[Federal Register Volume 88, Number 88 (Monday, May 8, 2023)]
[Notices]
[Pages 29701-29725]
[FR Doc No: 2023-09683]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97420; File No. SR-PEARL-2023-19]

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 Modify Certain Connectivity and Port Fees

May 2, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 20, 2023, 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 certain connectivity and
port fees.\3\
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    \3\ All references to the ``Exchange'' in this filing mean MIAX
Pearl Options. Any references to the equities trading facility of
MIAX PEARL, LLC, will specifically be referred to as ``MIAX Pearl
Equities.''
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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 as follows: (1)
increase the fees for a 10 gigabit (``Gb'') ultra-low latency (``ULL'')
fiber connection for Members \4\ and non-Members; (2) amend the
calculation of fees for MIAX Express Network Full Service (``MEO'') \5\
Ports (Bulk and Single); and (3) amend the fees for Full Service MEO
Ports (Bulk and Single). The Exchange and its affiliate, Miami
International Securities Exchange, LLC (``MIAX'') operated 10Gb ULL
connectivity on a single shared network that provided access to both
exchanges via a single 10Gb ULL connection. The Exchange last increased
fees for 10Gb ULL connections from $9,300 to $10,000 per month on
January 1, 2021.\6\ At the same time, MIAX also increased its 10Gb ULL
connectivity fee from $9,300 to $10,000 per month.\7\ The Exchange and
MIAX shared a combined cost analysis in those filings due to the single
shared 10Gb ULL connectivity network for both exchanges. In those
filings, the Exchange and MIAX allocated a combined total of $17.9
million in expenses to providing 10Gb ULL connectivity.\8\
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    \4\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
    \5\ The term ``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.
    \6\ See Securities Exchange Act Release No. 90981 (January 25,
2021), 86 FR 7582 (January 29, 2021) (SR-PEARL-2021-01).
    \7\ See Securities Exchange Act Release No. 90980 (January 25,
2021), 86 FR 7602 (January 29, 2021) (SR-MIAX-2021-02).
    \8\ See id.
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    Beginning in late January 2023, the Exchange also recently
determined a substantial operational need to no longer operate 10Gb ULL
connectivity on a single shared network with MIAX. The Exchange
bifurcated 10Gb ULL connectivity due to ever-increasing capacity
constraints and to enable it to continue to satisfy the anticipated
access needs for Members and other market participants.\9\ Since the
time of

2021 increase discussed above,\10\ the Exchange experienced ongoing
increases in expenses, particularly internal expenses.\11\ As discussed
more fully below, the Exchange recently calculated increased annual
aggregate costs of $11,567,509 for providing 10Gb ULL connectivity on a
single unshared network (an overall increase over its prior cost to
provide 10Gb ULL connectivity on a shared network with MIAX) and
$1,644,132 for providing Full Service MEO Ports.\12\
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    \9\ See MIAX Options and MIAX Pearl Options--Announce planned
network changes related to shared 10G ULL extranet, issued August
12, 2022, available at https://www.miaxoptions.com/alerts/2022/08/12/miax-options-and-miax-pearl-options-announce-planned-network-changes-related-0. The Exchange will continue to provide access to
both the Exchange and MIAX over a single shared 1Gb connection. See
Securities Exchange Act Release Nos. 96553 (December 20, 2022), 87
FR 79379 (December 27, 2022) (SR-PEARL-2022-60); 96545 (December 20,
2022) 87 FR 79393 (December 27, 2022) (SR-MIAX-2022-48).
    \10\ The Exchange notes it last filed to amend the fees for Full
Service MEO Ports in 2018 (excluding filings made in July 2021
through early 2022), prior to which the Exchange provided Full
Service MEO Ports free of charge since the it launched operations in
2017 and absorbed all costs since that time. See Securities Exchange
Act Release No. 82867 (March 13, 2018), 83 FR 12044 (March 19, 2018)
(SR-PEARL-2018-07).
    \11\ For example, the New York Stock Exchange, Inc.'s (``NYSE'')
Secure Financial Transaction Infrastructure (``SFTI'') network,
which contributes to the Exchange's connectivity cost, increased its
fees by approximately 9% since 2021. Similarly, since 2021, the
Exchange, and its affiliates, experienced an increase in data center
costs of approximately 17% and an increase in hardware and software
costs of approximately 19%. These percentages are based on the
Exchange's actual 2021 and proposed 2023 budgets.
    \12\ For the avoidance of doubt, all references to costs in this
filing, including the cost categories discussed below, refer to
costs incurred by MIAX Pearl Options only and not MIAX Pearl
Equities, the equities trading facility.
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    Much of the cost relates to monitoring and analysis of data and
performance of the network via the subscriber's connection with
nanosecond granularity, and continuous improvements in network
performance with the goal of improving the subscriber's experience. The
costs associated with maintaining and enhancing a state-of-the-art
network is a significant expense for the Exchange, and thus the
Exchange believes that it is reasonable and appropriate to help offset
those increased costs by amending fees for connectivity services.
Subscribers expect the Exchange to provide this level of support so
they continue to receive the performance they expect. This
differentiates the Exchange from its competitors.
    The Exchange now proposes to amend the Fee Schedule to amend the
fees for 10Gb ULL connectivity and Full Service MEO Ports (Bulk and
Single) in order to recoup cost related to bifurcating 10Gb
connectivity to the Exchange and MIAX as well as the ongoing costs and
increase in expenses set forth below in the Exchange's cost
analysis.\13\ The Exchange proposes to implement the changes to the Fee
Schedule pursuant to this proposal immediately. The Exchange initially
filed the proposal on December 30, 2022 (SR-PEARL-2022-62) (the
``Initial Proposal'').\14\ On February 23, 2023, the Exchange withdrew
the Initial Proposal and replaced it with a revised proposal (SR-PEARL-
2023-08) (the ``Second Proposal'').\15\ On April 20, 2023, the Exchange
withdrew the Second Proposal and replaced it with this proposal (SR-
PEARL-2023-19).
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    \13\ The Exchange notes that MIAX will make a similar filing to
increase its 10Gb ULL connectivity fees.
    \14\ See Securities Exchange Act Release No. 96632 (January 10,
2023), 88 FR 2707 (January 17, 2023) (SR-PEARL-2022-62).
    \15\ See Securities Exchange Act Release No. 97082 (March 8,
2023), 88 FR 15825 (March 14, 2023) (SR-PEARL-2023-05).
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    The Exchange previously included a cost analysis in the Initial
Proposal. As described more fully below, the Exchange provides an
updated cost analysis that includes, among other things, additional
descriptions of how the Exchange allocated costs among it and its
affiliated exchanges (separately among MIAX Pearl Options and MIAX
Pearl Equities, MIAX and MIAX Emerald \16\ (together with MIAX and MIAX
Pearl Equities, the ``affiliated markets'')) to ensure no cost was
allocated more than once, as well as additional detail supporting its
cost allocation processes and explanations as to why a cost allocation
in this proposal may differ from the same cost allocation in a similar
proposal submitted by one of its affiliated exchanges. Although the
baseline cost analysis used to justify the proposed fees was made in
the Initial Proposal and Second Proposal, the fees themselves have not
changed since the Initial Proposal or Second Proposal and the Exchange
still proposes fees that are intended to cover the Exchange's cost of
providing 10Gb ULL connectivity and Full Service MEO Ports with a
reasonable mark-up over those costs.
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    \16\ The term ``MIAX Emerald'' means MIAX Emerald, LLC. See
Exchange Rule 100.
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* * * * *
    Starting in 2017, following the United States Court of Appeals for
the District of Columbia's Susquehanna Decision \17\ and various other
developments, the Commission began to undertake a heightened review of
exchange filings, including non-transaction fee filings that was
substantially and materially different from it prior review process
(hereinafter referred to as the ``Revised Review Process''). In the
Susquehanna Decision, the D.C. Circuit Court stated that the Commission
could not maintain a practice of ``unquestioning reliance'' on claims
made by a self-regulatory organization (``SRO'') in the course of
filing a rule or fee change with the Commission.\18\ Then, on October
16, 2018, the Commission issued an opinion in Securities Industry and
Financial Markets Association finding that exchanges failed both to
establish that the challenged fees were constrained by significant
competitive forces and that these fees were consistent with the
Act.\19\ On that same day, the Commission issued an order remanding to
various exchanges and national market system (``NMS'') plans challenges
to over 400 rule changes and plan amendments that were asserted in 57
applications for review (the ``Remand Order'').\20\ The Remand Order
directed the exchanges to ``develop a record,'' and to ``explain their
conclusions, based on that record, in a written decision that is
sufficient to enable us to perform our review.'' \21\ The Commission
denied requests by various exchanges and plan participants for
reconsideration of the Remand Order.\22\ However, the Commission did
extend the deadlines in the Remand Order ``so that they d[id] not begin
to run until the resolution of the appeal of the SIFMA Decision in the
D.C. Circuit and the issuance of the court's mandate.'' \23\ Both the
Remand Order and the Order Denying Reconsideration were appealed to the
D.C. Circuit.
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    \17\ See Susquehanna International Group, LLP v. Securities &
Exchange Commission, 866 F.3d 442 (D.C. Circuit 2017) (the
``Susquehanna Decision'').
    \18\ Id.
    \19\ See Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 84432, 2018 WL 5023228 (October 16, 2018) (the ``SIFMA
Decision'').
    \20\ See Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 84433, 2018 WL 5023230 (Oct. 16, 2018). See 15 U.S.C.
78k-1, 78s; see also Rule 608(d) of Regulation NMS, 17 CFR
242.608(d) (asserted as an alternative basis of jurisdiction in some
applications).
    \21\ Id. at page 2.
    \22\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 85802, 2019 WL 2022819 (May 7, 2019) (the ``Order
Denying Reconsideration'').
    \23\ Order Denying Reconsideration, 2019 WL 2022819, at *13.
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    While the above appeal to the D.C. Circuit was pending, on March
29, 2019, the Commission issued an order disapproving a proposed fee
change by BOX Exchange LLC (``BOX'') to establish connectivity fees
(the ``BOX Order''), which significantly increased the level of
information needed for the Commission to believe that an exchange's
filing satisfied its obligations under the Act with respect to changing
a fee.\24\ Despite approving hundreds of

access fee filings in the years prior to the BOX Order (described
further below) utilizing a ``market-based'' test, the Commission
changed course and disapproved BOX's proposal to begin charging
connectivity at one-fourth the rate of competing exchanges' pricing.
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    \24\ See Securities Exchange Act Release No. 85459 (March 29,
2019), 84 FR 13363 (April 4, 2019) (SR-BOX-2018-24, SR-BOX-2018-37,
and SR-BOX-2019-04) (Order Disapproving Proposed Rule Changes to
Amend the Fee Schedule on the BOX Market LLC Options Facility to
Establish BOX Connectivity Fees for Participants and Non-
Participants Who Connect to the BOX Network). The Commission noted
in the BOX Order that it ``historically applied a `market-based'
test in its assessment of market data fees, which [the Commission]
believe[s] present similar issues as the connectivity fees proposed
herein.'' Id. at page 16. Despite this admission, the Commission
disapproved BOX's proposal to begin charging $5,000 per month for
10Gb connections (while allowing legacy exchanges to charge rates
equal to 3-4 times that amount utilizing ``market-based'' fee
filings from years prior).
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    Also while the above appeal was pending, on May 21, 2019, the
Commission Staff issued guidance ``to assist the national securities
exchanges and FINRA . . . in preparing Fee Filings that meet their
burden to demonstrate that proposed fees are consistent with the
requirements of the Securities Exchange Act.'' \25\ In the Staff
Guidance, the Commission Staff states that, ``[a]s an initial step in
assessing the reasonableness of a fee, staff considers whether the fee
is constrained by significant competitive forces.'' \26\ The Staff
Guidance also states that, ``. . . even where an SRO cannot
demonstrate, or does not assert, that significant competitive forces
constrain the fee at issue, a cost-based discussion may be an
alternative basis upon which to show consistency with the Exchange
Act.'' \27\
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    \25\ See Staff Guidance on SRO Rule Filings Relating to Fees
(May 21, 2019), available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Staff Guidance'').
    \26\ Id.
    \27\ Id.
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    Following the BOX Order and Staff Guidance, on August 6, 2020, the
D.C. Circuit vacated the Commission's SIFMA Decision in NASDAQ Stock
Market, LLC v. SEC \28\ and remanded for further proceedings consistent
with its opinion.\29\ That same day, the D.C. Circuit issued an order
remanding the Remand Order to the Commission for reconsideration in
light of NASDAQ. The court noted that the Remand Order required the
exchanges and NMS plan participants to consider the challenges that the
Commission had remanded in light of the SIFMA Decision. The D.C.
Circuit concluded that because the SIFMA Decision ``has now been
vacated, the basis for the [Remand Order] has evaporated.'' \30\
Accordingly, on August 7, 2020, the Commission vacated the Remand Order
and ordered the parties to file briefs addressing whether the holding
in NASDAQ v. SEC that Exchange Act Section 19(d) does not permit
challenges to generally applicable fee rules requiring dismissal of the
challenges the Commission previously remanded.\31\ The Commission
further invited ``the parties to submit briefing stating whether the
challenges asserted in the applications for review . . . should be
dismissed, and specifically identifying any challenge that they contend
should not be dismissed pursuant to the holding of Nasdaq v. SEC.''
\32\ Without resolving the above issues, on October 5, 2020, the
Commission issued an order granting SIFMA and Bloomberg's request to
withdraw their applications for review and dismissed the
proceedings.\33\
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    \28\ NASDAQ Stock Mkt., LLC v. SEC, No 18-1324, -- Fed. App'x --
-, 2020 WL 3406123 (D.C. Cir. June 5, 2020). The court's mandate was
issued on August 6, 2020.
    \29\ Nasdaq v. SEC, 961 F.3d 421, at 424, 431 (D.C. Cir. 2020).
The court's mandate issued on August 6, 2020. The D.C. Circuit held
that Exchange Act ``Section 19(d) is not available as a means to
challenge the reasonableness of generally-applicable fee rules.''
Id. The court held that ``for a fee rule to be challengeable under
Section 19(d), it must, at a minimum, be targeted at specific
individuals or entities.'' Id. Thus, the court held that ``Section
19(d) is not an available means to challenge the fees at issue'' in
the SIFMA Decision. Id.
    \30\ Id. at *2; see also id. (``[T]he sole purpose of the
challenged remand has disappeared.'').
    \31\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 89504, 2020 WL 4569089 (August 7, 2020) (the ``Order
Vacating Prior Order and Requesting Additional Briefs'').
    \32\ Id.
    \33\ Sec. Indus. & Fin. Mkts. Ass'n, Securities Exchange Act
Release No. 90087 (October 5, 2020).
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    As a result of the Commission's loss of the NASDAQ vs. SEC case
noted above, the Commission never followed through with its intention
to subject the over 400 fee filings to ``develop a record,'' and to
``explain their conclusions, based on that record, in a written
decision that is sufficient to enable us to perform our review.'' \34\
As such, all of those fees remained in place and amounted to a baseline
set of fees for those exchanges that had the benefit of getting their
fees in place before the Commission Staff's fee review process
materially changed. The net result of this history and lack of
resolution in the D.C. Circuit Court resulted in an uneven competitive
landscape where the Commission subjects all new non-transaction fee
filings to the new Revised Review Process, while allowing the
previously challenged fee filings, mostly submitted by incumbent
exchanges prior to 2019, to remain in effect and not subject to the
``record'' or ``review'' earlier intended by the Commission.
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    \34\ See supra note 29, at page 2.
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    While the Exchange appreciates that the Staff Guidance articulates
an important policy goal of improving disclosures and requiring
exchanges to justify that their market data and access fee proposals
are fair and reasonable, the practical effect of the Revised Review
Process, Staff Guidance, and the Commission's related practice of
continuous suspension of new fee filings, is anti-competitive,
discriminatory, and has put in place an un-level playing field, which
has negatively impacted smaller, nascent, non-legacy exchanges (``non-
legacy exchanges''), while favoring larger, incumbent, entrenched,
legacy exchanges (``legacy exchanges'').\35\ The legacy exchanges all
established a significantly higher baseline for access and market data
fees prior to the Revised Review Process. From 2011 until the issuance
of the Staff Guidance in 2019, national securities exchanges filed, and
the Commission Staff did not abrogate or suspend (allowing such fees to
become effective), at least 92 filings \36\ to amend exchange
connectivity or port fees (or similar access fees). The support for
each of those filings was a simple statement by the relevant exchange
that the fees were constrained by competitive forces.\37\ These fees
remain in effect today.
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    \35\ Commission Chair Gary Gensler recently reiterated the
Commission's mandate to ensure competition in the equities markets.
See ``Statement on Minimum Price Increments, Access Fee Caps, Round
Lots, and Odd-Lots'', by Chair Gary Gensler, dated December 14, 2022
(stating ``[i]n 1975, Congress tasked the Securities and Exchange
Commission with responsibility to facilitate the establishment of
the national market system and enhance competition in the securities
markets, including the equity markets'' (emphasis added)). In that
same statement, Chair Gary Gensler cited the five objectives laid
out by Congress in 11A of the Exchange Act (15 U.S.C. 78k-1),
including ensuring ``fair competition among brokers and dealers,
among exchange markets, and between exchange markets and markets
other than exchange markets. . . .'' (emphasis added). Id. at note
1. See also Securities Acts Amendments of 1975, available at https://www.govtrack.us/congress/bills/94/s249.
    \36\ This timeframe also includes challenges to over 400 rule
filings by SIFMA and Bloomberg discussed above. Sec. Indus. & Fin.
Mkts. Ass'n, Securities Exchange Act Release No. 84433, 2018 WL
5023230 (Oct. 16, 2018). Those filings were left to stand, while at
the same time, blocking newer exchanges from the ability to
establish competitive access and market data fees. See The Nasdaq
Stock Market, LLC v. SEC, Case No. 18-1292 (DC Cir. June 5, 2020).
The expectation at the time of the litigation was that the 400 rule
flings challenged by SIFMA and Bloomberg would need to be justified
under revised review standards.
    \37\ See, e.g., Securities Exchange Act Release Nos. 74417
(March 3, 2015), 80 FR 12534 (March 9, 2015) (SR-ISE-2015-06); 83016
(April 9, 2018), 83 FR 16157 (April 13, 2018) (SR-PHLX-2018-26);
70285 (August 29, 2013), 78 FR 54697 (September 5, 2013) (SR-
NYSEMKT-2013-71); 76373 (November 5, 2015), 80 FR 70024 (November
12, 2015) (SR-NYSEMKT-2015-90); 79729 (January 4, 2017), 82 FR 3061
(January 10, 2017) (SR-NYSEARCA-2016-172).

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    The net result is that the non-legacy exchanges are effectively now
blocked by the Commission Staff from adopting or increasing fees to
amounts comparable to the legacy exchanges (which were not subject to
the Revised Review Process and Staff Guidance), despite providing
enhanced disclosures and rationale to support their proposed fee
changes that far exceed any such support provided by legacy exchanges.
Simply put, legacy exchanges were able to increase their non-
transaction fees during an extended period in which the Commission
applied a ``market-based'' test that only relied upon the assumed
presence of significant competitive forces, while exchanges today are
subject to a cost-based test requiring extensive cost and revenue
disclosures, a process that is complex, inconsistently applied, and
rarely results in a successful outcome, i.e., non-suspension. The
Revised Review Process and Staff Guidance changed decades-long
Commission Staff standards for review, resulting in unfair
discrimination and placing an undue burden on inter-market competition
between legacy exchanges and non-legacy exchanges.
    Commission Staff now require exchange filings, including from non-
legacy exchanges such as MIAX Pearl, to provide detailed cost-based
analysis in place of competition-based arguments to support such
changes. However, even with the added detailed cost and expense
disclosures, the Commission Staff continues to either suspend such
filings and institute disapproval proceedings, or put the exchanges in
the unenviable position of having to repeatedly withdraw and re-file
with additional detail in order to continue to charge those fees.\38\
By impeding any path forward for non-legacy exchanges to establish
commensurate non-transaction fees, or by failing to provide any
alternative means for smaller markets to establish ``fee parity'' with
legacy exchanges, the Commission is stifling competition: non-legacy
exchanges are, in effect, being deprived of the revenue necessary to
compete on a level playing field with legacy exchanges. This is
particularly harmful, given that the costs to maintain exchange systems
and operations continue to increase. The Commission Staff's change in
position impedes the ability of non-legacy exchanges to raise revenue
to invest in their systems to compete with the legacy exchanges who
already enjoy disproportionate non-transaction fee based revenue. For
example, the Cboe Exchange, Inc. (``Cboe'') reported ``access and
capacity fee'' revenue of $70,893,000 for 2020 \39\ and $80,383,000 for
2021.\40\ Cboe C2 Exchange, Inc. (``C2'') reported ``access and
capacity fee'' revenue of $19,016,000 for 2020 \41\ and $22,843,000 for
2021.\42\ Cboe BZX Exchange, Inc. (``BZX'') reported ``access and
capacity fee'' revenue of $38,387,000 for 2020 \43\ and $44,800,000 for
2021.\44\ Cboe EDGX Exchange, Inc. (``EDGX'') reported ``access and
capacity fee'' revenue of $26,126,000 for 2020 \45\ and $30,687,000 for
2021.\46\ For 2021, the affiliated Cboe, C2, BZX, and EDGX (the four
largest exchanges of the Cboe exchange group) reported $178,712,000 in
``access and capacity fees'' in 2021. NASDAQ Phlx, LLC (``NASDAQ
Phlx'') reported ``Trade Management Services'' revenue of $20,817,000
for 2019.\47\ The Exchange notes it is unable to compare ``access fee''
revenues with NASDAQ Phlx (or other affiliated NASDAQ exchanges)
because after 2019, the ``Trade Management Services'' line item was
bundled into a much larger line item in PHLX's Form 1, simply titled
``Market services.'' \48\
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    \38\ The Exchange has filed, and subsequently withdrew, various
forms of this proposed fee change numerous times since August 2021
with each proposal containing hundreds of cost and revenue
disclosures never previously disclosed by legacy exchanges in their
access and market data fee filings prior to 2019.
    \39\ According to Cboe's 2021 Form 1 Amendment, access and
capacity fees represent fees assessed for the opportunity to trade,
including fees for trading-related functionality. See Cboe 2021 Form
1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000465.pdf.
    \40\ See Cboe 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001155.pdf.
    \41\ See C2 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000469.pdf.
    \42\ See C2 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001156.pdf.
    \43\ See BZX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000465.pdf.
    \44\ See BZX 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001152.pdf.
    \45\ See EDGX 2021 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000467.pdf.
    \46\ See EDGX 2022 Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2200/22001154.pdf.
    \47\ According to PHLX, ``Trade Management Services'' includes
``a wide variety of alternatives for connectivity to and accessing
[the PHLX] markets for a fee. These participants are charged monthly
fees for connectivity and support in accordance with [PHLX's]
published fee schedules.'' See PHLX 2020 Form 1 Amendment, available
at https://www.sec.gov/Archives/edgar/vprr/2001/20012246.pdf.
    \48\ See PHLX Form 1 Amendment, available at https://www.sec.gov/Archives/edgar/vprr/2100/21000475.pdf. The Exchange
notes that this type of Form 1 accounting appears to be designed to
obfuscate the true financials of such exchanges and has the effect
of perpetuating fee and revenue advantages of legacy exchanges.
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    The much higher non-transaction fees charged by the legacy
exchanges provides them with two significant competitive advantages.
First, legacy exchanges are able to use their additional non-
transaction revenue for investments in infrastructure, vast marketing
and advertising on major media outlets,\49\ new products and other
innovations. Second, higher non-transaction fees provide the legacy
exchanges with greater flexibility to lower their transaction fees (or
use the revenue from the higher non-transaction fees to subsidize
transaction fee rates), which are more immediately impactful in
competition for order flow and market share, given the variable nature
of this cost on member firms. The prohibition of a reasonable path
forward denies the Exchange (and other non-legacy exchanges) this
flexibility, eliminates the ability to remain competitive on
transaction fees, and hinders the ability to compete for order flow and
market share with legacy exchanges. While one could debate whether the
pricing of non-transaction fees are subject to the same market forces
as transaction fees, there is little doubt that subjecting one exchange
to a materially different standard than that historically applied to
legacy exchanges for non-transaction fees leaves that exchange at a
disadvantage in its ability to compete with its pricing of transaction
fees.
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    \49\ See, e.g., CNBC Debuts New Set on NYSE Floor, available at
https://www.cnbc.com/id/46517876.
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    While the Commission has clearly noted that the Staff Guidance is
merely guidance and ``is not a rule, regulation or statement of the . .
. Commission . . . the Commission has neither approved nor disapproved
its content . . .'',\50\ this is not the reality experienced by
exchanges such as MIAX Pearl. As such, non-legacy exchanges are forced
to rely on an opaque cost-based justification standard. However,
because the Staff Guidance is devoid of detail on what must be
contained in cost-based justification, this standard is nearly
impossible to meet despite repeated good-faith efforts by the Exchange
to provide substantial amount of cost-related details. For example, the
Exchange has attempted to increase fees

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

    \50\ See supra note 25, at note 1.
    \51\ See Securities Exchange Act Release Nos. 92798 (August 27,
2021), 86 FR 49360 (September 2, 2021) (SR-PEARL-2021-33); 92644
(August 11, 2021), 86 FR 46055 (August 17, 2021) (SR-PEARL-2021-36);
93162 (September 28, 2021), 86 FR 54739 (October 4, 2021) (SR-PEARL-
2021-45); 93556 (November 10, 2021), 86 FR 64235 (November 17, 2021)
(SR-PEARL-2021-53); 93774 (December 14, 2021), 86 FR 71952 (December
20, 2021) (SR-PEARL-2021-57); 93894 (January 4, 2022), 87 FR 1203
(January 10, 2022) (SR-PEARL-2021-58); 94258 (February 15, 2022), 87
FR 9659 (February 22, 2022) (SR-PEARL-2022-03); 94286 (February 18,
2022), 87 FR 10860 (February 25, 2022) (SR-PEARL-2022-04); 94721
(April 14, 2022), 87 FR 23573 (April 20, 2022) (SR-PEARL-2022-11);
94722 (April 14, 2022), 87 FR 23660 (April 20, 2022) (SR-PEARL-2022-
12); 94888 (May 11, 2022), 87 FR 29892 (May 17, 2022) (SR-PEARL-
2022-18).
    \52\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    Because of the un-level playing field created by the Revised Review
Process and Staff Guidance, the Exchange believes that the Commission
Staff, at this point, should either (a) provide sufficient clarity on
how its cost-based standard can be met, including a clear and
exhaustive articulation of required data and its views on acceptable
margins,\53\ to the extent that this is pertinent; (b) establish a
framework to provide for commensurate non-transaction based fees among
competing exchanges to ensure fee parity; \54\ or (c) accept that
certain competition-based arguments are applicable given the linkage
between non-transaction fees and transaction fees, especially where
non-transaction fees among exchanges are based upon disparate standards
of review, lack parity, and impede fair competition. Considering the
absence of any such framework or clarity, the Exchange believes that
the Commission does not have a reasonable basis to deny the Exchange
this change in fees, where the proposed change would result in fees
meaningfully lower than comparable fees at competing exchanges and
where the associated non-transaction revenue is meaningfully lower than
competing exchanges.
---------------------------------------------------------------------------

    \53\ To the extent that the cost-based standard includes
Commission Staff making determinations as to the appropriateness of
certain profit margins, the Exchange believes that Staff should be
clear as to what they determine is an appropriate profit margin.
    \54\ In light of the arguments above regarding disparate
standards of review for historical legacy non-transaction fees and
current non-transaction fees for non-legacy exchanges, a fee parity
alternative would be one possible way to avoid the current unfair
and discriminatory effect of the Staff Guidance and Revised Review
Process. See, e.g., CSA Staff Consultation Paper 21-401, Real-Time
Market Data Fees, available at https://www.bcsc.bc.ca/-/media/PWS/Resources/Securities_Law/Policies/Policy2/21401_Market_Data_Fee_CSA_Staff_Consulation_Paper.pdf.
---------------------------------------------------------------------------

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

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

    Lastly, the Exchange notes that the Commission Staff has allowed
similar fee increases by other exchanges to remain in effect by
publishing those filings for comment and allowing the exchange to
withdraw and re-file numerous times.\56\ Recently, the Commission Staff
has not afforded the Exchange the same flexibility.\57\ This again is
evidence that the Commission Staff is not treating non-transaction fee
filings in a consistent manner and is holding exchanges to different
levels of scrutiny in reviewing filings.
---------------------------------------------------------------------------

    \56\ See, e.g., Securities Exchange Act Release Nos. 93937
(January 10, 2022), 87 FR 2466 (January 14, 2022) (SR-MEMX-2021-22);
94419 (March 15, 2022), 87 FR 16046 (March 21, 2022) (SR-MEMX-2022-
02); SR-MEMX-2022-12 (withdrawn before being noticed); 94924 (May
16, 2022), 87 FR 31026 (May 20, 2022) (SR-MEMX-2022-13); 95299 (July
15, 2022), 87 FR 43563 (July 21, 2022) (SR-MEMX-2022-17); SR-MEMX-
2022-24 (withdrawn before being noticed); 95936 (September 27,
2022), 87 FR 59845 (October 3, 2022) (SR-MEMX-2022-26); 94901 (May
12, 2022), 87 FR 30305 (May 18, 2022) (SR-MRX-2022-04); SR-MRX-2022-
06 (withdrawn before being noticed); 95262 (July 12, 2022), 87 FR
42780 (July 18, 2022) (SR-MRX-2022-09); 95710 (September 8, 2022),
87 FR 56464 (September 14, 2022) (SR-MRX-2022-12); 96046 (October
12, 2022), 87 FR 63119 (October 18, 2022) (SR-MRX-2022-20); 95936
(September 27, 2022), 87 FR 59845 (October 3, 2022) (SR-MEMX-2022-
26); and 96430 (December 1, 2022), 87 FR 75083 (December 7, 2022)
(SR-MEMX-2022-32).
    \57\ See Securities Exchange Act Release Nos. 94721 (April 14,
2022), 87 FR 23573 (April 20, 2022) (SR-PEARL-2022-11) and 94722
(April 14, 2022), 87 FR 23660 (April 20, 2022) (SR-PEARL-2022-12).
---------------------------------------------------------------------------

* * * * *
10Gb ULL Connectivity Fee Change
    MIAX Pearl Options recently filed a proposal to no longer operate
10Gb connectivity to MIAX Pearl Options on a single shared network with
its affiliate, MIAX. This change is an operational necessity due to
ever-increasing capacity constraints and to accommodate anticipated
access needs for Members and other market participants.\58\ This
proposal: (i) sets forth the applicable fees for the bifurcated 10Gb
ULL network; and (ii) removes provisions in the Fee Schedule that
provides for a shared 10Gb ULL network; and (iii) specifies that market
participants may continue to connect to both MIAX Pearl Options and
MIAX via the 1Gb network.
---------------------------------------------------------------------------

    \58\ See supra note 9.
---------------------------------------------------------------------------

    MIAX Pearl Options bifurcated the MIAX Pearl Options and MIAX 10Gb
ULL networks in the first quarter of 2023, which change became
effective on January 23, 2023. The Exchange issued an alert on August
12, 2022 publicly announcing the planned network

change and implementation plan and dates to provide market participants
adequate time to prepare.\59\ Upon bifurcation of the 10Gb ULL network,
subscribers need to purchase separate connections to MIAX Pearl Options
and MIAX at the applicable rate. The Exchange's proposed amended rate
for 10Gb ULL connectivity is described below. Prior to the bifurcation
of the 10Gb ULL networks, subscribers to 10Gb ULL connectivity were
able to connect to both MIAX Pearl Options and MIAX at the applicable
rate set forth below.
---------------------------------------------------------------------------

    \59\ Id.
---------------------------------------------------------------------------

    The Exchange, therefore, proposes to amend the Fee Schedule to
increase the fees for Members and non-Members to access the Exchange's
system networks \60\ via a 10Gb ULL fiber connection and to specify
that this fee is for a dedicated connection to MIAX Pearl Options and
no longer provides access to MIAX. Specifically, MIAX Pearl Options
proposes to amend Sections 5)a)-b) of the Fee Schedule to increase the
10Gb ULL connectivity fee for Members and non-Members from $10,000 per
month to $13,500 per month (``10Gb ULL Fee'').\61\ The Exchange also
proposes to amend the Fee Schedule to reflect the bifurcation of the
10Gb ULL network and specify that only the 1Gb network provides access
to both MIAX Pearl Options and MIAX.
---------------------------------------------------------------------------

    \60\ The Exchange's system networks consist of the Exchange's
extranet, internal network, and external network.
    \61\ Market participants that purchase additional 10Gb ULL
connections as a result of this change will not be subject to the
Exchange's Member Network Connectivity Testing and Certification Fee
under Section 4)c) of the Exchange's fee schedule. See Section 4)c)
of the Exchange's fee schedule available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_10192022.pdf (providing that ``Network
Connectivity Testing and Certification Fees will not be assessed in
situations where the Exchange initiates a mandatory change to the
Exchange's system that requires testing and certification. Member
Network Connectivity Testing and Certification Fees will not be
assessed for testing and certification of connectivity to the
Exchange's Disaster Recovery Facility.'').
---------------------------------------------------------------------------

    The Exchange proposes to make the following changes to reflect the
bifurcated 10Gb ULL network for the Exchange and MIAX. First, in the
Definitions section of the Fee Schedule, the Exchange proposes to amend
the last sentence in the definition of ``MENI'' to specify that the
MENI can be configured to provide network connectivity to the trading
platforms, market data systems, test systems, and disaster recovery
facilities of the Exchange's affiliate, MIAX, via a single, shared 1Gb
connection. Next, the Exchange proposes to amend the explanatory
paragraphs below the network connectivity fee tables in Sections 5)a)-
b) of the Fee Schedule to specify that, with the bifurcated 10Gb ULL
network, Members (and non-Members) utilizing the MENI to connect to the
trading platforms, market data systems, test systems, and disaster
recovery facilities of the Exchange and MIAX via a single, can only do
so via a shared 1Gb connection.
    The Exchange will continue to assess monthly Member and non-Member
network connectivity fees for connectivity to the primary and secondary
facilities in any month the Member or non-Member is credentialed to use
any of the Exchange APIs or market data feeds in the production
environment. The Exchange will continue to pro-rate the fees when a
Member or non-Member makes a change to the connectivity (by adding or
deleting connections) with such pro-rated fees based on the number of
trading days that the Member or non-Member has been credentialed to
utilize any of the Exchange APIs or market data feeds in the production
environment through such connection, divided by the total number of
trading days in such month multiplied by the applicable monthly rate.
Full Service MEO Ports--Bulk and Single
Background
    The Exchange also proposes to amend Section 5)d) of the Fee
Schedule to amend the calculation and amount of fees for Full Service
MEO Ports. The Exchange currently offers different types of MEO Ports
depending on the services required by the Member, including a Full
Service MEO Port-Bulk,\62\ a Full Service MEO Port-Single,\63\ and a
Limited Service MEO Port.\64\ For one monthly price, a Member may be
allocated two (2) Full-Service MEO Ports of either type per matching
engine \65\ and may request Limited Service MEO Ports for which MIAX
Pearl will assess Members Limited Service MEO Port fees 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.
---------------------------------------------------------------------------

    \62\ ``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.
    \63\ ``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.
    \64\ ``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.
    \65\ A ``Matching Engine'' is a part of the Exchange's
electronic system that processes options orders and trades on a
symbol-by-symbol basis. See the Definitions Section of the Fee
Schedule.
---------------------------------------------------------------------------

    Currently, 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 \66\ on the Exchange, across all origin
types, not including Excluded Contracts,\67\ as compared to the Total
Consolidated Volume (``TCV''),\68\ 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 to
Members in each month the market participant is credentialed to use a
Port in the production environment.
---------------------------------------------------------------------------

    \66\ ``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). See the Definitions Section of the Fee Schedule.
    \67\ ``Excluded Contracts'' means any contracts routed to an
away market for execution. See the Definitions Section of the Fee
Schedule.
    \68\ ``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.
---------------------------------------------------------------------------

Full Service MEO Port (Bulk) Fee Changes
    Current Full Service MEO Port (Bulk) Fees. The Exchange currently
assesses all Members (Market Makers \69\ and Electronic Exchange
Members \70\

(``EEMs'')) monthly Full Service MEO Port--Bulk fees as follows:
---------------------------------------------------------------------------

    \69\ 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.
    \70\ The term ``Electronic Exchange Member'' or ``EEM'' means
the holder of a Trading Permit who is a Member representing as agent
Public Customer Orders or Non-Customer Orders on the Exchange and
those non-Market Maker Members conducting proprietary trading.
Electronic Exchange Members are deemed ``members'' under the
Exchange Act. See the Definitions Section of the Fee Schedule and
Exchange Rule 100.
---------------------------------------------------------------------------

    (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 within 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 proposes
to amend the calculation and amount of Full Service MEO Port (Bulk)
fees for EEMs and Market Makers. In particular, for EEMs, the Exchange
proposes to move away from the above-described volume tier-based fee
structure and instead charge all EEMs that utilize Full Service MEO
Ports (Bulk) a flat monthly fee of $7,500. For this flat monthly fee,
EEMs will continue to be entitled to two (2) Full Service MEO Ports
(Bulk) for each Matching Engine for the single monthly fee of $7,500.
The Exchange now proposes to amend the calculation and amount of Full
Service MEO Port (Bulk) fees for Market Makers by moving away from the
above-described volume tier-based fee structure to harmonize the Full
Service MEO Port (Bulk) fee structure for Market Makers with that of
the Exchange's affiliates, MIAX and MIAX Emerald.\71\ The Exchange
proposes that the amount of the monthly Full Service MEO Port (Bulk)
fees for Market Makers would be based on the lesser of either the per
class traded or percentage of total national average daily volume
(``ADV'') measurement based on classes traded by volume. The amount of
monthly Market Maker Full Service MEO Port (Bulk) fee would be based
upon the number of classes in which the Market Maker was registered to
quote on any given day within the calendar month, or upon the class
volume percentages. This change in how Full Service MEO Port (Bulk)
fees are calculated is identical to how the Exchange assesses Market
Makers Trading Permit fees, which is in line with how numerous
exchanges charge similar membership fees.
---------------------------------------------------------------------------

    \71\ See MIAX Fee Schedule, Section (5)(d)(ii) and MIAX Emerald
Fee Schedule, Section (5)(d)(ii).
---------------------------------------------------------------------------

    Specifically, the Exchange proposes to adopt the following Full
Service MEO Port (Bulk) fees for Market Makers: (i) $5,000 for Market
Maker registrations in up to 10 option classes or up to 20% of option
classes by national ADV; (ii) $7,500 for Market Maker registrations in
up to 40 option classes or up to 35% of option classes by ADV; (iii)
$10,000 for Market Maker registrations in up to 100 option classes or
up to 50% of option classes by ADV; and (iv) $12,000 for Market Maker
registrations in over 100 option classes or over 50% of option classes
by ADV up to all option classes listed on MIAX Pearl. For example, if
Market Maker 1 elects to quote the top 40 option classes which consist
of 58% of the total national average daily volume in the prior calendar
quarter, the Exchange would assess $7,500 to Market Maker 1 for the
month which is the lesser of `up to 40 classes' and `over 50% of
classes by volume up to all classes listed on MIAX Pearl'. If Market
Maker 2 elects to quote the bottom 1000 option classes which consist of
10% of the total national average daily volume in the prior quarter,
the Exchange would assess $5,000 to Market Maker 2 for the month which
is the lesser of `over 100 classes' and `up to 20% of classes by
volume. The Exchange notes that the proposed tiers (ranging from $5,000
to $12,000) are lower than the tiers that the Exchange's affiliates
charge for their comparable ports (ranging from $5,000 to $20,500) for
similar per class tier thresholds.\72\
---------------------------------------------------------------------------

    \72\ See id.
---------------------------------------------------------------------------

    With the proposed changes, a Market Maker would be determined to be
registered in a class if that Market Maker has been registered in one
or more series in that class.\73\ The Exchange will assess MIAX Pearl
Options Market Makers the monthly Market Maker Full Service MEO Port
(Bulk) fee based on the greatest number of classes listed on MIAX Pearl
Options that the MIAX Pearl Options Market Maker registered to quote in
on any given day within a calendar month. Therefore, with the proposed
changes to the calculation of Market Maker Full Service MEO Port (Bulk)
fees, the Exchange's Market Makers would be encouraged to quote in more
series in each class they are registered in because each additional
series in that class would not count against their total classes for
purposes of the Full Service MEO Port (Bulk) fee tiers. The class
volume percentage is based on the total national ADV in classes listed
on MIAX Pearl Options in the prior calendar quarter. Newly listed
option classes are excluded from the calculation of the monthly Market
Maker Full Service MEO Port (Bulk) fee until the calendar quarter
following their listing, at which time the newly listed option classes
will be included in both the per class count and the percentage of
total national ADV.
---------------------------------------------------------------------------

    \73\ Pursuant to Exchange Rule 602(a), a Member that has
qualified as a Market Maker may register to make markets in
individual series of options.
---------------------------------------------------------------------------

    The Exchange also proposes to adopt an alternative lower Full
Service MEO Port (Bulk) fee for Market Makers who fall within the 2nd,
3rd and 4th levels of the proposed Market Maker Full Service MEO Port
(Bulk) fee table: (i) Market Maker registrations in up to 40 option
classes or up to 35% of option classes by volume; (ii) Market Maker
registrations in up to 100 option classes or up to 50% of option
classes by volume; and (iii) Market Maker registrations in over 100
option classes or over 50% of option classes by volume up to all option
classes listed on MIAX Pearl Options. In particular, the Exchange
proposes to adopt footnote ``**'' following the Market Maker Full
Service MEO Port (Bulk) fee table for these Monthly Full Service MEO
Port (Bulk) tier levels. New proposed footnote ``**'' will provide that
if the Market Maker's total monthly executed volume during the relevant
month is less than 0.040% of the total monthly TCV for MIAX Pearl-
listed option classes for that month, then the fee will be $6,000
instead of the fee otherwise applicable to such level.
    The purpose of the alternative lower fee designated in proposed
footnote ``**'' is to provide a lower fixed fee to those Market Makers
who are willing to quote the entire Exchange market (or substantial
amount of the Exchange market), as objectively measured by either
number of classes assigned or national ADV, but who do not otherwise
execute a significant amount of volume on the Exchange. The Exchange
believes that, by offering lower fixed fees to Market Makers that
execute less volume, the Exchange will retain and attract smaller-scale
Market Makers, which are an integral component of the option
marketplace, but have been decreasing in number in recent years, due to
industry consolidation. Since these smaller-scale Market Makers utilize
less Exchange capacity due to lower overall volume executed, the
Exchange believes it is reasonable and equitable to offer such Market
Makers a lower fixed fee. The Exchange notes that the Exchange's
affiliates, MIAX and MIAX Emerald, also provide lower MIAX Express
Interface (``MEI'') Port fees (the comparable ports on those exchanges)
for Market Makers who quote the entire MIAX and MIAX Emerald markets
(or substantial amount of those markets), as objectively measured by
either number of classes assigned or national ADV, but who do not
otherwise execute a significant amount of volume on MIAX

or MIAX Emerald.\74\ The proposed changes to the Full Service MEO Port
(Bulk) fees for Market Makers who fall within the 2nd, 3rd and 4th
levels of the fee table are based upon a business determination of
current Market Maker assignments and trading volume.
---------------------------------------------------------------------------

    \74\ See MIAX Fee Schedule, Section 5)d)ii), note ``*'' and MIAX
Emerald Fee Schedule, Section (5)(d)(ii), note ``[ssquf]''.
---------------------------------------------------------------------------

    Unlike other options exchanges that provide similar port
functionality and charge fees on a per port basis,\75\ 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 Market Makers
may receive up to twenty-four (24) Full Service MEO Ports for a single
monthly fee, that can vary based on the lesser of either the per class
traded or percentage of total national ADV measurement based on classes
traded by volume, as described above. For illustrative purposes, the
Exchange currently assesses a fee of $5,000 per month for Market Makers
that reach the highest Full Service MEO Port (Bulk) tier, regardless of
the number of Full Service MEO Ports allocated to the Market Maker. For
example, assuming a Market Maker connects to all twelve (12) matching
engines during a month, with two Full Service MEO Ports (Bulk) per
matching engine, this results in an effective fee of $208.33 per Full
Service MEO Port ($5,000 divided by 24) for the month, as compared to
other exchanges that charge over $1,000 per port and require multiple
ports to connect to all of their matching engines.\76\ This fee had
been unchanged since the Exchange adopted Full Service MEO Port fees in
2018.\77\ The Exchange proposes to increase Full Service MEO Port fees,
with the highest monthly fee of $12,000 for the Full Service MEO Ports
(Bulk). Market Makers 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 Market Maker connects to all twelve (12)
matching engines during the month, with two Full Service MEO Ports per
matching engine, this would result in an effective fee of $500 per Full
Service MEO Port ($12,000 divided by 24).
---------------------------------------------------------------------------

    \75\ 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 and NASDAQ BX, Inc. (``BX''), have trading
infrastructures that may consist of multiple matching engines with
each matching engine trading only a range of option classes.
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.
    \76\ Id. See also infra notes 101 to 108 and accompanying text.
    \77\ See Securities Exchange Act Release No. 82867 (March 13,
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).

                                             Full Service MEO Ports
                                                     [Bulk]
----------------------------------------------------------------------------------------------------------------
                                                             Total number of
                                                            ports for market
                                           Number of match  maker to connect      Total fee       Effective per
                                               engines        to all match        (monthly)         port fee
                                                                 engines
----------------------------------------------------------------------------------------------------------------
Pricing Based on Market Maker Being                     12                24            $5,000           $208.33
 Charged the Highest Tier (Current).....
Pricing Based on Market Maker Being                     12                24            12,000               500
 Charged the Highest Tier (as proposed).
----------------------------------------------------------------------------------------------------------------

Full Service MEO Port (Single) Fee Changes
    Current Full Service MEO Port (Single) Fees. The Exchange currently
assesses all Members (Market Makers and EEMs) 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 within 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 proposes
to amend the calculation and amount of Full Service MEO Port (Single)
fees for EEMs and Market Makers. In particular, the Exchange proposes
to move away from the above-described volume tier-based fee structure
and instead charge all Members that utilize Full Service MEO Ports
(Single) a flat monthly fee of $4,000. For this flat monthly fee, all
Members will continue to be entitled to two (2) Full Service MEO Ports
(Single) for each Matching Engine for the single monthly fee of $4,000.
    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 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 account for
the vast majority of network capacity utilization and volume executed
on the Exchange, as discussed throughout. For example, three (3)
Members account for 64% of all 10Gb ULL connections and Full Service
MEO Ports purchased.
    The Exchange proposes to increase its monthly Full Service MEO Port
fees since it has not done so since the fees were adopted in 2018,\78\
which are designed to recover a portion of the costs associated with
directly accessing the Exchange. As described above, the Exchange's
affiliates, MIAX and MIAX Emerald, also charge fees for their high
throughput, low latency ports in a similar fashion as the Exchange
proposes to charge 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.\79\ This concept is, therefore, not new or novel.
---------------------------------------------------------------------------

    \78\ See id.
    \79\ See MIAX Fee Schedule, Section 5)d)ii); MIAX Emerald Fee
Schedule, Section 5)d)ii).
---------------------------------------------------------------------------

    Implementation. The proposed fee changes are immediately effective.
2. Statutory Basis
    The Exchange believes that the proposed fees are consistent with
Section 6(b) of the Act \80\ in general, and furthers the objectives of
Section 6(b)(4) of the Act \81\ in particular, in that it provides for
the equitable allocation of reasonable dues, fees and other charges
among Members and other persons using any facility or system which the
Exchange operates or controls. The Exchange also believes the proposed
fees further the objectives of Section 6(b)(5) of the Act \82\ in that
they are designed to promote just and equitable principles of trade,
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general protect investors
and the public interest and are not designed to permit unfair
discrimination between customers, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \80\ 15 U.S.C. 78f(b).
    \81\ 15 U.S.C. 78f(b)(4).
    \82\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the information provided to justify the
proposed fees meets or exceeds the amount of detail required in respect
of proposed fee changes under the Revised Review Process and as set
forth in recent Staff Guidance. Based on both the BOX Order \83\ and
the Staff Guidance,\84\ the Exchange believes that the proposed fees
are consistent with the Act because they are: (i) reasonable, equitably
allocated, not unfairly discriminatory, and not an undue burden on
competition; (ii) comply with the BOX Order and the Staff Guidance; and
(iii) supported by evidence (including comprehensive revenue and cost
data and analysis) that they are fair and reasonable and will not
result in excessive pricing or supra-competitive profit.
---------------------------------------------------------------------------

    \83\ See supra note 24.
    \84\ See supra note 25.
---------------------------------------------------------------------------

    The Exchange believes that exchanges, in setting fees of all types,
should meet high standards of transparency to demonstrate why each new
fee or fee amendment meets the requirements of the Act that fees be
reasonable, equitably allocated, not unfairly discriminatory, and not
create an undue burden on competition among market participants. The
Exchange believes this high standard is especially important when an
exchange imposes various fees for market participants to access an
exchange's marketplace.
    In the Staff Guidance, the Commission Staff states that, ``[a]s an
initial step in assessing the reasonableness of a fee, staff considers
whether the fee is constrained by significant competitive forces.''
\85\ The Staff Guidance further states that, ``. . . even where an SRO
cannot demonstrate, or does not assert, that significant competitive
forces constrain the fee at issue, a cost-based discussion may be an
alternative basis upon which to show consistency with the Exchange
Act.'' \86\ In the Staff Guidance, the Commission Staff further states
that, ``[i]f an SRO seeks to support its claims that a proposed fee is
fair and reasonable because it will permit recovery of the SRO's costs,
. . ., specific information, including quantitative information, should
be provided to support that argument.'' \87\
---------------------------------------------------------------------------

    \85\ Id.
    \86\ Id.
    \87\ Id.
---------------------------------------------------------------------------

    The proposed fees are reasonable because they promote parity among
exchange pricing for access, which promotes competition, including in
the Exchanges' ability to competitively price transaction fees, invest
in infrastructure, new products and other innovations, all while
allowing the Exchange to recover its costs to provide dedicated access
via 10Gb ULL connectivity (driven by the bifurcation of the 10Gb ULL
network) and Full Service MEO Ports. As discussed above, the Revised
Review Process and Staff Guidance have created an uneven playing field
between legacy and non-legacy exchanges by severely restricting non-
legacy exchanges from being able to increase non-transaction relates
fees to provide them with additional necessary revenue to better
compete with legacy exchanges, which largely set fees prior to the
Revised Review Process. The much higher non-transaction fees charged by
the legacy exchanges provides them with two significant competitive
advantages: (i) additional non-transaction revenue that may be used to
fund areas other than the non-transaction service related to the fee,
such as investments in infrastructure, advertising, new products and
other innovations; and (ii) greater flexibility to lower their
transaction fees by using the revenue from the higher non-transaction
fees to subsidize transaction fee rates. The latter is more immediately
impactful in competition for order flow and market share, given the
variable nature of this cost on Member firms. The absence of a
reasonable path forward to increase non-transaction fees to comparable
(or lower rates) limits the Exchange's flexibility to, among other
things, make additional investments in infrastructure and advertising,
diminishes the ability to remain competitive on transaction fees, and
hinders the ability to compete for order flow and market share. Again,
while one could debate whether the pricing of non-transaction fees are
subject to the same market forces as transaction fees, there is little
doubt that subjecting one exchange to a materially different standard
than that applied to other exchanges for non-transaction fees leaves
that exchange at a disadvantage in its ability to compete with its
pricing of transaction fees.
The Proposed Fees Ensure Parity Among Exchange Access Fees, Which
Promotes Competition
    The Exchange commenced operations in February 2017 \88\ and adopted
its initial fee schedule, with 10Gb ULL connectivity fees set at $8,500
(the Exchange originally had a non-ULL 10Gb connectivity option, which
it has since removed) and a fee waiver for all

Full Service MEO Port fees.\89\ As a new exchange entrant, the Exchange
chose to offer Full Service MEO Ports free of charge to encourage
market participants to trade on the Exchange and experience, among
things, the quality of the Exchange's technology and trading
functionality. This practice is not uncommon. New exchanges often do
not charge fees or charge lower fees for certain services such as
memberships/trading permits to attract order flow to an exchange, and
later amend their fees to reflect the true value of those services,
absorbing all costs to provide those services in the meantime. Allowing
new exchange entrants time to build and sustain market share through
various pricing incentives before increasing non-transaction fees
encourages market entry and fee parity, which promotes competition
among exchanges. It also enables new exchanges to mature their markets
and allow market participants to trade on the new exchanges without
fees serving as a potential barrier to attracting memberships and order
flow.\90\
---------------------------------------------------------------------------

    \88\ See MIAX PEARL Successfully Launches Trading Operations,
dated February 6, 2017, available at https://www.miaxoptions.com/sites/default/files/alert-files/MIAX_Press_Release_02062017.pdf.
    \89\ See Securities Exchange Act Release No. 80061 (February 17,
2017), 82 FR 11676 (February 24, 2017) (SR-PEARL-2017-10).
    \90\ See Securities Exchange Act Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (stating, ``[t]he
Exchange established this lower (when compared to other options
exchanges in the industry) Participant Fee in order to encourage
market participants to become Participants of BOX. . .''). See also
Securities Exchange Act Release No. 90076 (October 2, 2020), 85 FR
63620 (October 8, 2020) (SR-MEMX-2020-10) (proposing to adopt the
initial fee schedule and stating that ``[u]nder the initial proposed
Fee Schedule, the Exchange proposes to make clear that it does not
charge any fees for membership, market data products, physical
connectivity or application sessions.''). MEMX's market share has
increased and recently proposed to adopt numerous non-transaction
fees, including fees for membership, market data, and connectivity.
See Securities Exchange Act Release Nos. 93927 (January 7, 2022), 87
FR 2191 (January 13, 2022) (SR-MEMX-2021-19) (proposing to adopt
membership fees); 96430 (December 1, 2022), 87 FR 75083 (December 7,
2022) (SR-MEMX-2022-32) and 95936 (September 27, 2022), 87 FR 59845
(October 3, 2022) (SR-MEMX-2022-26) (proposing to adopt fees for
connectivity). See also, e.g., Securities Exchange Act Release No.
88211 (February 14, 2020), 85 FR 9847 (February 20, 2020) (SR-
NYSENAT-2020-05), available at https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2020/SR-NYSENat-2020-05.pdf (initiating market data fees for the NYSE National exchange
after initially setting such fees at zero).
---------------------------------------------------------------------------

    Later in 2018, as the Exchange's market share increased,\91\ the
Exchange adopted nominal fees for Full Service MEO Ports.\92\ The
Exchange last increased the fees for its 10Gb ULL fiber connections
from $9,300 to $10,000 per month on January 1, 2021.\93\ The Exchange
balanced business and competitive concerns with the need to financially
compete with the larger incumbent exchanges that charge higher fees for
similar connectivity and use that revenue to invest in their technology
and other service offerings.
---------------------------------------------------------------------------

    \91\ The Exchange experienced a monthly average trading volume
of 3.94% for the month of March 2018. See Market at a Glance,
available at www.miaxoptions.com.
    \92\ See Securities Exchange Act Release No. 82867 (March 13,
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
    \93\ See Securities Exchange Act Release No. 90981 (January 25,
2021), 86 FR 7582 (January 29, 2021) (SR-PEARL-2021-01).
---------------------------------------------------------------------------

    The proposed changes to the Fee Schedule are reasonable in several
respects. As a threshold matter, the Exchange is subject to significant
competitive forces, which constrains its pricing determinations for
transaction fees as well as non-transaction fees. The fact that the
market for order flow is competitive has long been recognized by the
courts. In NetCoalition v. Securities and Exchange Commission, the D.C.
Circuit stated, ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .'' \94\
---------------------------------------------------------------------------

    \94\ See NetCoalition, 615 F.3d at 539 (D.C. Cir. 2010) (quoting
Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR
74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention to determine
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues, and also recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \95\
---------------------------------------------------------------------------

    \95\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------

    Congress directed the Commission to ``rely on `competition,
whenever possible, in meeting its regulatory responsibilities for
overseeing the SROs and the national market system.' '' \96\ As a
result, and as evidenced above, the Commission has historically relied
on competitive forces to determine whether a fee proposal is equitable,
fair, reasonable, and not unreasonably or unfairly discriminatory. ``If
competitive forces are operative, the self-interest of the exchanges
themselves will work powerfully to constrain unreasonable or unfair
behavior.'' \97\ Accordingly, ``the existence of significant
competition provides a substantial basis for finding that the terms of
an exchange's fee proposal are equitable, fair, reasonable, and not
unreasonably or unfairly discriminatory.'' \98\ In the Revised Review
Process and Staff Guidance, Commission Staff indicated that they would
look at factors beyond the competitive environment, such as cost, only
if a ``proposal lacks persuasive evidence that the proposed fee is
constrained by significant competitive forces.'' \99\
---------------------------------------------------------------------------

    \96\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep.
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that
the national market system evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed.'').
    \97\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \98\ Id.
    \99\ See Staff Guidance, supra note 25.
---------------------------------------------------------------------------

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

------------------------------------------------------------------------
                                     Type of          Monthly fee (per
           Exchange               connection or      connection or per
                                       port                port)
------------------------------------------------------------------------
MIAX Pearl Options (as          10Gb ULL           $13,500.
 proposed) (equity options       connection.
 market share of 6.96% for the
 month of March 2023) \100\.
                                Full Service MEO   Lesser of either the
                                 Port (Bulk) for    per class basis or
                                 Market Makers.     percentage of total
                                                    national ADV by the
                                                    Market Maker, as
                                                    follows:
                                                   $5,000--up to 10
                                                    classes or up to 20%
                                                    of classes by
                                                    volume.
                                                   $7,500**--up to 40
                                                    classes or up to 35%
                                                    of classes by
                                                    volume.
                                                   $10,000**--up to 100
                                                    classes or up to 50%
                                                    of classes by
                                                    volume.
                                                   $12,000**--over 100
                                                    classes or over 50%
                                                    of all classes by
                                                    volume up to all
                                                    classes (or $500 per
                                                    port per matching
                                                    engine).
                                                   ** A lower rate of
                                                    $6,000 will apply to
                                                    these tiers if the
                                                    Market Maker's total
                                                    monthly executed
                                                    volume is less than
                                                    0.040% of total
                                                    monthly TCV for MIAX
                                                    Pearl options.
                                Full Service MEO   $7,500 (or $312.50
                                 Port (Bulk) for    per port per
                                 EEMs.              matching engine).
                                Full Service MEO   $4,000 (or $166.66
                                 Port (Single)      per port per
                                 for Market         matching engine).
                                 Makers and EEMs.
NASDAQ \101\ (equity options    10Gb Ultra fiber   $15,000 per
 market share of 7.51% for the   connection.        connection.
 month of March 2023) \102\.
                                SQF Port \103\...  1-5 ports: $1,500 per
                                                    port; 6-20 ports:
                                                    $1,000 per port; 21
                                                    or more ports: $500
                                                    per port.
NASDAQ ISE LLC (``ISE'') \104\  10Gb Ultra fiber   $15,000 per
 (equity options market share    connection.        connection.
 of 5.91% for the month of
 March 2023) \105\.
                                SQF Port.........  $1,100 per port.
NYSE American LLC (``NYSE       10Gb LX LCN        $22,000 per
 American'') \106\ (equity       connection.        connection.
 options market share of 7.50%
 for the month of March 2023)
 \107\.
                                Order/Quote Entry  1-40 ports: $450 per
                                 Port.              port; 41 or more
                                                    ports: $150 per
                                                    port.
NASDAQ GEMX, LLC (``GEMX'')     10Gb Ultra         $15,000 per
 \108\ (equity options market    connection.        connection.
 share of 2.00% for the month
 of March 2023) \109\.
                                SQF Port.........  $1,250 per port.
------------------------------------------------------------------------

    The Exchange acknowledges that, without additional contextual
information, the above table may lead someone to believe that the
Exchange's proposed fees for Full Service MEO Ports is higher than
other exchanges when in fact, that is not true. The Exchange provides
each Member or non-Member access to two (2) ports on all twelve (12)
matching engines for a single fee and a vast majority choose to connect
to all twelve (12) matching engines and utilize both ports for a total
of 24 ports. Other exchanges charge on a per port basis and require
firms to connect to multiple matching engines, thereby multiplying the
cost to access their full market.\110\ On the Exchange, this is not the
case. The Exchange provides each Member or non-Member access, but does
not require they connect to, all twelve (12) matching engines.
---------------------------------------------------------------------------

    \100\ See supra note 91.
    \101\ See NASDAQ Pricing Schedule, Options 7, Section 3, Ports
and Other Services and NASDAQ Rules, General 8: Connectivity,
Section 1. Co-Location Services.
    \102\ See supra note 91.
    \103\ Similar to the MIAX Pearl Options' MEO Ports, SQF ports
are primarily utilized by Market Makers.
    \104\ See ISE Pricing Schedule, Options 7, Section 7,
Connectivity Fees and ISE Rules, General 8: Connectivity.
    \105\ See supra note 91.
    \106\ See NYSE American Options Fee Schedule, Section V.A. Port
Fees and Section V.B. Co-Location Fees.
    \107\ See supra note 91.
    \108\ See GEMX Pricing Schedule, Options 7, Section 6,
Connectivity Fees and GEMX Rules, General 8: Connectivity.
    \109\ See supra note 91.
    \110\ See Specialized Quote Interface Specification, Nasdaq
PHLX, Nasdaq Options Market, Nasdaq BX Options, Version 6.5a,
Section 2, Architecture (revised August 16, 2019), available at
http://www.nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/SQF6.5a-2019-Aug.pdf. The Exchange notes that it is
unclear whether the NASDAQ exchanges include connectivity to each
matching engine for the single fee or charge per connection, per
matching engine. See also NYSE Technology FAQ and Best Practices:
Options, Section 5.1 (How many matching engines are used by each
exchange?) (September 2020). The Exchange notes that NYSE provides a
link to an Excel file detailing the number of matching engines per
options exchange, with Arca and Amex having 19 and 17 matching
engines, respectively.
---------------------------------------------------------------------------

    There is no requirement, regulatory or otherwise, that any broker-
dealer connect to and access any (or all of) the available options
exchanges. Market participants may choose to become a member of one or
more options exchanges based on the market participant's assessment of
the business opportunity relative to the costs of the Exchange. With
this, there is elasticity of demand for exchange membership. As an
example, one Market Maker terminated their MIAX Pearl Options
membership effective January 1, 2023 as a direct result of the proposed
connectivity and port fee changes on MIAX Pearl Options.
    It is not a requirement for market participants to become members
of all options exchanges, in fact, certain market participants conduct
an options business as a member of only one options market.\111\ A very
small number

of market participants choose to become a member of all sixteen options
exchanges. Most firms that actively trade on options markets are not
currently Members of the Exchange and do not purchase connectivity or
port services at the Exchange. Connectivity and ports are only
available to Members or service bureaus, and only a Member may utilize
a port.\112\
---------------------------------------------------------------------------

    \111\ BOX recently adopted an electronic market maker trading
permit fee. See Securities Exchange Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17). In that
proposal, BOX stated that, ``. . . it is not aware of any reason why
Market Makers could not simply drop their access to an exchange (or
not initially access an exchange) if an exchange were to establish
prices for its non-transaction fees that, in the determination of
such Market Maker, did not make business or economic sense for such
Market Maker to access such exchange. [BOX] again notes that no
market makers are required by rule, regulation, or competitive
forces to be a Market Maker on [BOX].'' Also in 2022, MEMX
established a monthly membership fee. See Securities Exchange Act
Release No. 93927 (January 7, 2022), 87 FR 2191 (January 13, 2022)
(SR-MEMX-2021-19). In that proposal, MEMX reasoned that that there
is value in becoming a member of the exchange and stated that it
believed that the proposed membership fee ``is not unfairly
discriminatory because no broker-dealer is required to become a
member of the Exchange'' and that ``neither the trade-through
requirements under Regulation NMS nor broker-dealers' best execution
obligations require a broker-dealer to become a member of every
exchange.''
    \112\ Service Bureaus may obtain ports on behalf of Members.
---------------------------------------------------------------------------

    One other exchange recently noted in a proposal to amend their own
trading permit fees that of the 62 market making firms that are
registered as Market Makers across Cboe, MIAX, and BOX, 42 firms access
only one of the three exchanges.\113\ The Exchange and its affiliates,
MIAX and MIAX Emerald, have a total of 47 members. Of those 47 total
members, 35 are members of all three affiliated exchanges, four are
members of only two (2) affiliated exchanges, and eight (8) are members
of only one affiliated exchange. The Exchange also notes that no firm
is a Member of the Exchange only. The above data evidences that a
broker-dealer need not have direct connectivity to all options
exchanges, let alone the Exchange and its two affiliates, and broker-
dealers may elect to do so based on their own business decisions and
need to directly access each exchange's liquidity pool.
---------------------------------------------------------------------------

    \113\ See Securities Exchange Act Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change to Amend the
Fee Schedule on the BOX Options Market LLC Facility To Adopt
Electronic Market Maker Trading Permit Fees). The Exchange believes
that BOX's observation demonstrates that market making firms can,
and do, select which exchanges they wish to access, and,
accordingly, options exchanges must take competitive considerations
into account when setting fees for such access.
---------------------------------------------------------------------------

    Not only is there not an actual regulatory requirement to connect
to every options exchange, the Exchange believes there is also no ``de
facto'' or practical requirement as well, as further evidenced by the
broker-dealer membership analysis of the options exchanges discussed
above. As noted above, this is evidenced by the fact that one Market
Maker terminated their MIAX Pearl Options membership effective January
1, 2023 as a direct result of the proposed connectivity and port fee
changes on MIAX Pearl Options. Indeed, broker-dealers choose if and how
to access a particular exchange and because it is a choice, the
Exchange must set reasonable pricing, otherwise prospective members
would not connect and existing members would disconnect from the
Exchange. The decision to become a member of an exchange, particularly
for registered market makers, is complex, and not solely based on the
non-transactional costs assessed by an exchange. As noted herein,
specific factors include, but are not limited to: (i) an exchange's
available liquidity in options series; (ii) trading functionality
offered on a particular market; (iii) product offerings; (iv) customer
service on an exchange; and (v) transactional pricing. Becoming a
member of the exchange does not ``lock'' a potential member into a
market or diminish the overall competition for exchange services.
    In lieu of becoming a member at each options exchange, a market
participant may join one exchange and elect to have their orders routed
in the event that a better price is available on an away market.
Nothing in the Order Protection Rule requires a firm to become a Member
at--or establish connectivity to--the Exchange.\114\ If the Exchange is
not at the NBBO, the Exchange will route an order to any away market
that is at the NBBO to ensure that the order was executed at a superior
price and prevent a trade-through.\115\
---------------------------------------------------------------------------

    \114\ See Options Order Protection and Locked/Crossed Market
Plan (August 14, 2009), available at https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11- c0e4db1a2266/
options_order_protection_plan.pdf.
    \115\ Members may elect to not route their orders by utilizing
the Do Not Route order type. See Exchange Rule 516(g).
---------------------------------------------------------------------------

    With respect to the submission of orders, Members may also choose
not to purchase any connection at all from the Exchange, and instead
rely on the port of a third party to submit an order. For example, a
third-party broker-dealer Member of the Exchange may be utilized by a
retail investor to submit orders into an Exchange. An institutional
investor may utilize a broker-dealer, a service bureau,\116\ or request
sponsored access \117\ through a member of an exchange in order to
submit a trade directly to an options exchange.\118\ A market
participant may either pay the costs associated with becoming a member
of an exchange or, in the alternative, a market participant may elect
to pay commissions to a broker-dealer, pay fees to a service bureau to
submit trades, or pay a member to sponsor the market participant in
order to submit trades directly to an exchange.
---------------------------------------------------------------------------

    \116\ Service Bureaus provide access to market participants to
submit and execute orders on an exchange. On the Exchange, a Service
Bureau may be a Member. Some Members utilize a Service Bureau for
connectivity and that Service Bureau may not be a Member. Some
market participants utilize a Service Bureau who is a Member to
submit orders.
    \117\ Sponsored Access is an arrangement whereby a Member
permits its customers to enter orders into an exchange's system that
bypass the Member's trading system and are routed directly to the
Exchange, including routing through a service bureau or other third-
party technology provider.
    \118\ This may include utilizing a floor broker and submitting
the trade to one of the five options trading floors.
---------------------------------------------------------------------------

    Non-Member third-parties, such as service bureaus and extranets,
resell the Exchange's connectivity. This indirect connectivity is
another viable alternative for market participants to trade on the
Exchange without connecting directly to the Exchange (and thus not pay
the Exchange's connectivity fees), which alternative is already being
used by non-Members and further constrains the price that the Exchange
is able to charge for connectivity and other access fees to its market.
The Exchange notes that it could, but chooses not to, preclude market
participants from reselling its connectivity. Unlike other exchanges,
the Exchange also does not currently assess fees on third-party
resellers on a per customer basis (i.e., fees based on the number of
firms that connect to the Exchange indirectly via the third-
party).\119\ Indeed, the Exchange does not receive any connectivity
revenue when connectivity is resold by a third-party, which often is
resold to multiple customers, some of whom are agency broker-dealers
that have numerous customers of their own.\120\ Particularly, in the
event that a market participant views the Exchange's direct
connectivity and access fees as more or less attractive than competing
markets, that market participant can choose to

connect to the Exchange indirectly or may choose not to connect to the
Exchange and connect instead to one or more of the other 16 options
markets. Accordingly, the Exchange believes that the proposed fees are
fair and reasonable and constrained by competitive forces.
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    \119\ See, e.g., Nasdaq Price List--U.S. Direct Connection and
Extranet Fees, available at, U.S. Direct-Extranet Connection
(nasdaqtrader.com); and Securities Exchange Act Release Nos. 74077
(January 16, 2022), 80 FR 3683 (January 23, 2022) (SR-NASDAQ-2015-
002); and 82037 (November 8, 2022), 82 FR 52953 (November 15, 2022)
(SR-NASDAQ-2017-114).
    \120\ The Exchange notes that resellers, such as SFTI, are not
required to publicize, let alone justify or file with the Commission
their fees, and as such could charge the market participant any fees
it deems appropriate (including connectivity fees higher than the
Exchange's connectivity fees), even if such fees would otherwise be
considered potentially unreasonable or uncompetitive fees.
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    The Exchange is obligated to regulate its Members and secure access
to its environment. In order to properly regulate its Members and
secure the trading environment, the Exchange takes measures to ensure
access is monitored and maintained with various controls. Connectivity
and ports are methods utilized by the Exchange to grant Members secure
access to communicate with the Exchange and exercise trading rights.
When a market participant elects to be a Member, and is approved for
membership by the Exchange, the Member is granted trading rights to
enter orders and/or quotes into Exchange through secure connections.
    Again, there is no legal or regulatory requirement that a market
participant become a Member of the Exchange. This is again evidenced by
the fact that one MIAX Pearl Options Market Maker terminated their MIAX
Pearl Options membership effective January 1, 2023 as a direct result
of the proposed connectivity and port fee changes on MIAX Pearl
Options. If a market participant chooses to become a Member, they may
then choose to purchase connectivity beyond the one connection that is
necessary to quote or submit orders on the Exchange. Members may freely
choose to rely on one or many connections, depending on their business
model.
Bifurcation of 10Gb ULL Connectivity and Related Fees
    The Exchange began to operate on a single shared network with MIAX
when MIAX Pearl Options commenced operations as a national securities
exchange on February 7, 2017.\121\ The Exchange and MIAX have operated
on a single shared network to provide Members with a single convenient
set of access points for both exchanges. Both the Exchange and MIAX
offer two methods of connectivity, 1Gb and 10Gb ULL connections. The
1Gb connection services are supported by a discrete set of switches
providing 1Gb access ports to Members. The 10Gb ULL connection services
are supported by a second and mutually exclusive set of switches
providing 10Gb ULL access ports to Members. Previously, both the 1Gb
and 10Gb ULL shared extranet ports allow Members to use one connection
to access both exchanges, namely their trading platforms, market data
systems, test systems, and disaster recovery facilities.
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    \121\ See Securities Exchange Act Release No. 80061 (February
17, 2017), 82 FR 11676 (February 24, 2017) (establishing MIAX Pearl
Options Fee Schedule and establishing that the MENI can also be
configured to provide network connectivity to the trading platforms,
market data systems, test systems, and disaster recovery facility of
the MIAX Pearl Options' affiliate, MIAX, via a single, shared
connection).
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    The Exchange stresses that bifurcating the 10Gb ULL connectivity
between the Exchange and MIAX was not designed with the objective to
generate an overall increase in access fee revenue. Rather, the
proposed change was necessitated by 10Gb ULL connectivity experiencing
a significant decrease in port availability mostly driven by
connectivity demands of latency sensitive Members that seek to maintain
multiple 10Gb ULL connections on every switch in the network. Operating
two separate national securities exchanges on a single shared network
provided certain benefits, such as streamlined connectivity to multiple
exchanges, and simplified exchange infrastructure. However, doing so
was no longer sustainable due to ever-increasing capacity constraints
and current system limitations. The network is not an unlimited
resource. As described more fully in the proposal to bifurcate the 10Gb
ULL network,\122\ the connectivity needs of Members and market
participants has increased every year since the launch of MIAX Pearl
Options and the operations of the Exchange and MIAX on a single shared
10Gb ULL network is no longer feasible. This required constant System
expansion to meet Member demand for additional ports and 10Gb ULL
connections has resulted in limited available System headroom, which
eventually became operationally problematic for both the Exchange and
its customers.
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    \122\ See Securities Exchange Act Release Nos. 96553 (December
20, 2022), 87 FR 79379 (December 27, 2022) (SR-PEARL-2022-60); 96545
(December 20, 2022) 87 FR 79393 (December 27, 2022) (SR-MIAX-2022-
48).
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    As stated above, the shared network is not an unlimited resource
and its expansion was constrained by MIAX's and MIAX Pearl Options'
ability to provide fair and equitable access to all market participants
of both markets. Due to the ever-increasing connectivity demands, the
Exchange found it necessary to bifurcate 10Gb ULL connectivity to the
Exchange's and MIAX's Systems and networks to be able to continue to
meet ongoing and future 10Gb ULL connectivity and access demands.\123\
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    \123\ Currently, the Exchange maintains sufficient headroom to
meet ongoing and future requests for 1Gb connectivity. Therefore,
the Exchange did not propose to alter 1Gb connectivity and continues
to provide 1Gb connectivity over a shared network.
---------------------------------------------------------------------------

    Unlike the switches that provide 1Gb connectivity, the availability
for additional 10Gb ULL connections on each switch had significantly
decreased. This was mostly driven by the connectivity demands of
latency sensitive Members (e.g., Market Makers and liquidity removers)
that sought to maintain connectivity across multiple 10Gb ULL switches.
Based on the Exchange's experience, such Members did not typically use
a shared 10Gb ULL connection to reach both the Exchange and MIAX due to
related latency concerns. Instead, those Members maintain dedicated
separate 10Gb ULL connections for the Exchange and separate dedicated
10Gb ULL connections for MIAX. This resulted in a much higher 10Gb ULL
usage per switch by those Members on the shared 10Gb ULL network than
would otherwise be needed if the Exchange and MIAX had their own
dedicated 10Gb ULL networks. Separation of the Exchange and MIAX 10Gb
ULL networks naturally lends itself to reduced 10Gb ULL port
consumption on each switch and, therefore, increased 10Gb ULL port
availability for current Members and new Members.
    Prior to bifurcating the 10Gb ULL network, the Exchange and MIAX
continued to add switches to meet ongoing demand for 10Gb ULL
connectivity. That was no longer sustainable because simply adding
additional switches to expand the current shared 10Gb ULL network would
not adequately alleviate the issue of limited available port
connectivity. While it would have resulted in a gain in overall port
availability, the existing switches on the shared 10Gb ULL network in
use would have continued to suffer from lack of port headroom given
many latency sensitive Members' needs for a presence on each switch to
reach both the Exchange and MIAX. This was because those latency
sensitive Members sought to have a presence on each switch to maximize
the probability of experiencing the best network performance. Those
Members routinely decide to rebalance orders and/or messages over their
various connections to ensure each connection is operating with maximum
efficiency. Simply adding switches to the extranet would not have
resolved the port availability needs on the shared 10Gb ULL network
since many of the latency sensitive

Members were unwilling to relocate their connections to a new switch
due to the potential detrimental performance impact. As such, the
impact of adding new switches and rebalancing ports would not have been
effective or responsive to customer needs. The Exchange has found that
ongoing and continued rebalancing once additional switches are added
has had, and would have continued to have had, a diminishing return on
increasing available 10Gb ULL connectivity.
    Based on its experience and expertise, the Exchange found the most
practical way to increase connectivity availability on its switches was
to bifurcate the existing 10Gb ULL networks for the Exchange and MIAX
by migrating the exchanges' connections from the shared network onto
their own set of switches. Such changes accordingly necessitated a
review of the Exchange's previous 10Gb ULL connectivity fees and
related costs. The proposed fees necessary to allow the Exchange to
cover ongoing costs related to providing and maintaining such
connectivity, described more fully below. The ever increasing
connectivity demands that necessitated this change further support that
the proposed fees are reasonable because this demand reflects that
Members and non-Members believe they are getting value from the 10Gb
ULL connections they purchase.
    The Exchange announced on August 12, 2022 the planned network
change and January 23, 2023 implementation date to provide market
participants adequate time to prepare.\124\ Since August 12, 2022, the
Exchange has worked with current 10Gb ULL subscribers to address their
connectivity needs ahead of the January 23, 2023 date. Based on those
interactions and subscriber feedback, the Exchange experienced a
minimal net increase of approximately six (6) overall 10Gb ULL
connectivity subscriptions across the Exchange and MIAX. This
anticipated immaterial increase in overall connections reflect a
minimal fee impact for all types of subscribers and reflects that
subscribers elected to reallocate existing 10Gb ULL connectivity
directly to the Exchange or MIAX, or chose to decrease or cease
connectivity as a result of the change.
---------------------------------------------------------------------------

    \124\ See supra note 9.
---------------------------------------------------------------------------

    Should the Commission Staff disapprove such fees, it would
effectively dictate how an exchange manages its technology and would
hamper the Exchange's ability to continue to invest in and fund access
services in a manner that allows it to meet existing and anticipated
access demands of market participants. Disapproval could also have the
adverse effect of discouraging exchanges from optimizing its operations
and deploying innovative technology to the benefit of market
participants if it believes the Commission would later prevent that
exchange from covering its costs and monetizing its operational
enhancements, thus adversely impacting competition. Also, as noted
above, the economic consequences of not being able to better establish
fee parity with other exchanges for non-transaction fees hampers the
Exchange's ability to compete on transaction fees.
Cost Analysis
    In general, the Exchange believes that exchanges, in setting fees
of all types, should meet very high standards of transparency to
demonstrate why each new fee or fee increase meets the Exchange Act
requirements that fees be reasonable, equitably allocated, not unfairly
discriminatory, and not create an undue burden on competition among
members and markets. In particular, the Exchange believes that each
exchange should take extra care to be able to demonstrate that these
fees are based on its costs and reasonable business needs.
    In proposing to charge fees for connectivity services, the Exchange
is especially diligent in assessing those fees in a transparent way
against its own aggregate costs of providing the related service, and
in carefully and transparently assessing the impact on Members--both
generally and in relation to other Members, i.e., to assure the fee
will not create a financial burden on any participant and will not have
an undue impact in particular on smaller Members and competition among
Members in general. The Exchange believes that this level of diligence
and transparency is called for by the requirements of Section 19(b)(1)
under the Act,\125\ and Rule 19b-4 thereunder,\126\ with respect to the
types of information SROs should provide when filing fee changes, and
Section 6(b) of the Act,\127\ which requires, among other things, that
exchange fees be reasonable and equitably allocated,\128\ not designed
to permit unfair discrimination,\129\ and that they not impose a burden
on competition not necessary or appropriate in furtherance of the
purposes of the Act.\130\ This rule change proposal addresses those
requirements, and the analysis and data in each of the sections that
follow are designed to clearly and comprehensively show how they are
met.\131\ The Exchange reiterates that the legacy exchanges with whom
the Exchange vigorously competes for order flow and market share, were
not subject to any such diligence or transparency in setting their
baseline non-transaction fees, most of which were put in place before
the Revised Review Process and Staff Guidance.
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    \125\ 15 U.S.C. 78s(b)(1).
    \126\ 17 CFR 240.19b-4.
    \127\ 15 U.S.C. 78f(b).
    \128\ 15 U.S.C. 78f(b)(4).
    \129\ 15 U.S.C. 78f(b)(5).
    \130\ 15 U.S.C. 78f(b)(8).
    \131\ See Staff Guidance, supra note 25.
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    As detailed below, the Exchange recently calculated its aggregate
annual costs for providing physical 10Gb ULL connectivity to the
Exchange at $11,567,509 (or approximately $963,959 per month, rounded
to the nearest dollar when dividing the annual cost by 12 months) and
its aggregate annual costs for providing Full Service MEO Ports at
$1,644,132 (or approximately $137,012 per month, rounded to the nearest
dollar when dividing the annual cost by 12 months). In order to cover
the aggregate costs of providing connectivity to its Users (both
Members and non-Members \132\) going forward and to make a modest
profit, as described below, the Exchange proposes to modify its Fee
Schedule to charge a fee of $13,500 per month for each physical 10Gb
ULL connection and to remove language providing for a shared 10Gb ULL
network between the Exchange and MIAX. The Exchange also proposes to
modify its Fee Schedule to charge tiered rates for Full Service MEO
Ports (Bulk) depending on the number of classes assigned or the
percentage of national ADV, which is in line with how the Exchange's
affiliates, MIAX and MIAX Emerald, assess fees for their comparable MEI
Ports.
---------------------------------------------------------------------------

    \132\ Types of market participants that obtain connectivity
services from the Exchange but are not Members include service
bureaus and extranets. Service bureaus offer technology-based
services to other companies for a fee, including order entry
services, and thus, may access application sessions on behalf of one
or more Members. Extranets offer physical connectivity services to
Members and non-Members.
---------------------------------------------------------------------------

    In 2019, the Exchange completed a study of its aggregate costs to
produce market data and connectivity (the ``Cost Analysis'').\133\ The
Cost Analysis required a detailed analysis of the Exchange's aggregate
baseline costs, including a determination and allocation of costs for
core services provided by the Exchange--transaction execution, market
data, membership services, physical connectivity, and port

access (which provide order entry, cancellation and modification
functionality, risk functionality, the ability to receive drop copies,
and other functionality). The Exchange separately divided its costs
between those costs necessary to deliver each of these core services,
including infrastructure, software, human resources (i.e., personnel),
and certain general and administrative expenses (``cost drivers'').
---------------------------------------------------------------------------

    \133\ The Exchange frequently updates it Cost Analysis as
strategic initiatives change, costs increase or decrease, and market
participant needs and trading activity changes. The Exchange's most
recent Cost Analysis was conducted ahead of this filing.
---------------------------------------------------------------------------

    As an initial step, the Exchange determined the total cost for the
Exchange and the affiliated markets. That total cost was then divided
among the Exchange and each of its affiliated markets based on a number
of factors, including server counts, additional hardware and software
utilization, current or anticipated functional or non-functional
development projects, capacity needs, end-of-life or end-of-service
intervals, number of members, market model (e.g., price time or pro-
rata), which may impact message traffic, individual system
architectures that impact platform size,\134\ storage needs, dedicated
infrastructure versus shared infrastructure allocated per platform
based on the resources required to support each platform, number of
available connections, and employees allocated time. This will result
in different allocation percentages among the Exchange and its
affiliated markets. Meanwhile this allocation methodology ensures that
no portion of any cost was allocated twice or double-counted between
the Exchange and its affiliated markets.
---------------------------------------------------------------------------

    \134\ For example, MIAX Pearl Options maintains 12 matching
engines, MIAX Pearl Equities maintains 24 matching engines, MIAX
maintains 24 matching engines and MIAX Emerald maintains 12 matching
engines.
---------------------------------------------------------------------------

    Next, the Exchange adopted an allocation methodology with
thoughtful and consistently applied principles to guide how much of a
particular cost amount allocated to the Exchange pursuant to the above
methodology should be allocated within the Exchange to each core
service. For instance, fixed costs that are not driven by client
activity (e.g., message rates), such as data center costs, were
allocated more heavily to the provision of 1Gb and 10Gb ULL physical
connectivity (62%), with smaller allocations to all ports (5%), and the
remainder to the provision of transaction execution, membership
services and market data services (33%). This next level of the
allocation methodology at the individual exchange level also took into
account a number of factors similar to those set forth under the first
allocation methodology described above, to determine the appropriate
allocation to connectivity or market data versus what is to be
allocated to providing other services. The allocation methodology was
developed through an assessment of costs with senior management
intimately familiar with each area of the Exchange's operations. After
adopting this allocation methodology, the Exchange then applied an
estimated allocation of each cost driver to each core service,
resulting in the cost allocations described below. Each of the below
cost allocations is unique to the Exchange and represents a percentage
of overall cost that was allocated to the Exchange pursuant to the
initial allocation described above.
    By allocating segmented costs to each core service, the Exchange
was able to estimate by core service the potential margin it might earn
based on different fee models. The Exchange notes that as a non-listing
venue it has five primary sources of revenue that it can potentially
use to fund its operations: transaction fees, fees for connectivity and
port services, membership fees, regulatory fees, and market data fees.
Accordingly, the Exchange must cover its expenses from these five
primary sources of revenue. The Exchange also notes that as a general
matter each of these sources of revenue is based on services that are
interdependent. For instance, the Exchange's system for executing
transactions is dependent on physical hardware and connectivity; only
Members and parties that they sponsor to participate directly on the
Exchange may submit orders to the Exchange; many Members (but not all)
consume market data from the Exchange in order to trade on the
Exchange; and the Exchange consumes market data from external sources
in order to comply with regulatory obligations. Accordingly, given this
interdependence, the allocation of costs to each service or revenue
source required judgment of the Exchange and was weighted based on
estimates of the Exchange that the Exchange believes are reasonable, as
set forth below. While there is no standardized and generally accepted
methodology for the allocation of an exchange's costs, the Exchange's
methodology is the result of an extensive review and analysis and will
be consistently applied going forward for any other potential fee
proposals. In the absence of the Commission attempting to specify a
methodology for the allocation of exchanges' interdependent costs, the
Exchange will continue to be left with its best efforts to attempt to
conduct such an allocation in a thoughtful and reasonable manner.
    Through the Exchange's extensive updated Cost Analysis, the
Exchange analyzed every expense item in the Exchange's general expense
ledger to determine whether each such expense relates to the provision
of connectivity services, and, if such expense did so relate, what
portion (or percentage) of such expense actually supports the provision
of connectivity services, and thus bears a relationship that is, ``in
nature and closeness,'' directly related to network connectivity
services. In turn, the Exchange allocated certain costs more to
physical connectivity and others to ports, while certain costs were
only allocated to such services at a very low percentage or not at all,
using consistent allocation methodologies as described above. Based on
this analysis, the Exchange estimates that the cost drivers to provide
10Gb ULL connectivity and Full Service MEO Port services, results in an
aggregate monthly cost of approximately $1,106,971 (utilizing the
rounded numbers when dividing the annual cost for 10Gb ULL connectivity
and annual cost for Full Service MEO Ports by 12 months, then adding
both numbers together), as further detailed below.
    Lastly, the Exchange notes that, based on: (i) the total expense
amounts contained in this filing (which are 2023 projected expenses),
and (ii) the total expense amounts contained in the related MIAX Pearl
Equities filing (also 2023 projected expenses), MIAX PEARL, LLC's total
costs have increased at a greater rate over the last three years than
the total costs of MIAX PEARL, LLC's affiliated exchanges, MIAX and
MIAX Emerald. This is also reflected in the total costs reported in
MIAX PEARL, LLC's Form 1 filings over the last three years, when
comparing MIAX PEARL, LLC to MIAX PEARL, LLC's affiliated exchanges,
MIAX and MIAX Emerald. This is primarily because that MIAX PEARL, LLC
operates two markets, one for options and one for equities, while MIAX
and MIAX Emerald each operate only one market. This is also due to
higher current expense for MIAX PEARL, LLC for 2022 and 2023, due to a
hardware refresh (i.e., replacing old hardware with new equipment) for
MIAX Pearl Options, as well as higher costs associated with MIAX Pearl
Equities due to greater development efforts to grow that newer
marketplace.\135\ The Exchange confirms

that there is no double counting of expenses between the options and
equities platform of MIAX Pearl; the greater expense amounts of the
MIAX PEARL, LLC (relative to its affiliated exchanges, MIAX and MIAX
Emerald) is solely attributed to the unique factors of MIAX Pearl
discussed above.
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    \135\ See, e.g., Securities Exchange Act Release Nos. 94301
(February 23, 2022), 87 FR 11739 (March 2, 2022) (SR-PEARL-2022-06)
(Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change To Amend Rule 2617(b) To Adopt Two New Routing Options, and
To Make Related Changes and Clarifications to Rules 2614(a)(2)(B)
and 2617(b)(2)); 94851 (May 4, 2022), 87 FR 28077 (May 10, 2022)
(SR-PEARL-2022-15) (Notice of Filing and Immediate Effectiveness of
a Proposed Rule Change To Adopt Exchange Rule 532, Order Price
Protection Mechanisms and Risk Controls); 95298 (July 15, 2022), 87