Second Healthy
Markets Letter stated that the Third Proposed Rule Change was
``remarkably different,'' and went on to further state as follows:

    The instant MIAX filings--along with their April 5th
supplement--provide much greater detail regarding users of
connectivity, the market for connectivity, and costs than the
Initial MIAX Filings. They also appear to address many of the issues
raised by the Commission staff's BOX disapproval order. This third
round of MIAX filings suggests that MIAX is operating in good faith
to provide what the Commission and staff seek.\21\
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    \21\ See Second Healthy Markets Letter, pg. 2.

    On April 29, 2019, the Exchange withdrew the Third Proposed Rule
Change.\22\
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    \22\ See SR-MIAX-2019-10.
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    The Exchange refiled the Proposed Fee Increases on April 30, 2019,
designating the Proposed Fee Increases immediately effective.\23\ The
Fourth Proposed Rule Change was published for comment in the Federal
Register on May 16, 2019.\24\ The Fourth Proposed Rule Change provided
further cost analysis information to squarely and comprehensively
address each and every topic raised for discussion in the BOX Order,
the IEX Letter and the Second SIFMA Letter to ensure that the Proposed
Fee Increases are reasonable, equitable, and non-discriminatory, and
that the Commission should find that the Proposed Fee Increases are
consistent with the Act.
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    \23\ See Securities Exchange Act Release No. 85836 (May 10,
2019), 84 FR 22205 (May 16, 2019) (SR-MIAX-2019-23) (the ``Fourth
Proposed Rule Change'') (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule).
    \24\ Id.
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    On May 21, 2019, the Commission issued the Staff Guidance on SRO
Rule Filings Relating to Fees (the ``Guidance'').\25\
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    \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.
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    The Commission received two comment letters on the Fourth Proposed
Rule Change, after the Guidance was released.\26\ The Second IEX Letter
and the Third SIFMA Letter argued that the Exchange did not provide
sufficient information in its Fourth Proposed Rule Change to justify
the Proposed Fee Increases based on the Guidance and the BOX Order. Of
note, however, is that unlike their previous comment letter, the Third
SIFMA Letter did not call for

the Commission to suspend the Fourth Proposed Rule Change. Also,
Healthy Markets did not comment on the Fourth Proposed Rule Change.
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    \26\ See Letter from John Ramsay, Chief Market Policy Officer,
Investors Exchange LLC, to Vanessa Countryman, Acting Secretary,
Commission, dated June 5, 2019 (the ``Second IEX Letter'') and
Letter from Theodore R. Lazo, Managing Director and Associate
General Counsel, and Ellen Greene, Managing Director, SIFMA, to
Vanessa Countryman, Acting Secretary, Commission, dated June 6, 2019
(the ``Third SIFMA Letter'').
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    On June 26, 2019, the Exchange withdrew the Fourth Proposed Rule
Change.\27\
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    \27\ See SR-MIAX-2019-23.
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    The Exchange refiled the Proposed Fee Increases on June 26, 2019,
designating the Proposed Fee Increases immediately effective.\28\ The
Fifth Proposed Rule Change was published for comment in the Federal
Register on July 16, 2019.\29\ The Fifth Proposed Rule Change bolstered
the Exchange's previous cost-based discussion to support its claim that
the Proposed Fee Increases are fair and reasonable because they will
permit recovery of the Exchange's costs and will not result in
excessive pricing or supracompetitive profit, in light of the Guidance
issued by Commission staff subsequent to the Fourth Proposed Rule
Change, and primarily through the inclusion of anticipated revenue
figures associated with the provision of network connectivity services.
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    \28\ See Securities Exchange Act Release No. 86342 (July 10,
2019), 84 FR 34012 (July 16, 2019) (SR-MIAX-2019-31) (the ``Fifth
Proposed Rule Change'').
    \29\ Id.
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    The Commission received three comment letters on the Fifth Proposed
Rule Change.\30\
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    \30\ See Letter from John Ramsay, Chief Market Policy Officer,
IEX, to Vanessa Countryman, Acting Secretary, Commission, dated
August 8, 2019 (``Third IEX Letter''); Letter from Tyler Gellasch,
Executive Director, Healthy Markets, to Vanessa Countryman, Acting
Secretary, Commission, dated August 5, 2019 (``Third Healthy Markets
Letter''); and Letter from Theodore R. Lazo, Managing Director and
Associate General Counsel and Ellen Greene, Managing Director
Financial Services Operations, SIFMA, to Vanessa Countryman, Acting
Secretary, Commission, dated August 5, 2019 (``Fourth SIFMA
Letter'').
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    Neither the Third Healthy Markets Letter nor the Fourth SIFMA
Letter called for the Commission to suspend or disapprove the Proposed
Fee Increases. In fact, the Third Healthy Markets Letter acknowledged
that ``it appears as though MIAX is operating in good faith to provide
what the Commission, its staff, and market participants the information
needed to appropriately assess the filings.'' The Third IEX Letter only
reiterated points from the Second IEX Letter and failed to address any
of the new information in the Fifth Proposed Rule Change concerning the
Exchange's revenue figures, cost allocation or that the Proposed Fee
Increases did not result in excessive pricing or a supracompetitive
profit for the Exchange.
    On August 23, 2019, the Exchange withdrew the Fifth Proposed Rule
Change.\31\
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    \31\ See SR-MIAX-2019-31.
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    The Exchange is now refiling the Proposed Fee Increases to provide
greater detail and clarity concerning the Exchange's cost allocation,
as it pertains to the Exchange's expense relating to the provision of
network connectivity services. The Exchange believes that the Proposed
Fee Increases are consistent with the Act because they (i) are
reasonable, equitably allocated, not unfairly discriminatory, and not
an undue burden on competition; (ii) comply with the BOX Order and the
Guidance; (iii) are supported by evidence (including data and
analysis), constrained by significant competitive forces; and (iv) are
supported by specific information (including quantitative information),
fair and reasonable because they will permit recovery of the Exchange's
costs (less than all) and will not result in excessive pricing or
supracompetitive profit. Accordingly, the Exchange believes that the
Commission should find that the Proposed Fee Increases are consistent
with the Act. The proposed rule change is immediately effective upon
filing with the Commission pursuant to Section 19(b)(3)(A) of the Act.
    The Exchange currently offers various bandwidth alternatives for
connectivity to the Exchange, to its primary and secondary facilities,
consisting of a 1Gb fiber connection, a 10Gb fiber connection, and a
10Gb ULL fiber connection. The 10Gb ULL offering uses an ultra-low
latency switch, which provides faster processing of messages sent to it
in comparison to the switch used for the other types of connectivity.
The Exchange currently assesses the following monthly network
connectivity fees to both Members and non-Members for connectivity to
the Exchange's primary/secondary facility: (a) $1,100 for the 1Gb
connection; (b) $5,500 for the 10Gb connection; and (c) $8,500 for the
10Gb ULL connection. The Exchange also assesses to both Members and
non-Members a monthly per connection network connectivity fee of $500
for each 1Gb connection to the disaster recovery facility and a monthly
per connection network connectivity fee of $2,500 for each 10Gb
connection to the disaster recovery facility.
    The Exchange's MIAX Express Network Interconnect (``MENI'') can be
configured to provide Members and non-Members of the Exchange network
connectivity to the trading platforms, market data systems, test
systems, and disaster recovery facilities of both the Exchange and its
affiliate, MIAX PEARL, via a single, shared connection. Members and
non-Members utilizing the MENI to connect to the trading platforms,
market data systems, test systems and disaster recovery facilities of
the Exchange and MIAX PEARL via a single, shared connection are
assessed only one monthly network connectivity fee per connection,
regardless of the trading platforms, market data systems, test systems,
and disaster recovery facilities accessed via such connection.
    The Exchange proposes to increase the monthly network connectivity
fees for such connections for both Members and non-Members. The network
connectivity fees for connectivity to the Exchange's primary/secondary
facility will be increased as follows: (a) From $1,100 to $1,400 for
the 1Gb connection; (b) from $5,500 to $6,100 for the 10Gb connection;
and (c) from $8,500 to $9,300 for the 10Gb ULL connection. The network
connectivity fees for connectivity to the Exchange's disaster recovery
facility will be increased as follows: (a) From $500 to $550 for the
1Gb connection; and (b) from $2,500 to $2,750 for the 10Gb connection.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \32\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \33\ in
particular, in that it provides for the equitable allocation of
reasonable dues, fees and other charges among Exchange Members and
issuers and other persons using any facility or system which the
Exchange operates or controls. The Exchange also believes the proposal
furthers the objectives of Section 6(b)(5) of the Act \34\ in that it
is designed 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 is not designed to permit unfair
discrimination between customer, issuers, brokers and dealers.
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    \32\ 15 U.S.C. 78f(b).
    \33\ 15 U.S.C. 78f(b)(4).
    \34\ 15 U.S.C. 78f(b)(5).
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    The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and also recognized that current
regulation of the market system

``has been remarkably successful in promoting market competition in its
broader forms that are most important to investors and listed
companies.'' \35\
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    \35\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
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    First, the Exchange believes that its proposal is consistent with
Section 6(b)(4) of the Act, in that the Proposed Fee Increases are
fair, equitable and not unreasonably discriminatory, because the fees
for the connectivity alternatives available on the Exchange, as
proposed to be increased, are constrained by significant competitive
forces. The U.S. options markets are highly competitive (there are
currently 16 options markets) and a reliance on competitive markets is
an appropriate means to ensure equitable and reasonable prices.
    The Exchange acknowledges that there is no regulatory requirement
that any market participant connect to the Exchange, or that any
participant connect at any specific connection speed. The rule
structure for options exchanges are, in fact, fundamentally different
from those of equities exchanges. In particular, options market
participants are not forced to connect to (and purchase market data
from) all options exchanges, as shown by the number of Members of MIAX
as compared to the much greater number of members at other options
exchanges (as further detailed below). Not only does MIAX have less
than half the number of members as certain other options exchanges, but
there are also a number of the Exchange's Members that do not connect
directly to MIAX. Further, of the number of Members that connect
directly to MIAX, many such Members do not purchase market data from
MIAX. There are a number of large market makers and broker-dealers that
are members of other options exchange but not Members of MIAX. For
example, the following are not Members of MIAX: The D. E. Shaw Group,
CTC, XR Trading LLC, Hardcastle Trading AG, Ronin Capital LLC,
Belvedere Trading, LLC, Bluefin Trading, and HAP Capital LLC. In
addition, of the market makers that are connected to MIAX, it is the
individual needs of the market maker that require whether they need one
connection or multiple connections to the Exchange. The Exchange has
market maker Members that only purchase one connection (10Gb or 10Gb
ULL) and the Exchange has market maker Members that purchase multiple
connections. It is all driven by the business needs of the market
maker. Market makers that are consolidators that target resting order
flow tend to purchase more connectivity than market makers that simply
quote all symbols on the Exchange. Even though non-Members purchase and
resell 10Gb and 10Gb ULL connections to both Members and non-Members,
no market makers currently connect to the Exchange indirectly through
such resellers.
    SIFMA's argument that all broker-dealers are required to connect to
all exchanges is not true in the options markets. The options markets
have evolved differently than the equities markets both in terms of
market structure and functionality. For example, there are many order
types that are available in the equities markets that are not utilized
in the options markets, which relate to mid-point pricing and pegged
pricing which require connection to the SIPs and each of the equities
exchanges in order to properly execute those orders in compliance with
best execution obligations. In addition, in the options markets there
is a single SIP (OPRA) versus two SIPs in the equities markets,
resulting in fewer hops and thus alleviating the need to connect
directly to all the options exchanges. Additionally, in the options
markets, the linkage routing and trade through protection are handled
by the exchanges, not by the individual members. Thus not connecting to
an options exchange or disconnecting from an options exchange does not
potentially subject a broker-dealer to violate order protection
requirements as suggested by SIFMA. Gone are the days when the retail
brokerage firms (the Fidelity's, the Schwab's, the eTrade's) were
members of the options exchanges--they are not members of MIAX or its
affiliates, MIAX PEARL and MIAX Emerald, they do not purchase
connectivity to MIAX, and they do not purchase market data from MIAX.
The Exchange recognizes that the decision of whether to connect to the
Exchange is separate and distinct from the decision of whether and how
to trade on the Exchange. The Exchange acknowledges that many firms may
choose to connect to the Exchange, but ultimately not trade on it,
based on their particular business needs.
    To assist prospective Members or firms considering connecting to
MIAX, the Exchange provides information about the Exchange's available
connectivity alternatives in a Connectivity Guide, which contains
detailed specifications regarding, among other things, throughput and
latency for each available connection.\36\ The decision of which type
of connectivity to purchase, or whether to purchase connectivity at all
for a particular exchange, is based on the business needs of the firm.
For example, if the firm wants to receive the top-of-market data feed
product or depth data feed product, due to the amount/size of data
contained in those feeds, such firm would need to purchase either the
10Gb or 10Gb ULL connection. The 1Gb connection is too small to support
those data feed products. MIAX notes that there are twelve (12) Members
that only purchase the 1Gb connectivity alternative. Thus, while there
is a meaningful percentage of purchasers of only 1Gb connections (12 of
33), by definition, those twelve (12) members purchase connectivity
that cannot support the top-of-market data feed product or depth data
feed product and thus they do not purchase such data feed products.
Accordingly, purchasing market data is a business decision/choice, and
thus the pricing for it is constrained by competition.
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    \36\ See the MIAX Connectivity Guide at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Connectivity_Guide_v3.6_01142019.pdf.
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    Contrary to SIFMA's argument, there is competition for connectivity
to MIAX and its affiliates. MIAX competes with nine (9) non-Members who
resell MIAX connectivity. These are resellers of MIAX connectivity--
they are not arrangements between broker-dealers to share connectivity
costs, as SIFMA suggests. Those non-Members resell that connectivity to
multiple market participants over that same connection, including both
Members and non-Members of MIAX (typically extranets and service
bureaus). When connectivity is re-sold by a third-party, MIAX does not
receive any connectivity revenue from that sale. It is entirely between
the third-party and the purchaser, thus constraining the ability of
MIAX to set its connectivity pricing as indirect connectivity is a
substitute for direct connectivity. There are currently nine (9) non-
Members that purchase connectivity to MIAX and/or MIAX PEARL. Those
non-Members resell that connectivity to eleven (11) customers, some of
whom are agency broker-dealers that have tens of customers of their
own. Some of those eleven (11) customers also purchase connectivity
directly from MIAX and/or MIAX PEARL. Accordingly, indirect
connectivity is a viable alternative that is already being used by non-
Members of MIAX, constraining the price that MIAX is able to charge for
connectivity to its Exchange.

    The Exchange \37\ and MIAX PEARL \38\ are comprised of 41 distinct
Members between the two exchanges, excluding any additional affiliates
of such Members that are also Members of MIAX, MIAX PEARL, or both. Of
those 41 distinct Members, 33 Members have purchased the 1Gb, 10Gb,
10Gb ULL connections or some combination of multiple various
connections. Furthermore, every Member who has purchased at least one
connection also trades on the Exchange, MIAX PEARL, or both. The 8
remaining Members who have not purchased any connectivity to the
Exchange are still able to trade on the Exchange indirectly through
other Members or non-Member service bureaus that are connected. These 8
Members who have not purchased connectivity are not forced or compelled
to purchase connectivity, and they retain all of the other benefits of
Membership with the Exchange. Accordingly, Members have the choice to
purchase connectivity and are not compelled to do so in any way.
---------------------------------------------------------------------------

    \37\ The Exchange has 38 distinct Members, excluding affiliated
entities. See MIAX Exchange Member Directory, available at https://www.miaxoptions.com/exchange-members.
    \38\ MIAX PEARL has 36 distinct Members, excluding affiliated
entities. See MIAX PEARL Exchange Member Directory, available at
https://www.miaxoptions.com/exchange-members/pearl.
---------------------------------------------------------------------------

    The Exchange believes that the Proposed Fee Increases are fair,
equitable and not unreasonably discriminatory because the connectivity
pricing is associated with relative usage of the various market
participants and does not impose a barrier to entry to smaller
participants. Accordingly, the Exchange offers three direct
connectivity alternatives and various indirect connectivity (via third-
party) alternatives, as described above. MIAX recognizes that there are
various business models and varying sizes of market participants
conducting business on the Exchange. The 1Gb direct connectivity
alternative is 1/10th the size of the 10Gb direct connectivity
alternative. Because it is 1/10th of the size, it does not offer access
to many of the products and services offered by the Exchange, such as
the ability to quote or receive certain market data products. Thus, the
value of the 1Gb alternative is much lower than the value of a 10Gb
alternative, when measured based on the type of Exchange access it
offers, which is the basis for difference in price between a 1Gb
connection and a 10Gb connection. Approximately just less than half of
MIAX and MIAX PEARL Members that connect (14 out of 33) purchase 1Gb
connections. The 1Gb direct connection can support the sending of
orders and the consumption of all market data feed products, other than
the top-of-market data feed product or depth data feed product (which
require a 10Gb connection). The 1Gb direct connection is generally
purchased by market participants that utilize less bandwidth and,
therefore, consume less resources from the network. The market
participants that purchase 10Gb ULL direct connections utilize the most
bandwidth, and those are the participants that consume the most
resources from the network. Accordingly, the Exchange believes the
allocation of the Proposed Fee Increases ($9,300 for a 10Gb ULL
connection versus $1,400 for a 1Gb connection) are reasonable based on
the network resources consumed by the market participants--lowest
bandwidth consuming members pay the least, and highest bandwidth
consuming members pays the most, particularly since higher bandwidth
consumption translates to higher costs to the Exchange. The 10Gb ULL
connection offers optimized connectivity for latency sensitive
participants and is approximately single digit microseconds faster in
round trip time for connection oriented traffic to the Exchange than
the 10Gb connection. This lower latency is achieved through more
advanced network equipment, such as advanced hardware and switching
components, which translates to increased costs to the Exchange. Market
participants that are less latency sensitive can purchase 10Gb direct
connections and quote in all products on the Exchange and consume all
market data feeds, and such 10Gb direct connections are priced lower
than the 10Gb ULL direct connections, offering smaller sized market
makers a lower cost alternative.
    With respect to options trading, the Exchange had only a 3.61%
market share of the U.S. options industry in July 2019 in Equity/ETF
classes according to the OCC.\39\ For July 2019, the Exchange's
affiliate, MIAX PEARL, had only a 5.08% market share of the U.S.
options industry in Equity/ETF classes according to the OCC.\40\ For
July 2019, the Exchange's affiliate, MIAX Emerald, had only a 0.68%
market share of the U.S. options industry in Equity/ETF classes
according to the OCC.\41\ The Exchange is not aware of any evidence
that a combined market share of less than 10% provides the Exchange
with anti-competitive pricing power. This, in addition to the fact that
not all broker-dealers are required to connect to all options
exchanges, supports the Exchange's conclusion that its pricing is
constrained by competition.
---------------------------------------------------------------------------

    \39\ See Exchange Market Share of Equity Products--2019, The
Options Clearing Corporation, available at https://www.theocc.com/webapps/exchange-volume.
    \40\ Id.
    \41\ Id.
---------------------------------------------------------------------------

    Separately, the Exchange is not aware of any reason why market
participants could not simply drop their connections and cease being
Members of the Exchange if the Exchange were to establish unreasonable
and uncompetitive price increases for its connectivity alternatives.
Market participants choose to connect to a particular exchange and
because it is a choice, MIAX must set reasonable connectivity pricing,
otherwise prospective members would not connect and existing members
would disconnect or connect through a third-party reseller of
connectivity. No options market participant is required by rule,
regulation, or competitive forces to be a Member of the Exchange. As
evidence of the fact that market participants can and do disconnect
from exchanges based on connectivity pricing, see the R2G Services LLC
(``R2G'') letter based on BOX's proposed rule changes to increase its
connectivity fees (SR-BOX-2018-24, SR-BOX-2018-37, and SR-BOX-2019-
04).\42\ The R2G Letter stated, ``[w]hen BOX instituted a $10,000/month
price increase for connectivity; we had no choice but to terminate
connectivity into them as well as terminate our market data
relationship. The cost benefit analysis just didn't make any sense for
us at those new levels.'' Accordingly, this example shows that if an
exchange sets too high of a fee for connectivity and/or market data
services for its relevant marketplace, market participants can choose
to disconnect from the exchange.
---------------------------------------------------------------------------

    \42\ See Letter from Stefano Durdic, R2G, to Vanessa Countryman,
Acting Secretary, Commission, dated March 27, 2019 (the ``R2G
Letter'').
---------------------------------------------------------------------------

    Several market participants choose not to be Members of the
Exchange and choose not to access the Exchange, and several market
participants also access the Exchange indirectly through another market
participant. To illustrate, the Exchange has only 45 Members (including
all such Members' affiliate Members). However, Cboe Exchange, Inc.
(``Cboe'') has over 200 members,\43\

Nasdaq ISE, LLC has approximately 100 members,\44\ and NYSE American
LLC has over 80 members.\45\ If all market participants were required
to be Members of the Exchange and connect directly to the Exchange, the
Exchange would have over 200 Members, in line with Cboe's total
membership. But it does not. The Exchange only has 45 Members
(inclusive of Members' affiliates).
---------------------------------------------------------------------------

    \43\ See Form 1/A, filed August 30, 2018 (https://www.sec.gov/Archives/edgar/vprr/1800/18002831.pdf); Form 1/A, filed August 30,
2018 (https://www.sec.gov/Archives/edgar/vprr/1800/18002833.pdf);
Form 1/A, filed July 24, 2018 (https://www.sec.gov/Archives/edgar/vprr/1800/18002781.pdf); Form 1/A, filed August 30, 2018 (https://www.sec.gov/Archives/edgar/data/1473845/999999999718007832/9999999997-18-007832-index.htm).
    \44\ See Form 1/A, filed July 1, 2016 (https://www.sec.gov/Archives/edgar/vprr/1601/16019243.pdf).
    \45\ See https://www.nyse.com/markets/american-options/membership#directory.
---------------------------------------------------------------------------

    The Exchange finds it compelling that all of the Exchange's
existing Members continued to purchase the Exchange's connectivity
services during the period for which the Proposed Fee Increases took
effect in August 2018, particularly in light of the R2G disconnection
example cited above.\46\ In particular, the Exchange believes that the
Proposed Fee Increases are reasonable because the Exchange did not lose
any Members (or the number of connections each Member purchased) or
non-Member connections due to the Exchange increasing its connectivity
fees through the First Proposed Rule Change, which fee increase became
effective August 1, 2018. For example, in July 2018, fourteen (14)
Members purchased 1Gb connections, ten (10) Members purchased 10Gb
connections, and fifteen (15) Members purchased 10Gb ULL connections.
(The Exchange notes that 1Gb connections are purchased primarily by EEM
Members; 10Gb ULL connections are purchased primarily by higher volume
Market Makers quoting all products across both MIAX and MIAX PEARL; and
10Gb connections are purchased by higher volume EEMs and lower volume
Market Makers.) The vast majority of those Members purchased multiple
such connections with the actual number of connections depending on the
Member's throughput requirements based on the volume of their quote/
order traffic and market data needs associated with their business
model. After the fee increase, beginning August 1, 2018, the same
number of Members purchased the same number of connections.\47\
Furthermore, the total number of connections did not decrease from July
to August 2018, and in fact one Member even purchased two (2)
additional 10Gb ULL connections in August 2018, after the fee increase.
---------------------------------------------------------------------------

    \46\ See supra note 42.
    \47\ The Exchange notes that one Member downgraded one
connection in July of 2018, however such downgrade was done well
ahead of notice of the Proposed Fee Increase and was the result of a
change to the Member's business operation that was completely
independent of, and unrelated to, the Proposed Fee Increases.
---------------------------------------------------------------------------

    Also, in July 2018, four (4) non-Members purchased 1Gb connections,
two (2) non-Members purchased 10Gb connections, and one (1) non-Member
purchased 10Gb ULL connections. After the fee increase, beginning
August 1, 2018, the same non-Members purchased the same number of
connections across all available alternatives and two (2) additional
non-Members purchased three (3) more connections after the fee
increase. These non-Members freely purchased their connectivity with
the Exchange in order to offer trading services to other firms and
customers, as well as access to the market data services that their
connections to the Exchange provide them, but they are not required or
compelled to purchase any of the Exchange's connectivity options. MIAX
did not experience any noticeable change (increase or decrease) in
order flow sent by its market participants as a result of the fee
increase.
    Of those Members and non-Members that bought multiple connections,
no firm dropped any connections beginning August 1, 2018, when the
Exchange increased its fees. Nor did the Exchange lose any Members.
Furthermore, the Exchange did not receive any comment letters or
official complaints from any Member or non-Member purchaser of
connectivity regarding the increased fees regarding how the fee
increase was unreasonable, unduly burdensome, or would negatively
impact their competitiveness amongst other market participants. These
facts, coupled with the discussion above, showing that it is not
necessary to join and/or connect to all options exchanges and market
participants can disconnect if pricing is set too high (the R2G
example),\48\ demonstrate that the Exchange's fees are constrained by
competition and are reasonable and not contrary to the Law of Demand as
SIFMA suggests. Therefore, the Exchange believes that the Proposed Fee
Increases are fair, equitable, and non-discriminatory, as the fees are
competitive.
---------------------------------------------------------------------------

    \48\ See supra note 42.
---------------------------------------------------------------------------

    The Exchange believes that the Proposed Fee Increases are equitably
allocated among Members and non-Members, as evidenced by the fact that
the fee increases are allocated across all connectivity alternatives,
and there is not a disproportionate number of Members purchasing any
alternative--fourteen (14) Members purchased 1Gb connections, ten (10)
Members purchased 10Gb connections, fifteen (15) Members purchased 10Gb
ULL connections, four (4) non-Members purchased 1Gb connections, two
(2) non-Members purchased 10Gb connections, and one (1) non-Member
purchased 10Gb ULL connections. The Exchange recognizes that the
relative fee increases are 27% for the 1Gb connection, 10.9% for the
10Gb connection, and 9.4% for the 10Gb ULL connection, but the Exchange
believes that percentage increase differentiation is appropriate, given
the different levels of service provided and the largest percentage
increase being associated with the lowest cost connection. Further, the
Exchange believes that the fees are reasonably allocated as the users
of the higher bandwidth connections consume the most resources of the
Exchange's network. It is these firms that also account for the vast
majority of the Exchange's trading volume. The purchasers of the 10Gb
ULL connectivity account for approximately 74% of the volume on the
Exchange. For example, for all of July 2019, approximately 5.2 million
contracts of the 7.0 million contracts executed were done by the top
market making firms on the Exchange in simple (non-complex) volume.
    Second, the Exchange believes that its proposal is consistent with
Section 6(b)(4) of the Act because the Proposed Fee Increases will
permit recovery of the Exchange's costs and will not result in
excessive pricing or supracompetitive profit. The Proposed Fee
Increases will allow the Exchange to recover a portion (less than all)
of the increased costs incurred by the Exchange associated with
providing and maintaining the necessary hardware and other network
infrastructure to support this technology since it last filed to
increase its connectivity fees in December 2016, which became effective
on January 1, 2017.\49\ Put simply, the costs of the Exchange to
provide these services have increased considerably over this time, as
more fully-detailed and quantified below. The Exchange believes that it
is reasonable and appropriate to increase its fees charged for use of
its connectivity to partially offset the increased costs the Exchange
incurred during this time associated with maintaining and enhancing a
state-of-the-art exchange network infrastructure in the U.S. options
industry.
---------------------------------------------------------------------------

    \49\ See Securities Exchange Act Release No. 79666 (December 22,
2016), 81 FR 96133 (December 29, 2016) (SR-MIAX-2016-47) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule To Modify the Exchange's Connectivity Fees).
---------------------------------------------------------------------------

    In particular, the Exchange's increased costs associated with
supporting its network are due to

several factors, including increased costs associated with maintaining
and expanding a team of highly-skilled network engineers (the Exchange
also hired additional network engineering staff in 2017 and 2018),
increasing fees charged by the Exchange's third-party data center
operator, and costs associated with projects and initiatives designed
to improve overall network performance and stability, through the
Exchange's research and development (``R&D'') efforts.
    In order to provide more detail and to quantify the Exchange's
increased costs, the Exchange notes that increased costs are associated
with the infrastructure and increased headcount to fully-support the
advances in infrastructure and expansion of network level services,
including customer monitoring, alerting and reporting. Additional
technology expenses were incurred related to expanding its Information
Security services, enhanced network monitoring and customer reporting,
as well as Regulation SCI mandated processes associated with network
technology. All of these additional expenses have been incurred by the
Exchange since it last increased its connectivity fees on January 1,
2017.
    Additionally, while some of the expense is fixed, much of the
expense is not fixed, and thus increases as the number of connections
increase. For example, new 1Gb, 10Gb, and 10Gb ULL connections require
the purchase of additional hardware to support those connections as
well as enhanced monitoring and reporting of customer performance that
MIAX and its affiliates provide. And 10Gb ULL connections require the
purchase of specialized, more costly hardware. Further, as the total
number of all connections increase, MIAX and its affiliates 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 MIAX and its affiliates is not entirely fixed.
Just the initial fixed cost buildout of the network infrastructure of
MIAX and its affiliates, including both primary/secondary sites and
disaster recovery, was over $30 million. These costs have increased
over 10% since the last time the Exchange increased its connectivity
fees on January 1, 2017. As these network connectivity-related expenses
increase, MIAX and its affiliates look to offset those costs through
increased connectivity fees.
    A more detailed breakdown of the expense increases since January 1,
2017 include an approximate 70% increase in technology-related
personnel costs in infrastructure, due to expansion of services/support
(increase of approximately $800,000); an approximate 10% increase in
data center costs due to price increases and footprint expansion
(increase of approximately $500,000); an approximate 5% increase in
vendor-supplied dark fiber due to price increases and expanded
capabilities (increase of approximately $25,000); and a 30% increase in
market data connectivity fees (increase of approximately $200,000). Of
note, regarding market data connectivity fee increased cost, this is
the cost associated with the Exchange consuming connectivity/content
from the equities markets in order to operate the Exchange, causing the
Exchange to effectively pay its competitors for this connectivity.
While the Exchange and MIAX PEARL have incurred a total increase in
connectivity expenses since January 2017 (the last time connectivity
fees were raised) of approximately $1.5 million per year (as described
above), the total increase in connectivity revenue amount as a result
of the Proposed Fee Increases is projected to be approximately $1.2
million per year for MIAX and MIAX PEARL. Accordingly, the total
projected MIAX and MIAX PEARL connectivity revenue as a result of the
proposed increase, on an annualized basis, is less than the total
annual actual MIAX and MIAX PEARL connectivity expense. Accordingly,
the Proposed Fee Increases are fair and reasonable because they will
not result in excessive pricing or supracompetitive profit, when
comparing the increase in actual costs to the Exchange (since January
2017) versus the projected increase in annual revenue.
    The Exchange also incurred additional significant capital
expenditures over this same period to upgrade and enhance the
underlying technology components, as more fully-detailed below.
    Further, because the costs of operating a data center are
significant and not economically feasible for the Exchange, the
Exchange does not operate its own data centers, and instead contracts
with a third-party data center provider. The Exchange notes that
larger, dominant exchange operators own and operate their data centers,
which offers them greater control over their data center costs. Because
those exchanges own and operate their data centers as profit centers,
the Exchange is subject to additional costs. As a result, the Exchange
is subject to fee increases from its data center provider, which the
Exchange experienced in 2017 and 2018 of approximately 10%, as cited
above. Connectivity fees, which are charged for accessing the
Exchange's data center network infrastructure, are directly related to
the network and offset such costs.
    Further, the Exchange invests significant resources in network R&D,
which are not included in direct expenses to improve the overall
performance and stability of its network. For example, the Exchange has
a number of network monitoring tools (some of which were developed in-
house, and some of which are licensed from third-parties), that
continually monitor, detect, and report network performance, many of
which serve as significant value-adds to the Exchange's Members and
enable the Exchange to provide a high level of customer service. These
tools detect and report performance issues, and thus enable the
Exchange to proactively notify a Member (and the SIPs) when the
Exchange detects a problem with a Member's connectivity. The costs
associated with the maintenance and improvement of existing tools and
the development of new tools resulted in significant increased cost to
the Exchange since January 1, 2017 and are loss leaders for the
Exchange to provide these added benefits for Members and non-Members.
    Certain recently developed network aggregation and monitoring tools
provide the Exchange with the ability to measure network traffic with a
much more granular level of variability. This is important as Exchange
Members demand a higher level of network determinism and the ability to
measure variability in terms of single digit nanoseconds. Also, the
Exchange routinely conducts R&D projects to improve the performance of
the network's hardware infrastructure. As an example, in the last year,
the Exchange's R&D efforts resulted in a performance improvement,
requiring the purchase of new equipment to support that improvement,
and thus resulting in increased costs in the hundreds of thousands of
dollars range. In sum, the costs associated with maintaining and
enhancing a state-of-the-art exchange network infrastructure in the
U.S. options industry is a significant expense for the Exchange that
continues to increase, and thus the Exchange believes that it is
reasonable to offset a portion of those increased costs by increasing
its network connectivity fees, as proposed herein. The Exchange invests
in and offers a superior network infrastructure as part of its overall
options exchange services offering, resulting in significant costs
associated with maintaining this

network infrastructure, which are directly tied to the amount of the
connectivity fees that must be charged to access it, in order to
recover those costs. As detailed in the Exchange's 2018 audited
financial statements which are publicly available as part of the
Exchange's Form 1 Amendment, the Exchange only has four primary sources
of revenue: Transaction fees, access fees (of which network
connectivity constitutes the majority), regulatory fees, and market
data fees. Accordingly, the Exchange must cover all of its expenses
from these four primary sources of revenue.
    The Proposed Fee Increases are fair and reasonable because they
will not result in excessive pricing or supracompetitive profit, when
comparing the total annual expense of MIAX and MIAX PEARL associated
with providing network connectivity services versus the total projected
annual revenue of both exchanges collected for providing network
connectivity services. For 2018, the total annual expense associated
with providing network connectivity services (that is, the shared
network connectivity of MIAX and MIAX PEARL, but excluding MIAX
Emerald) was approximately $19.3 million. The $19.3 million in total
annual expense is comprised of the following, all of which is directly
related to the provision of network connectivity services by MIAX and
MIAX PEARL to their respective Members and non-Members: (1) Third-party
expense, relating to fees paid by MIAX and MIAX PEARL to third-parties
for certain products and services; and (2) internal expense, relating
to the internal costs of MIAX and MIAX PEARL to provide the network
connectivity services. All such expenses are more fully-described
below, and are mapped to the MIAX and MIAX PEARL 2018 Statements of
Operations and Member's Deficit (the ``2018 Financial Statements'')
which are filed with the Commission as part of the Form 1 Amendments of
MIAX and MIAX PEARL, and are available to the public.
    For 2018, total third-party expense, relating to fees paid by MIAX
and MIAX PEARL to third-parties for certain products and services for
the Exchange to be able to provide network connectivity services, was
$5,052,346. This includes, but is not limited to, a portion of the fees
paid to: (1) Equinix, for data center services, for the primary,
secondary, and disaster recovery locations of the MIAX and MIAX PEARL
trading system infrastructure; (2) Zayo Group Holdings, Inc. (``Zayo'')
for connectivity services (fiber and bandwidth connectivity) linking
MIAX and MIAX PEARL office locations in Princeton, NJ and Miami, FL to
all data center locations; (3) Secure Financial Transaction
Infrastructure (``SFTI''), which supports connectivity and feeds for
the entire U.S. options industry; (4) various other services providers
(including Thompson Reuters, NYSE, Nasdaq, and Internap), which provide
content, connectivity services, and infrastructure services for
critical components of options connectivity; and (5) various other
hardware and software providers (including Dell and Cisco, which
support the production environment in which Members and non-Members
connect to the network to trade, receive market data, etc.).
    All of the third-party expense described above is contained in the
information technology and communication costs line item under the
section titled ``Operating Expenses Incurred Directly or Allocated From
Parent'' of the 2018 Financial Statements. For clarity, only a portion
of all fees paid to such third-parties is included in the third-party
expense herein (only the portion of the expense relating to the
provision of network connectivity services). Accordingly, MIAX and MIAX
PEARL do not allocate their entire information technology and
communication costs to the provision of network connectivity services.
    For 2018, total internal expense, relating to the internal costs of
MIAX and MIAX PEARL to provide the network connectivity services, was
$14,271,870. This includes, but is not limited to, costs associated
with: (1) Employee compensation and benefits for full-time employees
that support network connectivity services, including staff in network
operations, trading operations, development, system operations,
business, etc., as well as staff in general corporate departments (such
as legal, regulatory, and finance) that support those employees and
functions; (2) depreciation and amortization of hardware and software
used to provide network connectivity services, including equipment,
servers, cabling, purchased software and internally developed software
used in the production environment to support the provision of network
connectivity for trading; and (3) occupancy costs for leased office
space for staff that support the provision of network connectivity
services. The breakdown of these costs is more fully-described below.
    All of the internal expenses described above are contained in the
following line items under the section titled ``Operating Expenses
Incurred Directly or Allocated From Parent'' in the 2018 Financial
Statements: (1) Employee compensation and benefits; (2) Depreciation
and amortization; and (3) Occupancy costs. For clarity, only a portion
of all such internal expenses are included in the internal expense
herein (only the portion of the expense relating to the provision of
network connectivity services). Accordingly, MIAX and MIAX PEARL do not
allocate their entire costs contained in those line items to the
provision of network connectivity services.
    MIAX's and MIAX PEARL's employee compensation and benefits expense
relating to providing network connectivity services was $5,264,151,
which is only a portion of the $11,997,098 (for MIAX) and $8,545,540
(for MIAX PEARL) total expense for employee compensation and benefits
that is stated in the 2018 Financial Statements. MIAX's and MIAX
PEARL's depreciation and amortization expense relating to providing
network connectivity services was $8,269,048, which is only a portion
of the $6,179,506 (for MIAX) and $4,783,245 (for MIAX PEARL) total
expense for depreciation and amortization that is stated in the 2018
Financial Statements. MIAX's and MIAX PEARL's combined occupancy
expense relating to providing network connectivity services was
$738,669, which is only a portion of the $945,431 (for MIAX) and
$581,783 (for MIAX PEARL) total expense for occupancy that is stated in
the 2018 Financial Statements.
    Accordingly, the total projected MIAX and MIAX PEARL combined
revenue for providing network connectivity services, reflective of the
proposed increase, on an annualized basis, of $14.5 million, is less
than total annual actual MIAX and MIAX PEARL combined expense for
providing network connectivity services during 2018 of approximately
$19.3 million. MIAX and MIAX PEARL project comparable combined expenses
for providing network connectivity services for 2019, as compared to
2018.
    For the avoidance of doubt, none of the expenses included herein
relating to the provision of network connectivity services relate to
the provision of any other services offered by MIAX and MIAX PEARL.
    Accordingly, the Proposed Fee Increases are fair and reasonable
because they do not result in excessive pricing or supracompetitive
profit, when comparing the actual network connectivity costs to the
Exchange versus the projected network connectivity annual revenue,
including the increased amount. Additional information on overall
revenue and expense of the Exchange can be found

in the Exchange's 2018 Financial Statements, which are publicly
available as part of the Exchange's Form 1 Amendment filed with the
Commission on June 30, 2019.
    The Exchange notes that other exchanges have similar connectivity
alternatives for their participants, including similar low-latency
connectivity. For example, Nasdaq PHLX LLC (``Phlx''), NYSE Arca, Inc.
(``Arca''), NYSE American LLC (``NYSE American'') and Nasdaq ISE, LLC
(``ISE'') all offer a 1Gb, 10Gb and 10Gb low latency ethernet
connectivity alternatives to each of their participants.\50\ The
Exchange further notes that Phlx, ISE, Arca and NYSE American each
charge higher rates for such similar connectivity to primary and
secondary facilities.\51\ While MIAX's proposed connectivity fees are
substantially lower than the fees charged by Phlx, ISE, Arca and NYSE
American, MIAX believes that it offers significant value to Members
over other exchanges in terms of network monitoring and reporting,
which MIAX believes is a competitive advantage, and differentiates its
connectivity versus connectivity to other exchanges. Additionally, the
Exchange's proposed connectivity fees to its disaster recovery facility
are within the range of the fees charged by other exchanges for similar
connectivity alternatives.\52\
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    \50\ See Phlx and ISE Rules, General Equity and Options Rules,
General 8, Section 1(b). Phlx and ISE each charge a monthly fee of
$2,500 for each 1Gb connection, $10,000 for each 10Gb connection and
$15,000 for each 10Gb Ultra connection, which the equivalent of the
Exchange's 10Gb ULL connection. See also NYSE American Fee Schedule,
Section V.B, and Arca Fees and Charges, Co-Location Fees. NYSE
American and Arca each charge a monthly fee of $5,000 for each 1Gb
circuit, $14,000 for each 10Gb circuit and $22,000 for each 10Gb LX
circuit, which the equivalent of the Exchange's 10Gb ULL connection.
    \51\ Id.
    \52\ See Nasdaq ISE, Options Rules, Options 7, Pricing Schedule,
Section 11.D. (charging $3,000 for disaster recovery testing &
relocation services); see also Cboe Exchange, Inc. (``Cboe'') Fees
Schedule, p. 14, Cboe Command Connectivity Charges (charging a
monthly fee of $2,000 for a 1Gb disaster recovery network access
port and a monthly fee of $6,000 for a 10Gb disaster recovery
network access port).
---------------------------------------------------------------------------

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

    MIAX does not believe that the proposed rule changes will impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act.
Intra-Market Competition
    The Exchange does not believe that the proposed rule change would
place certain market participants at the Exchange at a relative
disadvantage compared to other market participants or affect the
ability of such market participants to compete. In particular, the
Exchange has received no official complaints from Members, non-Members
(extranets and service bureaus), third-parties that purchase the
Exchange's connectivity and resell it, and customers of those
resellers, that the Exchange's fees or the Proposed Fee Increases are
negatively impacting or would negatively impact their abilities to
compete with other market participants or that they are placed at a
disadvantage.
    The Exchange believes that the Proposed Fee Increases do not place
certain market participants at a relative disadvantage to other market
participants because the connectivity pricing is associated with
relative usage of the various market participants and does not impose a
barrier to entry to smaller participants. As described above, the less
expensive 1Gb direct connection is generally purchased by market
participants that utilize less bandwidth. The market participants that
purchase 10Gb ULL direct connections utilize the most bandwidth, and
those are the participants that consume the most resources from the
network. Accordingly, the Proposed Fee Increases do not favor certain
categories of market participants in a manner that would impose a
burden on competition; rather, the allocation of the Proposed Fee
Increases reflects the network resources consumed by the various size
of market participants--lowest bandwidth consuming members pay the
least, and highest bandwidth consuming members pays the most,
particularly since higher bandwidth consumption translates to higher
costs to the Exchange.
Inter-Market Competition
    The Exchange believes the Proposed Fee Increases do not place an
undue burden on competition on other SROs that is not necessary or
appropriate. In particular, options market participants are not forced
to connect to (and purchase market data from) all options exchanges, as
shown by the number of Members of MIAX as compared to the much greater
number of members at other options exchanges (as described above). Not
only does MIAX have less than half the number of members as certain
other options exchanges, but there are also a number of the Exchange's
Members that do not connect directly to MIAX. There are a number of
large market makers and broker-dealers that are members of other
options exchange but not Members of MIAX. Additionally, other exchanges
have similar connectivity alternatives for their participants,
including similar low-latency connectivity, but with much higher rates
to connect.\53\ The Exchange is also unaware of any assertion that its
existing fee levels or the Proposed Fee Increases would somehow unduly
impair its competition with other options exchanges. To the contrary,
if the fees charged are deemed too high by market participants, they
can simply disconnect.
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    \53\ See supra note 50.
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    While the Exchange recognizes the distinction between connecting to
an exchange and trading at the exchange, the Exchange notes that it
operates in a highly competitive options market in which market
participants can readily connect and trade with venues they desire. In
such an environment, the Exchange must continually adjust its fees to
remain competitive with other exchanges. The Exchange believes that the
proposed changes reflect this competitive environment.

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. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act,\54\ and Rule 19b-4(f)(2)\55\ thereunder. At
any time within 60 days of the filing of the proposed rule change, the
Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act. If the Commission takes such
action, the Commission shall institute proceedings to determine whether
the proposed rule should be approved or disapproved.
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    \54\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \55\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-MIAX-2019-38 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-MIAX-2019-38. 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-MIAX-2019-38 and should be submitted on
or before September 27, 2019.
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    \56\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-19221 Filed 9-5-19; 8:45 am]
 BILLING CODE 8011-01-P