[Federal Register Volume 87, Number 6 (Monday, January 10, 2022)]
[Notices]
[Pages 1203-1216]
[FR Doc No: 2022-00153]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93894; File No. SR-PEARL-2021-58]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
Pearl Options Fee Schedule To Increase the Monthly Fees for MIAX
Express Network Full Service Port

January 4, 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 December 21, 2021, MIAX PEARL, LLC (``MIAX Pearl'' 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 Pearl Options
Fee Schedule (the ``Fee Schedule'') to amend the fees for the
Exchange's MIAX Express Network Full Service (``MEO'') \3\ Ports.
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    \3\ ``MEO Interface'' or ``MEO'' means a binary order interface
for certain order types as set forth in Rule 516 into the MIAX Pearl
System. See the Definitions Section of the Fee Schedule and Exchange
Rule 100.
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    The text of the proposed rule change is available on the Exchange's
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX
Pearl's principal office, and at the Commission's Public Reference
Room.

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

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

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule to increase the
fees for its Full Service MEO Ports, Bulk and Single (the ``Proposed
Access Fees''), which allow Members \4\ to submit electronic orders in
all products to the Exchange. The Exchange initially filed this
proposal on July 1, 2021, with the proposed fee changes being
immediately effective (``First Proposed Rule Change'').\5\ The First
Proposed Rule Change was published for comment in the Federal Register
on July 15, 2021.\6\ The Commission received one comment letter on the
First Proposed Rule Change \7\ and subsequently suspended the Frist
Proposed Rule Change on August 27, 2021.\8\ The Exchange withdrew First
Proposed Rule Change on October 12, 2021 and re-submitted the proposal
on November 1, 2021, with the proposed fee changes being immediately
effective (``Second Proposed Rule Change'').\9\ The Second Proposed
Rule Change provided additional justification for the proposed fee
changes and addressed certain points raised in the single comment
letter that was submitted on the First Proposed Rule Change. The Second
Proposed Rule Change was published for comment in the Federal Register
on November 17, 2021.\10\ The Commission received no comment letters on
the Second Proposed Rule Change. Nonetheless, the Exchange withdrew the
Second Proposed Rule Change on December 20, 2021 and now submits this
proposal for immediate effectiveness (``Third Proposed Rule Change'').
This Third Proposed Rule Change meaningfully attempts to provide
additional justification and

explanation for the proposed fee changes, directly respond again to the
points raised in the single comment letter submitted on the First
Proposed Rule Change, and be responsive to feedback provided by
Commission Staff during a telephone conversation on November 18, 2021
relating to the Second Proposed Rule Change.
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    \4\ ``Member'' means an individual or organization that is
registered with the Exchange pursuant to Chapter II of Exchange
Rules for purposes of trading on the Exchange as an ``Electronic
Exchange Member'' or ``Market Maker.'' Members are deemed
``members'' under the Exchange Act. See the Definitions Section of
the Fee Schedule and Exchange Rule 100.
    \5\ See Securities Exchange Act Release No. 92365 (July 9,
2021), 86 FR 37347 (July 15, 2021) (SR-PEARL-2021-33).
    \6\ See id.
    \7\ See Letter from Richard J. McDonald, Susquehanna
International Group, LLC (``SIG''), to Vanessa Countryman,
Secretary, Commission, dated September 7, 2021 (``SIG Letter'').
    \8\ See Securities Exchange Act Release No. 92798 (August 27,
2021), 86 FR 49360 (September 2, 2021).
    \9\ See Securities Exchange Act Release No. 93556 (November 10,
2021), 86 FR 64235 (November 17, 2021) (SR-PEARL-2021-53).
    \10\ See id.
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Full Service MEO Port Fee Changes
    The Exchange currently offers different types of MEO Ports
depending on the services required by the Member, including a Full
Service MEO Port-Bulk,\11\ a Full Service MEO Port-Single,\12\ and a
Limited Service MEO Port.\13\ For one monthly price, a Member may be
allocated two (2) Full-Service MEO Ports of either type per matching
engine \14\ and may request Limited Service MEO Ports for which MIAX
Pearl will assess Members Limited Service MEO Port fees per matching
engine based on a sliding scale for the number of Limited Service MEO
Ports utilized each month. The two (2) Full-Service MEO Ports that may
be allocated per matching engine to a Member may consist of: (a) Two
(2) Full Service MEO Ports--Bulk; (b) two (2) Full Service MEO Ports--
Single; or (c) one (1) Full Service MEO Port--Bulk and one (1) Full
Service MEO Port--Single.
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    \11\ ``Full Service MEO Port--Bulk'' means an MEO port that
supports all MEO input message types and binary bulk order entry.
See the Definitions Section of the Fee Schedule.
    \12\ ``Full Service MEO Port--Single'' means an MEO port that
supports all MEO input message types and binary order entry on a
single order-by-order basis, but not bulk orders. See the
Definitions Section of the Fee Schedule.
    \13\ ``Limited Service MEO Port'' means an MEO port that
supports all MEO input message types, but does not support bulk
order entry and only supports limited order types, as specified by
the Exchange via Regulatory Circular. See the Definitions Section of
the Fee Schedule.
    \14\ A ``Matching Engine'' is a part of the MIAX Pearl
electronic system that processes options orders and trades on a
symbol-by-symbol basis. Some Matching Engines will process option
classes with multiple root symbols, and other Matching Engines may
be dedicated to one single option root symbol. A particular root
symbol may only be assigned to a single designated Matching Engine.
A particular root symbol may not be assigned to multiple Matching
Engines. See the Definitions Section of the Fee Schedule.
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    Unlike other options exchanges that provide similar port
functionality and charge fees on a per port basis,\15\ the Exchange
offers Full Service MEO Ports as a package and provides Members with
the option to receive up to two Full Service MEO Ports (described
above) per matching engine to which that Member connects. The Exchange
currently has twelve (12) matching engines, which means Members may
receive up to twenty-four (24) Full Service MEO Ports for a single
monthly fee, that can vary based on certain volume percentages, as
described below. For illustrative purposes and as described in more
detail below, the Exchange currently assesses a fee of $5,000 per month
for Members that reach the highest Full Service MEO Port--Bulk Tier,
regardless of the number of Full Service MEO Ports allocated to the
Member. For example, assuming a Member connects to all twelve (12)
matching engines during a month, with two Full Service MEO Ports per
matching engine, this results in a cost of $208.33 per Full Service MEO
Port ($5,000 divided by 24) for the month. This fee has been unchanged
since the Exchange adopted Full Service MEO Port fees in 2018.\16\ The
Exchange now proposes to increase Full Service MEO Port fees as further
described below, with the highest monthly fee of $10,000 for the Full
Service MEO Port--Bulk. Members will continue to receive two (2) Full
Service MEO Ports to each matching engine to which they connect for the
single flat monthly fee. Assuming a Member connects to all twelve (12)
matching engines during the month, with two Full Service MEO Ports per
matching engine, this would result in a cost of $416.67 per Full
Service MEO Port ($10,000 divided by 24).
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    \15\ See NYSE American Options Fee Schedule, Section V.A., Port
Fees (each port charged on a per matching engine basis, with NYSE
American having 17 match engines). See NYSE Technology FAQ and Best
Practices: Options, Section 5.1 (How many matching engines are used
by each exchange?) (September 2020) (providing a link to an Excel
file detailing the number of matching engines per options exchange);
NYSE Arca Options Fee Schedule, Port Fees (each port charged on a
per matching engine basis, NYSE Arca having 19 match engines); and
NYSE Technology FAQ and Best Practices: Options, Section 5.1 (How
many matching engines are used by each exchange?) (September 2020)
(providing a link to an Excel file detailing the number of matching
engines per options exchange). See NASDAQ Fee Schedule, Nasdaq
Options 7 Pricing Schedule, Section 3, Nasdaq Options Market--Ports
and Other Services (each port charged on a per matching engine
basis, with Nasdaq having multiple matching engines). See Nasdaq
Specialized Quote Interface (SQF) Specification, Version 6.5b
(updated February 13, 2020), Section 2, Architecture, available at
https://www.nasdaq.com/docs/2020/02/18/Specialized-Quote-Interface-SQI-6.5b.pdf (the ``NASDAQ SQF Interface Specification''). The
NASDAQ SQF Interface Specification also provides that NASDAQ's
affiliates, Nasdaq PHLX LLC (``Nasdaq Phlx'') and Nasdaq BX, Inc.
(``Nasdaq BX''), have trading infrastructures that may consist of
multiple matching engines with each matching engine trading only a
range of option underlyings. Further, the NASDAQ SQF Interface
Specification provides that the SQF infrastructure is such that the
firms connect to one or more servers residing directly on the
matching engine infrastructure. Since there may be multiple matching
engines, firms will need to connect to each engine's infrastructure
in order to establish the ability to quote the symbols handled by
that engine.
    \16\ See Securities Exchange Act Release No. 82867 (March 13,
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
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    The Exchange assesses Members Full Service MEO Port Fees, either
for a Full Service MEO Port--Bulk and/or for a Full Service MEO Port--
Single, based upon the monthly total volume executed by a Member and
its Affiliates \17\ on the Exchange across all origin types, not
including Excluded Contracts,\18\ as compared to the Total Consolidated
Volume (``TCV''),\19\ in all MIAX Pearl-listed options. The Exchange
adopted a tier-based fee structure based upon the volume-based tiers
detailed in the definition of ``Non-Transaction Fees Volume-Based
Tiers'' described in the Definitions section of the Fee Schedule. The
Exchange assesses these and other monthly Port fees on Members in each
month the market participant is credentialed to use a Port in the
production environment.
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    \17\ ``Affiliate'' means (i) an affiliate of a Member of at
least 75% common ownership between the firms as reflected on each
firm's Form BD, Schedule A, or (ii) the Appointed Market Maker of an
Appointed EEM (or, conversely, the Appointed EEM of an Appointed
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market
Maker (who does not otherwise have a corporate affiliation based
upon common ownership with an EEM) that has been appointed by an EEM
and an ``Appointed EEM'' is an EEM (who does not otherwise have a
corporate affiliation based upon common ownership with a MIAX Pearl
Market Maker) that has been appointed by a MIAX Pearl Market Maker,
pursuant to the following process. A MIAX Pearl Market Maker
appoints an EEM and an EEM appoints a MIAX Pearl Market Maker, for
the purposes of the Fee Schedule, by each completing and sending an
executed Volume Aggregation Request Form by email to
[email protected] no later than 2 business days prior to
the first business day of the month in which the designation is to
become effective. Transmittal of a validly completed and executed
form to the Exchange along with the Exchange's acknowledgement of
the effective designation to each of the Market Maker and EEM will
be viewed as acceptance of the appointment. The Exchange will only
recognize one designation per Member. A Member may make a
designation not more than once every 12 months (from the date of its
most recent designation), which designation shall remain in effect
unless or until the Exchange receives written notice submitted 2
business days prior to the first business day of the month from
either Member indicating that the appointment has been terminated.
Designations will become operative on the first business day of the
effective month and may not be terminated prior to the end of the
month. Execution data and reports will be provided to both parties.
See the Definitions Section of the Fee Schedule.
    \18\ ``Excluded Contracts'' means any contracts routed to an
away market for execution. See the Definitions Section of the Fee
Schedule.
    \19\ ``TCV'' means total consolidated volume calculated as the
total national volume in those classes listed on MIAX Pearl for the
month for which the fees apply, excluding consolidated volume
executed during the period of time in which the Exchange experiences
an Exchange System Disruption (solely in the option classes of the
affected Matching Engine). See the Definitions Section of the Fee
Schedule.
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    Current Full Service MEO Port--Bulk Fees. Currently, the Exchange
assesses

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Members monthly Full Service MEO Port--Bulk fees as follows:

    (i) If its volume falls within the parameters of Tier 1 of the
Non-Transaction Fees Volume-Based Tiers, or volume up to 0.30%,
$3,000;
    (ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to
0.60%, $4,500; and
    (iii) if its volume falls with the parameters of Tier 3 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.60%,
$5,000.

    Proposed Full Service MEO Port--Bulk Fees. The Exchange now
proposes to assess Members monthly Full Service MEO Port--Bulk fees as
follows:

    (i) If its volume falls within the parameters of Tier 1 of the
Non-Transaction Fees Volume-Based Tiers, or volume up to 0.30%,
$5,000;
    (ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to
0.60%, $7,500; and
    (iii) if its volume falls with the parameters of Tier 3 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.60%,
$10,000.

    Current Full Service MEO Port--Single Fees. Currently, the Exchange
assesses Members monthly Full Service MEO Port--Single fees as follows:

    (i) If its volume falls within the parameters of Tier 1 of the
Non-Transaction Fees Volume-Based Tiers, or volume up to 0.30%,
$2,000;
    (ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to
0.60%, $3,375; and
    (iii) if its volume falls with the parameters of Tier 3 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.60%,
$3,750.

    Proposed Full Service MEO Port--Single Fees. The Exchange now
proposes to assess Members monthly Full Service MEO Port--Single fees
as follows:

    (i) If its volume falls within the parameters of Tier 1 of the
Non-Transaction Fees Volume-Based Tiers, or volume up to 0.30%,
$2,500;
    (ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to
0.60%, $3,500; and
    (iii) if its volume falls with the parameters of Tier 3 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.60%,
$4,500.

    The Exchange offers various types of ports with differing prices
because each port accomplishes different tasks, are suited to different
types of Members, and consume varying capacity amounts of the network.
For instance, MEO ports allow for a higher throughput and can handle
much higher quote/order rates than FIX ports. Members that are Market
Makers \20\ or high frequency trading firms utilize these ports
(typically coupled with 10Gb ULL connectivity) because they transact in
significantly higher amounts of messages being sent to and from the
Exchange, versus FIX port users, who are traditionally customers
sending only orders to the Exchange (typically coupled with 1Gb
connectivity). The different types of ports cater to the different
types of Exchange Memberships and different capabilities of the various
Exchange Members. Certain Members need ports and connections that can
handle using far more of the network's capacity for message throughput,
risk protections, and the amount of information that the System has to
assess. Those Members may account for the vast majority of network
capacity utilization and volume executed on the Exchange, as discussed
throughout.
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    \20\ The term ``Market Maker'' means a Member registered with
the Exchange for the purpose of making markets in options contracts
traded on the Exchange and that is vested with the rights and
responsibilities specified in Chapter VI of Exchange Rules. See the
Definitions Section of the Fee Schedule and Exchange Rule 100.
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    The Exchange now proposes to increase its monthly Full Service MEO
Port fees since it has not done so since the fees were adopted in
2018,\21\ which are designed to recover a portion of the costs
associated with directly accessing the Exchange. The Exchange notes
that its affiliates, Miami International Securities Exchange, LLC
(``MIAX'') and MIAX Emerald, LLC (``MIAX Emerald''), charge fees for
their high throughput, low latency MIAX Express Interface (``MEI'')
Ports in a similar fashion as the Exchange charges for its MEO Ports--
generally, the more active user the Member (i.e., the greater number/
greater national ADV of classes assigned to quote on MIAX and MIAX
Emerald), the higher the MEI Port fee.\22\ This concept is not new or
novel. The Exchange also notes that the proposed increased fees for the
Exchange's Full Service MEO Ports are in line with, or cheaper than,
the similar port fees for similar membership fees charged by other
options exchanges.\23\
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    \21\ See supra note 16.
    \22\ See MIAX Fee Schedule, Section 5)d)ii); MIAX Emerald Fee
Schedule, Section 5)d)ii).
    \23\ See NYSE American Options Fee Schedule, Section V.A., Port
Fees; NYSE Arca Options Fee Schedule, Port Fees; Nasdaq Stock Market
LLC (``NASDAQ''), Options 7, Pricing Schedule, Section 3.
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    The Exchange has historically undercharged for Full Service MEO
Ports as compared to other options exchanges \24\ because the Exchange
provides Full Service MEO Ports as a package for a single monthly fee.
As described above, this package includes two Full Service MEO Ports
for each of the Exchange's twelve (12) matching engines. The Exchange
understands other options exchanges charge fees on a per port basis.
The Exchange believes other exchange's port fees are a useful example
of alternative approaches to providing and charging for port access and
provides the below table for comparison purposes only to show how its
proposed fees compare to fees currently charged by other options
exchanges for similar port access.
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    \24\ See id.

------------------------------------------------------------------------
          Exchange                Type of port           Monthly fee
------------------------------------------------------------------------
MIAX Pearl (as proposed)....  MEO Full Service--    Tier 1: $5,000 (or
                               Bulk.                 $208.33 per
                                                     Matching Engine).
                                                    Tier 2: $7,500 (or
                                                     $312.50 per
                                                     Matching Engine).
                                                    Tier 3: $10,000 (or
                                                     $416.66 per
                                                     Matching Engine).
                              MEO Full Service--    Tier 1: $2,500 (or
                               Single.               $104.16 per
                                                     Matching Engine).
                                                    Tier 2: $3,500 (or
                                                     $145.83 per
                                                     Matching Engine).
                                                    Tier 3: $4,500 (or
                                                     $187.50 per
                                                     Matching Engine).
NYSE American, LLC (``NYSE    Order/Quote Entry...  Ports 1-40: $450
 American'') \25\.                                   each.
                                                    Ports 41 or more:
                                                     $150 each.
NYSE Arca, Inc. (``NYSE       Order/Quote Entry...  Ports 1-40: $450
 Arca'') \26\.                                       each.
                                                    Ports 41 or more:
                                                     $150 each.
NASDAQ \27\.................  Specialized Quote     Ports 1-5: $1,500
                               Interface.            each.
                                                    Ports 6-20: $1,000
                                                     each.

                                                    Ports 21 or more:
                                                     $500.
------------------------------------------------------------------------

Implementation
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    \25\ See id.
    \26\ See id.
    \27\ See id.
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    The proposed fees are immediately effective.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \28\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \29\ in
particular, in that it is an equitable allocation of reasonable dues,
fees and other charges among its members and issuers and other persons
using its facilities. The Exchange also believes the proposal furthers
the objectives of Section 6(b)(5) of the Act 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
customers, issuers, brokers and dealers.
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    \28\ 15 U.S.C. 78f(b).
    \29\ 15 U.S.C. 78f(b)(4) and (5).
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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'').\30\ On May 21, 2019, the Commission issued the Staff Guidance
on SRO Rule Filings Relating to Fees.\31\ Accordingly, the Exchange
believes that the Proposed Access Fees 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 comprehensive revenue and cost data and analysis) that they
are fair and reasonable because they will not result in excessive
pricing or supra-competitive profit; and (iv) utilize a cost-based
justification framework that is substantially similar to a framework
previously used by the Exchange and its affiliates, MIAX and MIAX
Emerald, to establish or increase other non-transaction fees.
Accordingly, the Exchange believes that the Commission should find that
the Proposed Access Fees are consistent with the Act.
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    \30\ 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).
    \31\ 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'').
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The Proposed Access 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 increase meets the requirements of the Act that fees are
reasonable, equitably allocated, not unfairly discriminatory, and not
create an undue burden on competition among market participants. The
Exchange believes this high standard is especially important when an
exchange imposes various access fees for market participants to access
an exchange's marketplace. The Exchange deems the Full Service MEO Port
fees to be access fees. It records these fees as part of its ``Access
Fees'' revenue in its financial statements.
    In its Guidance, the Commission Staff stated that, ``[a]s an
initial step in assessing the reasonableness of a fee, staff considers
whether the fee is constrained by significant competitive forces.''
\32\ The Commission Staff Guidance further states that, ``. . . even
where an SRO cannot demonstrate, or does not assert, that significant
competitive forces constrain the fee at issue, a cost-based discussion
may be an alternative basis upon which to show consistency with the
Exchange Act.'' \33\ In its 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 supracompetitive
profit, specific information, including quantitative information,
should be provided to support that argument.'' \34\ The Exchange does
not assert that the Proposed Access Fees are constrained by competitive
forces. Rather, the Exchange asserts that the Proposed Access Fees are
reasonable because they will permit recovery of the Exchange's costs in
providing access via Full Service MEO Ports and will not result in the
Exchange generating a supra-competitive profit.
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    \32\ See id.
    \33\ Id.
    \34\ 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.'' \35\
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.'' \36\ The Exchange provides
this analysis below.
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    \35\ Id.
    \36\ Id.
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    Based on this analysis, the Exchange believes the Proposed Access
Fees are reasonable and do not result in a ``supra-competitive'' \37\
profit. The Exchange believes that it is important to demonstrate that
these fees are based on its costs and reasonable business needs. The
Exchange believes the Proposed Access Fees will allow the Exchange to
offset expense the Exchange has and will incur, and that the Exchange
is providing sufficient transparency (as described below) into how the
Exchange determined to charge such fees. Accordingly, the Exchange is
providing an analysis of its revenues, costs, and profitability
associated with the Proposed Access Fees. This analysis includes
information regarding its methodology for determining the costs and
revenues associated with the Proposed Access Fees. As a result of this
analysis, the Exchange believes the Proposed Access Fees are fair and
reasonable as a form of cost recovery plus present the possibility of a
reasonable return for the Exchange's aggregate costs of offering Full
Service MEO Port access to the Exchange.
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    \37\ Id.
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    The Proposed Access Fees are based on a cost-plus model. In
determining the appropriate fees to charge, the Exchange considered its
costs to provide Full Service MEO Ports, using what it believes to be a
conservative methodology (i.e., that strictly considers only those
costs that are most clearly directly related to the provision and
maintenance of Full Service MEO Ports) to estimate such costs,\38\ as
well as the

relative costs of providing and maintaining Full Service MEO Ports, and
set fees that are designed to cover its costs with a limited return in
excess of such costs. However, as discussed more fully below, such fees
may also result in the Exchange recouping less than all of its costs of
providing and maintaining Full Service MEO Ports because of the
uncertainty of forecasting subscriber decision making with respect to
firms' port needs and the likely potential for increased costs to
procure the third-party services described below.
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    \38\ For example, the Exchange only included the costs
associated with providing and supporting Full Service MEO Ports and
excluded from its cost calculations any cost not directly associated
with providing and maintaining such ports. Thus, the Exchange notes
that this methodology underestimates the total costs of providing
and maintaining Full Service MEO Port access.
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    To determine the Exchange's costs to provide the access services
associated with the Proposed Access Fees, the Exchange 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 Proposed Access Fees, and, if
such expense did so relate, what portion (or percentage) of such
expense actually supports the access services. The sum of all such
portions of expenses represents the total cost of the Exchange to
provide the access services associated with the Proposed Access Fees.
    The Exchange also provides detailed information regarding the
Exchange's cost allocation methodology--namely, information that
explains the Exchange's rationale for determining that it was
reasonable to allocate certain expenses described in this filing
towards the cost to the Exchange to provide the access services
associated with the Proposed Access Fees. The Exchange conducted a
thorough internal analysis to determine the portion (or percentage) of
each expense to allocate to the support of access services associated
with the Proposed Access Fees. This analysis included discussions with
each Exchange department head to determine the expenses that support
access services associated with the Proposed Access Fees. 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 providing access services for the
Proposed Access Fees. The sum of all such portions of expenses
represents the total cost to the Exchange to provide access services
associated with the Proposed Access Fees. For the avoidance of doubt,
no expense amount was allocated twice.
    To determine the Exchange's projected revenues associated with the
Proposed Access Fees, the Exchange analyzed the number of Members
currently utilizing Full Service MEO Ports, and, utilizing a recent
monthly billing cycle representative of 2021 monthly revenue,
extrapolated annualized revenue on a going-forward basis. The Exchange
does not believe it is appropriate to factor into its analysis future
revenue growth or decline into its projections for purposes of these
calculations, given the uncertainty of such projections due to the
continually changing access needs of market participants, discounts
that can be achieved due to lower trading volume and vice versa, market
participant consolidation, etc. Additionally, the Exchange similarly
does not factor into its analysis future cost growth or decline. The
Exchange is presenting its revenue and expense associated with the
Proposed Access Fees in this filing in a manner that is consistent with
how the Exchange presents its revenue and expense in its Audited
Unconsolidated Financial Statements. The Exchange's most recent Audited
Unconsolidated Financial Statement is for 2020. However, since the
revenue and expense associated with the Proposed Access Fees were not
in place in 2020 or for the majority of 2021 (other than July and
August 2021), the Exchange believes its 2020 Audited Unconsolidated
Financial Statement is not representative of its current total
annualized revenue and costs associated with the Proposed Access Fees.
Accordingly, the Exchange believes it is more appropriate to analyze
the Proposed Access Fees utilizing its 2021 revenue and costs, as
described herein, which utilize the same presentation methodology as
set forth in the Exchange's previously-issued Audited Unconsolidated
Financial Statements. Based on this analysis, the Exchange believes
that the Proposed Access Fees are fair and reasonable because they will
not result in excessive pricing or supra-competitive profit when
comparing the Exchange's total annual expense associated with providing
the services associated with the Proposed Access Fees versus the total
projected annual revenue the Exchange will collect for providing those
services. The Exchange notes that this is the same justification
process utilized by the Exchange's affiliate, MIAX Emerald, in a filing
recently noticed and not suspended by the Commission when MIAX Emerald
adopted MEI Port fees.\39\ As outlined in more detail below, the
Exchange projects that the annualized expense for 2021 to provide Full
Service MEO Ports to be approximately $897,084 per annum or an average
of $74,757 per month. The Exchange implemented the Proposed Access Fees
on July 1, 2021 in the First Proposed Rule Change. For June 2021, prior
to the Proposed Access Fees, Members and non-Members purchased a total
of 20 Full Service MEO Ports, for which the Exchange charged a total of
approximately $71,625. This resulted in a loss of $3,132 for that month
(a margin of -4.37%). For the month of November 2021, which includes
the Proposed Access Fees, Members and non-Members purchased a total of
19 Full Service MEO Ports,\40\ for which the Exchange charged a total
of approximately $122,000 for that month. This resulted in a profit of
$47,243 for that month, representing a profit margin of approximately
38%. The Exchange believes that the Proposed Access Fees are reasonable
because they are designed to approximately generate a modest profit
margin of 38% per-month.\41\ The Exchange cautions that this profit
margin may fluctuate from month to month based on the uncertainty of
predicting how many Full Service MEO Ports may be purchased from month
to month as Members and non-Members are able to add and drop ports at
any time based on their own business decisions, which they frequently
do. This profit margin may also decrease due to the significant
inflationary pressure on capital items that the Exchange needs to
purchase to maintain the Exchange's technology and systems.\42\
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    \39\ See Securities Exchange Act Release No. 91460 (April 2,
2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-11) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Fee Schedule To Adopt Port Fees, Increase Certain Network
Connectivity Fees, and Increase the Number of Additional Limited
Service MIAX Emerald Express Interface Ports Available to Market
Makers) (adopting tiered MEI Port fee structure ranging from $5,000
to $20,500 per month).
    \40\ The Exchange notes that one Member dropped one Full Service
MEO Port--Bulk between June 2021 and November 2021, as a result of
the Proposed Access Fees.
    \41\ The Exchange notes that this profit margin differs from the
First and Second Proposed Rule Changes because the Exchange now has
the benefit of using a more recent billing cycle under the Proposed
Access Fees (November 2021) and comparing it to a baseline month
(June 2021) from before the Proposed Access Fees were in effect.
    \42\ See ``Supply chain chaos is already hitting global growth.
And it's about to get worse'', by Holly Ellyatt, CNBC, available at
https://www.cnbc.com/2021/10/18/supply-chain-chaos-is-hitting-global-growth-and-could-get-worse.html (October 18, 2021); and
``There will be things that people can't get, at Christmas, White
House warns'' by Jarrett Renshaw and Trevor Hunnicutt, Reuters,
available at https://www.reuters.com/world/us/americans-may-not-get-some-christmas-treats-white-house-officials-warn-2021-10-12/
(October 12, 2021).

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    The Exchange has been subject to price increases upwards of 30% on
network equipment due to supply chain shortages. This, in turn, results
in higher overall costs for ongoing system maintenance, but also to
purchase the items necessary to ensure ongoing system resiliency,
performance, and determinism. These costs are expected to continue to
go up as the U.S. economy continues to struggle with supply chain and
inflation related issues.
    As mentioned above, the Exchange projects that the annualized
expense for 2021 to provide the services associated with the Proposed
Access Fees to be approximately $897,084 per annum or an average of
$74,757 per month and that these costs are expected to increase not
only due to anticipated significant inflationary pressure, but also
periodic fee increases by third parties.\43\ The Exchange notes that
there are material costs associated with providing the infrastructure
and headcount to fully-support access to the Exchange. 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. While some of the expense is fixed, much
of the expense is not fixed, and thus increases the cost to the
Exchange to provide access services associated with the Proposed Access
Fees. For example, new Members to the Exchange may require the purchase
of additional hardware to support those Members as well as enhanced
monitoring and reporting of customer performance that the Exchange and
its affiliates provide. 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. The Exchange believes the Proposed Access Fees
are a reasonable attempt to offset a portion of the costs to the
Exchange associated with providing access to its network
infrastructure.
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    \43\ For example, on October 20, 2021, ICE Data Services
announced a 3.5% price increase effective January 1, 2022 for most
services. The price increase by ICE Data Services includes their
SFTI network, which is relied on by a majority of market
participants, including the Exchange. See email from ICE Data
Services to the Exchange, dated October 20, 2021. The Exchange
further notes that on October 22, 2019, the Exchange was notified by
ICE Data Services that it was raising its fees charged to the
Exchange by approximately 11% for the SFTI network.
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    The Exchange only has four primary sources of revenue and cost
recovery mechanisms: Transaction fees, access fees (which includes the
Proposed 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. Until
recently, the Exchange has operated at a cumulative net annual loss
since it launched operations in 2017.\44\ This is a result of 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.\45\ To do so, the Exchange chose to waive
the fees for some non-transaction related services 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 higher fees.
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    \44\ The Exchange has incurred a cumulative loss of $86 million
since its inception in 2017 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://www.sec.gov/Archives/edgar/vprr/2100/21000461.pdf.
    \45\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
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    The Exchange believes that the Proposed Access Fees are fair and
reasonable because they will not result in excessive pricing or supra-
competitive profit, when comparing the total annual expense that the
Exchange projects to incur in connection with providing these access
services versus the total annual revenue that the Exchange projects to
collect in connection with services associated with the Proposed Access
Fees. For 2021,\46\ the total annual expense for providing the access
services associated with the Proposed Access Fees for the Exchange is
projected to be approximately $897,084, or approximately $74,757 per
month. The $897,084 in projected total annual expense is comprised of
the following, all of which are directly related to the access services
associated with the Proposed Access Fees: (1) Third-party expense,
relating to fees paid by the Exchange to third-parties for certain
products and services; and (2) internal expense, relating to the
internal costs of the Exchange to provide the services associated with
the Proposed Access Fees.\47\ As noted above, the Exchange believes it
is more appropriate to analyze the Proposed Access Fees utilizing its
2021 revenue and costs, which utilize the same presentation methodology
as set forth in the Exchange's previously-issued Audited Unconsolidated
Financial Statements.\48\ The $897,084 in projected total annual
expense is directly related to the access services associated with the
Proposed Access Fees, and not any other product or service offered by
the Exchange. It does not include general costs of operating matching
systems and other trading technology, and no expense amount was
allocated twice.
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    \46\ The Exchange has not yet finalized its 2021 year end
results.
    \47\ 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.
    \48\ 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. 87876 (December 31, 2019), 85 FR 757 (January 7, 2020)
(SR-PEARL-2019-36). Accordingly, the third-party expense described
in this filing is attributed to the same line item for the
Exchange's 2021 Form 1 Amendment, which will be filed in 2022.
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    As discussed, the Exchange conducted an extensive cost review in
which the Exchange analyzed nearly every expense item in the Exchange's
general expense ledger (this includes over 150 separate and distinct
expense items) to determine whether each such expense relates to the
access services associated with the Proposed Access Fees, and, if such
expense did so relate, what portion (or percentage) of such expense
actually supports those services, and thus bears a relationship that
is, ``in nature and closeness,'' directly related to those services.
The sum of all such portions of expenses represents the total cost of
the Exchange to provide access services associated with the Proposed
Access Fees.
External Expense Allocations
    For 2021, total third-party expense, relating to fees paid by the
Exchange to third-parties for certain products and services for the
Exchange to be able to provide the access services associated with the
Proposed Access Fees, is projected to be $40,166. 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 Exchange's trading system infrastructure; (2) Zayo Group
Holdings, Inc. (``Zayo'') for network services (fiber and bandwidth
products and services) linking the Exchange's office locations in
Princeton, New Jersey and Miami, Florida, to all data center locations;
(3) Secure Financial Transaction Infrastructure (``SFTI''),\49\ 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 network services; and (5) various other hardware and
software providers (including Dell and Cisco, which support the
production environment in which Members connect to the network to
trade, receive market data, etc.).
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    \49\ In fact, on October 20, 2021, ICE Data Services announced a
3.5% price increase effective January 1, 2022 for most services. The
price increase by ICE Data Services includes their SFTI network,
which is relied on by a majority of market participants, including
the Exchange. See email from ICE Data Services to the Exchange,
dated October 20, 2021. This fee increase by ICE data services,
while not subject to Commission review, has material impact on cost
to exchanges and other market participants that provide downstream
access to other market participants. The Exchange notes that on
October 22, 2019, the Exchange was notified by ICE Data Services
that it was raising its fees charged to the Exchange by
approximately 11% for the SFTI network, without having to show that
such fee change complies with the Act by being reasonable, equitably
allocated, and not unfairly discriminatory. It is unfathomable to
the Exchange that, given the critical nature of the infrastructure
services provided by SFTI, that its fees are not required to be
rule-filed with the Commission pursuant to Section 19(b)(1) of the
Act and Rule 19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR
240.19b-4, respectively.
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    For clarity, the Exchange took a conservative approach in
determining the expense and the percentage of that expense to be
allocated to the providing access services in connection with the
Proposed Access Fees. Only a portion of all fees paid to such third-
parties is included in the third-party expense herein, and no expense
amount is allocated twice. Accordingly, the Exchange does not allocate
its entire information technology and communication costs to the access
services associated with the Proposed Access Fees. This may result in
the Exchange under allocating an expense to the provision of access
services in connection with the Proposed Access Fees and such expenses
may actually be higher or increase above what the Exchange utilizes
within this proposal. Further, the Exchange notes that, with respect to
the MIAX Pearl expenses included herein, those expenses only cover the
MIAX Pearl options market; expenses associated with the MIAX Pearl
equities market are accounted for separately and are not included
within the scope of this filing. As noted above, 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. Further, as part its ongoing assessment
of costs and expenses, the Exchange recently conducted a periodic
thorough review of its expenses and resource allocations which, in
turn, resulted in a revised percentage allocations in this filing.
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.
    The Exchange believes it is reasonable to allocate such third-party
expense described above towards the total cost to the Exchange to
provide the access services associated with the Proposed Access Fees.
In particular, the Exchange believes it is reasonable to allocate the
identified portion of the Equinix expense because Equinix operates the
data centers (primary, secondary, and disaster recovery) that host the
Exchange's network infrastructure. This includes, among other things,
the necessary storage space, which continues to expand and increase in
cost, power to operate the network infrastructure, and cooling
apparatuses to ensure the Exchange's network infrastructure maintains
stability. Without these services from Equinix, the Exchange would not
be able to operate and support the network and provide the access
services associated with the Proposed Access Fees to its Members and
their customers. The Exchange did not allocate all of the Equinix
expense toward the cost of providing the access services associated
with the Proposed Access Fees, only that portion which the Exchange
identified as being specifically mapped to providing the access
services associated with the Proposed Access Fees, approximately 1.80%
of the total applicable Equinix expense. The Exchange believes this
allocation is reasonable because it represents the Exchange's actual
cost to provide the access services associated with the Proposed Access
Fees, and not any other service, as supported by its cost review.\50\
---------------------------------------------------------------------------

    \50\ As noted above, 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. Again, as part its ongoing assessment of
costs and expenses, the Exchange recently conducted a periodic
thorough review of its expenses and resource allocations which, in
turn, resulted in a revised percentage allocations in this filing.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified
portion of the Zayo expense because Zayo provides the internet, fiber
and bandwidth connections with respect to the network, linking the
Exchange with its affiliates, MIAX and MIAX Emerald, as well as the
data center and disaster recovery locations. As such, all of the trade
data, including the billions of messages each day per exchange, flow
through Zayo's infrastructure over the Exchange's network. Without
these services from Zayo, the Exchange would not be able to operate and
support the network and provide the access services associated with the
Proposed Access Fees. The Exchange did not allocate all of the Zayo
expense toward the cost of providing the access services associated
with the Proposed Access Fees, only the portion which the Exchange
identified as being specifically mapped to providing the Proposed
Access Fees, approximately 0.90% of the total applicable Zayo expense.
The Exchange believes this allocation is reasonable because it
represents the Exchange's actual cost to provide the access services
associated with the Proposed Access Fees, and not any other service, as
supported by its cost review.\51\
---------------------------------------------------------------------------

    \51\ Id.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified
portions of the SFTI expense and various other service providers'
(including Thompson Reuters, NYSE, NASDAQ, and Internap) expense
because those entities provide connectivity and feeds for the entire
U.S. options industry, as well as the content, connectivity services,
and infrastructure services for critical components of the network.
Without these services from SFTI and various other service providers,
the Exchange would not be able to operate and support the network and
provide access to its Members and their customers. The Exchange did not
allocate all of the SFTI and other service providers' expense toward
the cost of providing the access services associated with the Proposed
Access Fees, only the portions which

the Exchange identified as being specifically mapped to providing the
access services associated with the Proposed Access Fees, approximately
0.90% of the total applicable SFTI and other service providers'
expense. The Exchange believes this allocation is reasonable because it
represents the Exchange's actual cost to provide the access services
associated with the Proposed Access Fees.\52\
---------------------------------------------------------------------------

    \52\ Id.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allocate the identified
portion of the other hardware and software provider expense because
this includes costs for dedicated hardware licenses for switches and
servers, as well as dedicated software licenses for security monitoring
and reporting across the network. Without this hardware and software,
the Exchange would not be able to operate and support the network and
provide access to its Members and their customers. The Exchange did not
allocate all of the hardware and software provider expense toward the
cost of providing the access services associated with the Proposed
Access Fees, only the portions which the Exchange identified as being
specifically mapped to providing the access services associated with
the Proposed Access Fees, approximately 0.90% of the total applicable
hardware and software provider expense. The Exchange believes this
allocation is reasonable because it represents the Exchange's actual
cost to provide the access services associated with the Proposed Access
Fees.\53\
---------------------------------------------------------------------------

    \53\ Id.
---------------------------------------------------------------------------

Internal Expense Allocations
    For 2021, total projected internal expense, relating to the
internal costs of the Exchange to provide the access services
associated with the Proposed Access Fees, is projected to be $856,918.
This includes, but is not limited to, costs associated with: (1)
Employee compensation and benefits for full-time employees that support
the access services associated with the Proposed Access Fees, 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; (2) depreciation and amortization of hardware and
software used to provide the access services associated with the
Proposed Access Fees, 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 provide the access services
associated with the Proposed Access Fees. The breakdown of these costs
is more fully-described below. For clarity, only a portion of all such
internal expenses are included in the internal expense herein, and no
expense amount is allocated twice. Accordingly, the Exchange does not
allocate its entire costs contained in those items to the access
services associated with the Proposed Access Fees.
    For clarity, and as stated above, the Exchange took a conservative
approach in determining the expense and the percentage of that expense
to be allocated to providing the access services in connection with the
Proposed Access Fees. Only a portion of all such internal expenses are
included in the internal expense herein, and no expense amount is
allocated twice. Accordingly, the Exchange does not allocate its entire
costs contained in those items to the access services associated with
the Proposed Access Fees. This may result in the Exchange under
allocating an expense to the provision of access services in connection
with the Proposed Access Fees and such expenses may actually be higher
or increase above what the Exchange utilizes within this proposal.
Further, as part its ongoing assessment of costs and expenses
(described above), the Exchange recently conducted a periodic thorough
review of its expenses and resource allocations which, in turn,
resulted in a revised percentage allocations in this filing.
    The Exchange believes it is reasonable to allocate such internal
expense described above towards the total cost to the Exchange to
provide the access services associated with the Proposed Access Fees.
In particular, the Exchange's employee compensation and benefits
expense relating to providing the access services associated with the
Proposed Access Fees is projected to be $783,513, which is only a
portion of the $9,163,894 total projected expense for employee
compensation and benefits. The Exchange believes it is reasonable to
allocate the identified portion of such expense because this includes
the time spent by employees of several departments, including
Technology, Back Office, Systems Operations, Networking, Business
Strategy Development (who create the business requirement documents
that the Technology staff use to develop network features and
enhancements), Trade Operations, Finance (who provide billing and
accounting services relating to the network), and Legal (who provide
legal services relating to the network, such as rule filings and
various license agreements and other contracts). As part of the
extensive cost review conducted by the Exchange, the Exchange reviewed
the amount of time spent by each employee on matters relating to the
provision of access services associated with the Proposed Access Fees.
Without these employees, the Exchange would not be able to provide the
access services associated with the Proposed Access Fees to its Members
and their customers. The Exchange did not allocate all of the employee
compensation and benefits expense toward the cost of the access
services associated with the Proposed Access Fees, only the portions
which the Exchange identified as being specifically mapped to providing
the access services associated with the Proposed Access Fees,
approximately 8.55% of the total applicable employee compensation and
benefits expense. The Exchange believes this allocation is reasonable
because it represents the Exchange's actual cost to provide the access
services associated with the Proposed Access Fees, and not any other
service, as supported by its cost review.\54\
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    \54\ Id.
---------------------------------------------------------------------------

    The Exchange's depreciation and amortization expense relating to
providing the access services associated with the Proposed Access Fees
is projected to be $64,456, which is only a portion of the $2,864,716
\55\ total projected expense for depreciation and amortization. The
Exchange believes it is reasonable to allocate the identified portion
of such expense because such expense includes the actual cost of the
computer equipment, such as dedicated servers, computers, laptops,
monitors, information security appliances and storage, and network
switching infrastructure equipment, including switches and taps that
were purchased to operate and support the network and provide the
access services associated with the Proposed Access Fees. Without this
equipment, the Exchange would not be able to operate the network and
provide the access services associated with the Proposed Access Fees to
its Members and their customers. The Exchange did not allocate all of
the depreciation and amortization expense

toward the cost of providing the access services associated with the
Proposed Access Fees, only the portion which the Exchange identified as
being specifically mapped to providing the access services associated
with the Proposed Access Fees, approximately 2.25% of the total
applicable depreciation and amortization expense, as these access
services would not be possible without relying on such. The Exchange
believes this allocation is reasonable because it represents the
Exchange's actual cost to provide the access services associated with
the Proposed Access Fees, and not any other service, as supported by
its cost review.\56\
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    \55\ The Exchange notes that the total depreciation expense is
different from the total for the Exchange's filing relating to
Trading Permits because the Exchange factors in the depreciation of
its own internally developed software when assessing costs for Full
Service MEO Ports, resulting in a higher depreciation expense number
in this filing.
    \56\ Id.
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    The Exchange's occupancy expense relating to providing the access
services associated with the Proposed Access Fees is projected to be
$8,949, which is only a portion of the $497,180 total projected expense
for occupancy. The Exchange believes it is reasonable to allocate the
identified portion of such expense because such expense represents the
portion of the Exchange's cost to rent and maintain a physical location
for the Exchange's staff who operate and support the network, including
providing the access services associated with the Proposed Access Fees.
This amount consists primarily of rent for the Exchange's Princeton,
New Jersey office, as well as various related costs, such as physical
security, property management fees, property taxes, and utilities. The
Exchange operates its Network Operations Center (``NOC'') and Security
Operations Center (``SOC'') from its Princeton, New Jersey office
location. A centralized office space is required to house the staff
that operates and supports the network. The Exchange currently has
approximately 200 employees. Approximately two-thirds of the Exchange's
staff are in the Technology department, and the majority of those staff
have some role in the operation and performance of the access services
associated with the Proposed Access Fees. Without this office space,
the Exchange would not be able to operate and support the network and
provide the access services associated with the Proposed Access Fees to
its Members and their customers. Accordingly, the Exchange believes it
is reasonable to allocate the identified portion of its occupancy
expense because such amount represents the Exchange's actual cost to
house the equipment and personnel who operate and support the
Exchange's network infrastructure and the access services associated
with the Proposed Access Fees. The Exchange did not allocate all of the
occupancy expense toward the cost of providing the access services
associated with the Proposed Access Fees, only the portion which the
Exchange identified as being specifically mapped to operating and
supporting the network, approximately 1.80% of the total applicable
occupancy expense. The Exchange believes this allocation is reasonable
because it represents the Exchange's cost to provide the access
services associated with the Proposed Access Fees, and not any other
service, as supported by its cost review.\57\
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    \57\ Id.
---------------------------------------------------------------------------

    The Exchange notes that a material portion of its total overall
expense is allocated to the provision of access services (including
connectivity, ports, and trading permits). The Exchange believes this
is reasonable and in line, as the Exchange operates a technology-based
business that differentiates itself from its competitors based on its
trading systems that rely on access to a high performance network,
resulting in significant technology expense. Over two-thirds of
Exchange staff are technology-related employees. The majority of the
Exchange's expense is technology-based. As described above, the
Exchange has only four primary sources of fees in to recover its costs,
thus the Exchange believes it is reasonable to allocate a material
portion of its total overall expense towards access fees.
    Based on the above, the Exchange believes that its provision of
access services associated with the Proposed Access Fees will not
result in excessive pricing or supra-competitive profit. As discussed
above, the Exchange projects that the annualized expense for 2021 to
provide Full Service MEO Ports to be approximately $897,084 per annum
or an average of $74,757 per month. The Exchange implemented the
Proposed Access Fees on July 1, 2021 in the First Proposed Rule Change.
For June 2021, prior to the Proposed Access Fees, Members and non-
Members purchased a total of 20 Full Service MEO Ports, for which the
Exchange charged a total of approximately $71,625. This resulted in a
loss of $3,132 for that month (a margin of -4.37%). For the month of
November 2021, which includes the Proposed Access Fees, Members and
non-Members purchased a total of 19 Full Service MEO Ports, for which
the Exchange charged a total of approximately $122,000 for that month.
This resulted in a profit of $47,243 for that month, representing a
profit margin of 38%. The Exchange believes that the Proposed Access
Fees are reasonable because they are designed to generate an
approximate profit margin of 38% per-month. The Exchange believes this
modest profit margin will allow it to continue to recoup its expenses
and continue to invest in its technology infrastructure. Therefore, the
Exchange also believes that this proposed profit margin increase is
reasonable because it represents a reasonable rate of return.
    Again, the Exchange cautions that this profit margin may fluctuate
from month to month based in the uncertainty of predicting how many
Full Service MEO Ports may be purchased from month to month as Members
and non-Members are free to add and drop ports at any time based on
their own business decisions. This profit margin may also decrease due
to the significant inflationary pressure on capital items that it needs
to purchase to maintain the Exchange's technology and systems.\58\
Accordingly, the Exchange believes its total projected revenue for
providing the access services associated with the Proposed Access Fees
will not result in excessive pricing or supra-competitive profit.
---------------------------------------------------------------------------

    \58\ See supra note 42.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable, equitable and not unfairly
discriminatory to allocate the respective percentages of each expense
category described above towards the total cost to the Exchange of
operating and supporting the network, including providing the access
services associated with the Proposed Access Fees because the Exchange
performed a line-by-line item analysis of nearly every expense of the
Exchange, and has determined the expenses that directly relate to
providing access to the Exchange. Further, the Exchange notes that,
without the specific third-party and internal items listed above, the
Exchange would not be able to provide the access services associated
with the Proposed Access Fees to its Members and their customers. Each
of these expense items, including physical hardware, software, employee
compensation and benefits, occupancy costs, and the depreciation and
amortization of equipment, have been identified through a line-by-line
item analysis to be integral to providing access services. The Proposed
Access Fees are intended to recover the Exchange's costs of providing
access to Exchange Systems. Accordingly, the Exchange believes that the
Proposed Access Fees are fair and reasonable because they do not result
in excessive pricing or supra-competitive profit, when comparing the
actual costs to the

Exchange versus the projected annual revenue from the Proposed Access
Fees.
The Proposed Tiered-Pricing Structure Is Not Unfairly Discriminatory
and Provides for the Equitable Allocation of Fees, Dues, and Other
Charges
    The Exchange believes the proposed tiered-pricing structure is
reasonable, fair, equitable, and not unfairly discriminatory because it
is the model adopted by the Exchange when it launched operations for
its Full Service MEO Port fees. Moreover, the tiered pricing structure
for Full Service MEO Ports is not a new proposal and has been in place
since 2018, well prior to the filing of the First Proposed Rule Change.
The proposed tiers of Full Service MEO Port fees will continue to apply
to all Members and non-Members in the same manner based upon the
monthly total volume executed by a Member and its Affiliates on the
Exchange across all origin types, not including Excluded Contracts, as
compared to the TCV in all MIAX Pearl-listed options. Members and non-
Members may choose to purchase more than the two Full Service MEO Ports
the Exchange currently provides upfront based on their own business
decisions and needs. All similarly situated Members and non-Members
would be subject to the same fees. The fees do not depend on any
distinction between Members and non-Members because they are solely
determined by the individual Members' or non-Members' business needs
and their impact on Exchange resources.
    The proposed tiered-pricing structure is not unfairly
discriminatory and provides for the equitable allocation of fees, dues,
and other charges because it is designed to encourage Members and non-
Members to be more efficient and economical when determining how to
access the Exchange and the amount of the fees are based on the number
of Full Service MEO Ports utilized, in addition to the amount of volume
conducted on the Exchange. The proposed tiered pricing structure should
also enable the Exchange to better monitor and provide access to the
Exchange's network to ensure sufficient capacity and headroom in the
System.
    The proposed tiered-pricing structure is not unfairly
discriminatory and provides for the equitable allocation of fees, dues,
and other charges because the amount of the fee is directly related to
the Member or non-Member's TCV resulting in higher fees for greater
TCV. The higher the volume, the greater pull on Exchange resources. The
Exchange's high performance network solutions and supporting
infrastructure (including employee support), provides unparalleled
system throughput and the capacity to handle approximately 10.7 million
order messages per second. On an average day, the Exchange handles over
approximately 2.7 billion total messages. However, in order to achieve
a consistent, premium network performance, the Exchange must build out
and maintain a network that has the capacity to handle the message rate
requirements of its most heavy network consumers. These billions of
messages per day consume the Exchange's resources and significantly
contribute to the overall expense for storage and network transport
capabilities.
    There are material costs associated with providing the
infrastructure and headcount to fully-support access to the Exchange.
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. While some of the expense is
fixed, much of the expense is not fixed, and thus increases as the
services associated with the Proposed Access Fees increase. For
example, new Members to the Exchange may require the purchase of
additional hardware to support those Members as well as enhanced
monitoring and reporting of customer performance that the Exchange and
its affiliates provide. 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. The Exchange believes the Proposed Access Fees
are reasonable in order to offset a portion of the costs to the
Exchange associated with providing access to its network
infrastructure.
    The Exchange notes that the firms that purchase more than two Full
Service MEO Ports that the Exchange initially provides essentially do
so for competitive reasons amongst themselves and choose to utilize
numerous ports based on their business needs and desire to attempt to
access the market quicker by using the port with the least amount of
latency. These firms are generally engaged in sending liquidity
removing orders to the Exchange and seek to add more ports so they can
access resting liquidity ahead of their competitors. For instance, a
Member may have just sent numerous messages and/or orders over one of
their Full Service MEO Ports that are in queue to be processed. That
same Member then seeks to enter an order to remove liquidity from the
Exchange's Book. That Member may choose to send that order over one or
more of their other Full Service MEO Ports with less message and/or
order traffic to ensure that their liquidity taking order accesses the
Exchange quicker because that port's queue is shorter. These firms also
tend to frequently add and drop ports mid-month to determine which have
the least latency, which results in increased costs to the Exchange to
constantly make changes in the data center.
    The firms that engage in the above-described liquidity removing and
advanced trading strategies typically require more than two Full
Service MEO Ports and, therefore, generate higher costs by utilizing
more of the Exchange's resources. Those firms may also conduct other
latency measurements over their ports and drop and simultaneously add
ports mid-month based on their own assessment of their performance.
This results in Exchange staff processing such requests, potentially
purchasing additional equipment, and performing the necessary network
engineering to replace those ports in the data center. Therefore, the
Exchange believes it is equitable for these firms to experience
increased port costs based on their disproportionate pull on Exchange
resources to provide the additional ports.
    In addition, the proposed tiered-pricing structure is equitable
because it is designed to encourage Members and non-Members to be more
efficient and economical when determining how to connect to the
Exchange. Section 6(b)(5) of the Exchange Act requires the Exchange to
provide access on terms that are not unfairly discriminatory.\59\ As
stated above, Full Service MEO Ports are not an unlimited resource and
the Exchange's network is limited in the amount of ports it can
provide. However, the Exchange must accommodate requests for additional
ports and access to the Exchange's System to ensure that the Exchange
is able to provide access on non-discriminatory terms and ensure
sufficient capacity and headroom in the System. To accommodate requests
for additional ports on top of current network capacity constraints,
requires that the Exchange purchase additional equipment to satisfy
these requests. The Exchange also needs to provide personnel to set up
new ports and to maintain those ports on behalf of

Members and non-Members. The proposed tiered-pricing structure is
equitable because it is designed to encourage Members and non-Members
to be more efficient and economical in selecting the amount of ports
they request while balancing that against the Exchange's increased
expenses when expanding its network to accommodate additional port
access.
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 equities
exchanges' costs to provide ports and port access or their fee markup
over those costs, and therefore cannot use other exchanges' port fees
as a benchmark to determine a reasonable markup over the costs of
providing port access. Nevertheless, the Exchange believes the other
exchanges' port fees are a useful example of alternative approaches to
providing and charging for port access. To that end, the Exchange
believes the proposed tiered-pricing structure for its Full Service MEO
Ports is reasonable because the proposed highest tier is still less
than or similar to fees charged for similar port access provided by
other options exchanges with comparable market shares. For example,
NASDAQ (equity options market share of 8.38% as of December 15, 2021
for the month of December) \60\ charges $1,500 per port for SQF ports
1-5, $1,000 per SQF port for ports 6-20, and $500 per SQF port for
ports 21 and greater,\61\ all on a per matching engine basis, with
NASDAQ having multiple matching engines.\62\ NYSE American (equity
options market share of 6.74% as of December 15, 2021 for the month of
December) \63\ charges $450 per port for order/quote entry ports 1-40
and $150 per port for ports 41 and greater,\64\ all on a per matching
engine basis, with NYSE American having 17 match engines.\65\ The below
table further illustrates this comparison.
---------------------------------------------------------------------------

    \60\ See ``The market at a glance,'' available at https://www.miaxoptions.com/ (last visited December 15, 2021).
    \61\ See supra note 27.
    \62\ See supra note 15.
    \63\ See supra note 60.
    \64\ See supra note 25.
    \65\ See supra note 15.

------------------------------------------------------------------------
          Exchange                Type of port           Monthly fee
------------------------------------------------------------------------
MIAX Pearl (as proposed)....  MEO Full Service--    Tier 1: $5,000 (or
                               Bulk.                 $208.33 per
                                                     Matching Engine).
                                                    Tier 2: $7,500 (or
                                                     $312.50 per
                                                     Matching Engine).
                                                    Tier 3: $10,000 (or
                                                     $416.66 per
                                                     Matching Engine).
                              MEO Full Service--    Tier 1: $2,500 (or
                               Single.               $104.16 per
                                                     Matching Engine).
                                                    Tier 2: $3,500 (or
                                                     $145.83 per
                                                     Matching Engine).
                                                    Tier 3: $4,500 (or
                                                     $187.50 per
                                                     Matching Engine).
NYSE American...............  Order/Quote Entry...  Ports 1-40: $450
                                                     each.
                                                    Ports 41 or more:
                                                     $150 each.
NYSE Arca...................  Order/Quote Entry...  Ports 1-40: $450
                                                     each.
                                                    Ports 41 or more:
                                                     $150 each.
NASDAQ......................  Specialized Quote     Ports 1-5: $1,500
                               Interface.            each.
                                                    Ports 6-20: $1,000
                                                     each.
                                                    Ports 21 or more:
                                                     $500.
------------------------------------------------------------------------

    In the each of the above cases, the Exchange's highest tiered port
fee, as proposed, is similar to or less than the port fees of competing
options exchanges with like market share. Further, as described in more
detail below, many competing exchanges generate higher overall
operating profit margins and higher ``access fees'' than the Exchange,
inclusive of the projected revenues associated with the proposed fees.
The Exchange believes that it provides a premium network experience to
its Members and non-Members via a highly deterministic system, enhanced
network monitoring and customer reporting, and a superior network
infrastructure than markets with higher market shares and more
expensive access fees. Each of the port fee rates in place at competing
options exchanges were filed with the Commission for immediate
effectiveness and remain in place today.
    The Exchange further believes that the proposed fees are
reasonable, equitably allocated and not unfairly discriminatory
because, for the flat fee, the Exchange provides each Member two (2)
Full Service MEO Ports for each matching engine to which that Member is
connected. Unlike other options exchanges that provide similar port
functionality and charge fees on a per port basis,\66\ the Exchange
offers Full Service MEO Ports as a package and provides Members with
the option to receive up to two Full Service MEO Ports per matching
engine to which it connects. The Exchange currently has twelve (12)
matching engines, which means Members may receive up to twenty-four
(24) Full Service MEO Ports for a single monthly fee, that can vary
based on certain volume percentages. The Exchange currently assesses
Members a fee of $5,000 per month in the highest Full Service MEO
Port--Bulk Tier, regardless of the number of Full Service MEO Ports
allocated to the Member. Assuming a Member connects to all twelve (12)
matching engines during a month, with two Full Service MEO Ports per
matching engine, this results in a cost of $208.33 per Full Service MEO
Port--Bulk ($5,000 divided by 24) for the month. This fee has been
unchanged since the Exchange adopted Full Service MEO Port fees in
2018.\67\ The Exchange now proposes to increase the Full Service MEO
Port fees, with the highest Tier fee for a Full Service MEO Port--Bulk
of $10,000 per month. Members will continue to receive two (2) Full
Service MEO Ports to each matching engine to which they are connected
for the single flat monthly fee. Assuming a Member connects to all
twelve (12) matching engines during the month, and achieves the highest
Tier for that month, with two Full Service MEO Ports--Bulk per matching
engine, this would result in a cost of $416.67 per Full Service MEO
Port ($10,000 divided by 24).
---------------------------------------------------------------------------

    \66\ See supra note 15.
    \67\ See supra note 16.
---------------------------------------------------------------------------

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

Intra-Market Competition
    The Exchange believes that the Proposed Access Fees do not place
certain market participants at a relative disadvantage to other market
participants because the Proposed Access Fees do not favor certain
categories of market participants in a manner that would impose a
burden on competition; rather, the allocation of the Proposed Access
Fees 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 Access Fees do not place an
undue burden on competition on other options exchanges that is not
necessary or appropriate. In particular, options market participants
are not forced to connect to (and purchase MEO Ports from) all options
exchanges. The Exchange also notes that it has far less Members as
compared to the much greater number of members at other options
exchanges. Not only does MIAX Pearl 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 Pearl.
There are a number of large users of the MEO Interface and broker-
dealers that are members of other options exchange but not Members of
MIAX Pearl. The Exchange is also unaware of any assertion that its
existing fee levels or the Proposed Access Fees 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.
    The Exchange operates in a highly competitive market in which
market participants can readily favor one of the 15 competing options
venues if they deem fee levels at a particular venue to be excessive.
Based on publicly-available information, and excluding index-based
options, no single exchange has more than approximately 16% market
share. Therefore, no exchange possesses significant pricing power in
the execution of multiply-listed equity and ETF options order flow.
Over the course of 2021, the Exchange's market share has fluctuated
between approximately 3-6% of the U.S. equity options industry.\68\ The
Exchange is not aware of any evidence that a market share of
approximately 3-6% provides the Exchange with anti-competitive pricing
power. If the Exchange were to attempt to establish unreasonable
pricing, then no market participant would join or connect, and existing
market participants would disconnect. The Exchange believes that the
ever-shifting market share among exchanges from month to month
demonstrates that market participants can discontinue or reduce use of
certain categories of products, or shift order flow, in response to fee
changes. In such an environment, the Exchange must continually adjust
its fees and fee waivers to remain competitive with other exchanges and
to attract order flow to the Exchange.
---------------------------------------------------------------------------

    \68\ See supra note 60.
---------------------------------------------------------------------------

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

    As described above, the Exchange received one comment letter on the
First Proposed Rule Change \69\ and no comment letters on the Second
Proposed Rule Change. The Exchange now responds to the one comment
letter in this filing. The SIG Letter cites Rule 700(b)(3) of the
Commission's Rules of Fair Practice which places ``the burden to
demonstrate that a proposed rule change is consistent with the Act on
the self-regulatory organization that proposed the rule change'' and
states that a ``mere assertion that the proposed rule change is
consistent with those requirements . . . is not sufficient.'' \70\ The
SIG Letter's assertion that the Exchange has not met this burden is
without merit, especially considering the overwhelming amounts of
revenue and cost information the Exchange included in the First and
Second Proposed Rule Changes and this filing.
---------------------------------------------------------------------------

    \69\ See supra note 7.
    \70\ 17 CFR 201.700(b)(3).
---------------------------------------------------------------------------

    Until recently, the Exchange has operated at a net annual loss
since it launched operations in 2017.\71\ As stated above, the Exchange
believes that exchanges in setting fees of all types should meet very
high standards of transparency to demonstrate why each new fee or fee
increase meets the requirements of the Act that fees be reasonable,
equitably allocated, not unfairly discriminatory, and not create an
undue burden on competition among market participants. The Exchange
believes this high standard is especially important when an exchange
imposes various access fees for market participants to access an
exchange's marketplace. The Exchange believes it has achieved this
standard in this filing and in the First and Second Proposed Rules
Changes. Similar justifications for the proposed fee change included in
the First and Second Proposed Rule Changes, but also in this filing,
were previously included in similar fee changes filed by the Exchange
and its affiliates, MIAX Emerald and MIAX, and SIG did not submit a
comment letter on those filings.\72\ Those filings were not suspended
by the Commission and continue to remain in effect. The justification
included in each of the prior filings was the result of numerous
withdrawals and re-filings of the proposals to address comments
received from Commission Staff over many months. The Exchange and its
affiliates have worked diligently with Commission Staff on ensuring the
justification included in past fee filings fully supported an assertion
that those proposed fee changes were consistent with the Act.\73\ The
Exchange leveraged

its past work with Commission Staff to ensure the justification
provided herein and in the First and Second Proposed Rule Changes
included the same level of detail (or more) as the prior fee changes
that survived Commission scrutiny. The Exchange's detailed disclosures
in fee filings have also been applauded by one industry group which
noted, ``[the Exchange's] filings contain significantly greater
information about who is impacted and how than other filings that have
been permitted to take effect without suspension.'' \74\ That same
industry group also noted their ``worry that the Commission's process
for reviewing and evaluating exchange filings may be inconsistently
applied.'' \75\
---------------------------------------------------------------------------

    \71\ See supra note 44.
    \72\ See Securities Exchange Act Release Nos. 91858 (May 12,
2021), 86 FR 26967 (May 18, 2021) (SR-PEARL-2021-23) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to
Amend the MIAX Pearl Fee Schedule to Remove the Cap on the Number of
Additional Limited Service Ports Available to Market Makers); 91460
(April 2, 2021), 86 FR 18349 (April 8, 2021) (SR-EMERALD-2021-11)
(Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change To Amend Its Fee Schedule To Adopt Port Fees, Increase
Certain Network Connectivity Fees, and Increase the Number of
Additional Limited Service MIAX Emerald Express Interface Ports
Available to Market Makers); and 91857 (May 12, 2021), 86 FR 26973
(May 18, 2021) (SR-MIAX-2021-19) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To
Remove the Cap on the Number of Additional Limited Service Ports
Available to Market Makers).
    \73\ See, e.g., Securities Exchange Act Release No. 90196
(October 15, 2020), 85 FR 67064 (October 21, 2020) (SR-EMERALD-2020-
11) (Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change To Amend Its Fee Schedule To Adopt One-Time Membership
Application Fees and Monthly Trading Permit Fees). See Securities
Exchange Act Release Nos. 90601 (December 8, 2020), 85 FR 80864
(December 14, 2020) (SR-EMERALD-2020-18) (re-filing with more detail
added in response to Commission Staff's feedback and after
withdrawing SR-EMERALD-2020-11); and 91033 (February 1, 2021), 86 FR
8455 (February 5, 2021) (SR-EMERALD-2021-03) (re-filing with more
detail added in response to Commission Staff's feedback and after
withdrawing SR-EMERALD-2020-18). The Exchange initially filed a
proposal to remove the cap on the number of additional Limited
Service MEO Ports available to Members on April 9, 2021. See SR-
PEARL-2021-17. On April 22, 2021, the Exchange withdrew SR-PEARL-
2021-17 and refiled that proposal (without increasing the actual fee
amounts) to provide further clarification regarding the Exchange's
revenues, costs, and profitability any time more Limited Service MEO
Ports become available, in general, (including information regarding
the Exchange's methodology for determining the costs and revenues
for additional Limited Service MEO Ports). See SR-PEARL-2021-20. On
May 3, 2021, the Exchange withdrew SR-PEARL-2021-20 and refiled that
proposal to further clarify its cost methodology. See SR-PEARL-2021-
22. On May 10, 2021, the Exchange withdrew SR-PEARL-2021-22 and
refiled that proposal as SR-PEARL-2021-23. See Securities Exchange
Act Release No. 91858 (May 12, 2021), 86 FR 26967 (May 18, 2021)
(SR-PEARL-2021-23).
    \74\ See letter from Tyler Gellasch, Executive Director, Healthy
Markets Association, to Hon. Gary Gensler, Chair, Commission, dated
October 29, 2021.
    \75\ Id. (providing examples where non-transaction fee filings
by other exchanges have been permitted to remain effective and not
suspended by the Commission despite less disclosure and
justification).
---------------------------------------------------------------------------

    Therefore, a finding by the Commission that the Exchange has not
met its burden to show that the proposed fee change is consistent with
the Act would be different than the Commission's treatment of similar
past filings, would create further ambiguity regarding the standards
exchange fee changes should satisfy, and is not warranted here.
    In addition, the arguments in the SIG Letter do not support their
claim that the Exchange has not met its burden to show the proposed
rule change is consistent with the Act. Prior to, and after submitting
the First Proposed Rule Change, the Exchange solicited feedback from
its Members, including SIG. SIG relayed their concerns regarding the
proposed change. The Exchange then sought to work with SIG to address
their concerns and gain a better understanding of the access/
connectivity/quoting infrastructure of other exchanges. In response,
SIG provided no substantive suggestions on how to amend the First
Proposed Rule Change to address their concerns and instead chose to
submit a comment letter. One could argue that SIG is using the comment
letter process not to raise legitimate regulatory concerns regarding
the proposal, but to inhibit or delay proposed fee changes by the
Exchange.
    Nonetheless, the Exchange has enhanced its cost and revenue
analysis and data in this Third Proposed Rule Change to further justify
that the Proposed Access Fees are reasonable in accordance with the
Commission Staff's Guidance. Among other things, these enhancements
include providing baseline information in the form of data from the
month before the Proposed Access Fees became effective.
General
    First, the SIG Letter states that 10Gb ULL ``lines are critical to
Exchange members to be competitive and to provide essential protection
from adverse market events'' (emphasis added).\76\ The Exchange notes
that this statement is generally not true for Full Service MEO Ports as
those ports are used primarily for order entry and not risk protection
activities like purging quotes resting on the MIAX Pearl Options Book.
Full Service MEO Ports are essentially used for competitive reasons and
Members may choose to utilize one or two Full Service MEO Ports \77\
based on their business needs and desire to attempt to access the
market quicker by using one port that may have less latency. For
instance, a Member may have just sent numerous messages and/or orders
over one of their Full Service MEO Ports that are in queue to be
processed. That same Member then seeks to enter an order to remove
liquidity from the Exchange's Book. That Member may choose to send that
order over one of their other Full Service MEO Ports with less message
and/or order traffic or any of their optional additional Limit Service
MEO Ports \78\ to ensure that their liquidity taking order accesses the
Exchange quicker because that port's queue is shorter.
---------------------------------------------------------------------------

    \76\ See SIG Letter, supra note 7.
    \77\ The rates set forth for Full Service MEO Ports under
Section 5(d) of the Exchange's Fee Schedule entitle a Member to two
(2) Full Service MEO Ports for each Matching Engine for a single
monthly fee.
    \78\ Members may be allocated two (2) Full-Service MEO Ports per
Matching Engine and may request Limited Service MEO Ports for which
the Exchange will assess no fee for the first two Limited Service
MEO Ports requested by the Member. See Fee Schedule, Section 5(d).
---------------------------------------------------------------------------

The Tiered Pricing Structure for Full Service MEO Ports Provides for
the Equitable Allocation of Reasonable Dues, Fees, and Other Charges
    The SIG Letter challenges the below two bases the Exchange set
forth in its Initial Proposed Fee Change and herein to support the
assertion that the proposal provides for the equitable allocation of
reasonable dues, fees, and other charges:
     ``If the Exchanges were to attempt to establish
unreasonable pricing, then no market participant would join or connect
to the Exchanges, and existing market participants would disconnect.
     The fees will not result in excessive pricing or supra-
competitive profit.'' \79\
---------------------------------------------------------------------------

    \79\ See SIG Letter, supra note 7.
---------------------------------------------------------------------------

    The Exchange responds to each of SIG's challenges in turn below.
If the Exchanges Were To Attempt To Establish Unreasonable Pricing,
Then No Market Participant Would Join or Connect to the Exchange, and
Existing Market Participants Would Disconnect
    SIG asserts that ``the prospect that a member may withdraw from the
Exchanges if a fee is too costly is not a basis for asserting that the
fee is reasonable.'' \80\ SIG misinterprets the Exchange's argument
here. The Exchange provided the examples of firms terminating access to
certain markets due to fees to support its assertion that firms,
including market makers, are not required to connect to all markets and
may drop access if fees become too costly for their business models and
alternative or substitute forms of connectivity are available to those
firms who choose to terminate access. The Commission Staff Guidance
also provides that ``[a] statement that substitute products or services
are available to market participants in the relevant market (e.g.,
equities or options) can demonstrate competitive forces if supported by
evidence that substitute products or services exist.'' \81\
Nonetheless, the Third Proposed Rule Change no longer makes this
assertion as a basis for the proposed fee change and, therefore, the
Exchange believes it is not necessary to respond to this portion of the
SIG Letter.
---------------------------------------------------------------------------

    \80\ Id.
    \81\ See Guidance, supra note 31.
---------------------------------------------------------------------------

The Proposed Fees Will Not Result in Excessive Pricing or Supra-
Competitive Profit
    Next, SIG asserts that the Exchange's ``profit margin comparisons
do not support the Exchange's claims that they will not realize a
supracompetitive profit,'' that ``the Exchanges' respective profit
margins of 30% (for MIAX and Pearl) and 51% (for Emerald) in relation
to connectivity fees are high in any event,'' and ``comparisons to
competing exchanges' overall operating profit margins are an inapt
`apples-to-oranges' comparison.''
    The Exchange has provided ample data that the proposed fees would
not result in excessive pricing or a supra-competitive profit. In this
Third

Proposed Rule Change, the Exchange no longer utilizes a comparison of
its profit margin to that of other options exchanges as a basis that
the Proposed Access Fees are reasonable. Rather, the Exchange has
enhanced its cost and revenue analysis and data in this Third Proposed
Rule Change to further justify that the Proposed Access Fees are
reasonable in accordance with the Commission Staff's Guidance.
Therefore, the Exchange believes it is no longer necessary to respond
to this portion of the SIG Letter.
The Proposed Tiered Pricing Structure Is Not Unfairly Discriminatory
    SIG challenges the proposed fees by arguing that ``the Exchange[ ]
provide[s] no support for [its] claim that [the] proposed tiered
pricing structure is needed to encourage efficiency in connectivity
usage and the Exchange[ ] provided no support for [the] claim that the
tiered pricing structure allows them to better monitor connectivity
usage, nor that this is an appropriate basis for the pricing structure
in any event.'' The tiered pricing structure for Full Service MEO Ports
is not a new proposal and has been in place since 2018, well prior to
the filing of the First Proposed Rule Change. Nonetheless, the Exchange
provided additional justification to support that the Proposed Access
Fees are equitable and not unfairly discriminatory above in response to
SIG's assertions.
Recoupment of Exchange Infrastructure Costs
    Nowhere in this proposal or in the First Proposed Rule Change did
the Exchange assert that it benefits competition to allow a new
exchange entrant to recoup their infrastructure costs. Rather, the
Exchange asserts above that its ``proposed fees are reasonable,
equitably allocated and not unfairly discriminatory because the
Exchange, and its affiliates, are still recouping the initial
expenditures from building out their systems while the legacy exchanges
have already paid for and built their systems.'' The Exchange no longer
makes this assertion in this filing and, therefore, does not believe is
it necessary to respond to SIG's assertion here.
    Nonetheless, the Exchange notes that until recently it has operated
at a net annual loss since it launched operations in 2017.\82\ This is
a result of providing a low cost alternative to attract order flow and
encourage market participants to experience the determinism and
resiliency of the Exchange's trading systems. To do so, the Exchange
chose to offer some non-transaction related services for little to no
cost. This resulted in the Exchange forgoing revenue it could have
generated from assessing higher fees. Further, a vast majority of the
Exchange's Members, if not all, benefited from these lower 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. The
SIG Letter chose to ignore this reality and instead criticize the
Exchange for initially charging lower fees or providing a moratorium on
certain non-transaction fees to the benefit of all market participants.
The Exchange is now trying to amend its fee structure to enable it to
continue to maintain and improve its overall market and systems while
also providing a highly reliable and deterministic trading system to
the marketplace.
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    \82\ See supra note 44.
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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,\83\ and Rule 19b-4(f)(2) \84\ 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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    \83\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \84\ 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 protected]. Please include
File Number SR-PEARL-2021-58 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-PEARL-2021-58. 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-PEARL-2021-58 and should be submitted on
or before January 31, 2022.
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    \85\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\85\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-00153 Filed 1-7-22; 8:45 am]
BILLING CODE 8011-01-P