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Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices
for approximately 1% of the revenue collected by the Exchange from all connectivity alternatives.
The Exchange further believes that the increased fee for the 10Gb ULL
connection is an equitable allocation of reasonable fees as the fees for the various connectivity alternatives are directly related to the actual costs associated with providing the respective connectivity alternatives. That is, the cost to the Exchange of providing a 1Gb network connection is significantly lower than the cost to the Exchange of providing a 10Gb ULL network connection. Pursuant to its extensive cost review described above and in connection with the Exchanges new project to increase transparency and determinism, the Exchange believes that the average cost to provide a 10Gb ULL
network connection is approximately 8
times more than the average cost to provide a 1Gb connection. The simple hardware and software component costs alone of a 10Gb ULL connection are not 8 times more than the 1Gb connection.
Rather, it is the associated premiumproduct level network monitoring, reporting, and support services costs that accompany a 10Gb ULL connection which cause it to be 8 times more costly to provide than the 1Gb connection.
Accordingly, the Exchange believes it is equitable to allocate those network infrastructure costs that accompany a 10Gb ULL connection to the purchasers of those connections, and not to purchasers of 1Gb connections.
The Exchange differentiates itself by offering a premium-product network experience, as an operator of a high performance, ultra-low latency network with unparalleled system throughput, which network can support access to three distinct options markets and multiple competing market-makers having affirmative obligations to continuously quote over 750,000
distinct trading products per exchange, and the capacity to handle approximately 18 million quote messages per second. The premiumproduct network experience enables users of 10Gb ULL connections to receive the network monitoring and reporting services for those approximately 750,000 distinct trading products. There is a significant, quantifiable amount of R&D effort, employee compensation and benefits expense, and other expense associated with providing the high touch network monitoring and reporting services that are utilized by the 10Gb ULL
connections offered by the Exchange.
These value add services are fullydiscussed herein, and the actual costs associated with providing these services
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are the basis for the differentiated amount of the fees for the various connectivity alternatives.
In order to provide more detail and to quantify the Exchanges costs associated with providing access to the Exchange in general, the Exchange notes that there are material costs associated with providing the infrastructure and headcount to fully-support access to the Exchange. The Exchange incurs technology expense related to establishing and maintaining Information Security services, enhanced network monitoring and customer reporting, as well as Regulation SCI
mandated processes, associated with its network technology. While some of the expense is fixed, much of the expense is not fixed, and thus increases as the services associated with the Proposed Access Fees increase. For example, new 10Gb ULL connections and Ports require the purchase of additional hardware to support those connections as well as enhanced monitoring and reporting of customer performance that MIAX
Emerald and its affiliates provide.
Further, as the total number of all connections and Ports increase, MIAX
Emerald and its affiliates need to increase their data center footprint and consume more power, resulting in increased costs charged by their thirdparty data center provider. Accordingly, the cost to MIAX Emerald and its affiliates is not fixed. The Exchange believes the Proposed Access Fees are reasonable in order to offset the costs to the Exchange associated with providing access to its network infrastructure.
Further, because the costs of operating its own data center are significant and not economically feasible for the Exchange at this time, the Exchange does not operate its own data centers, and instead contracts with a third-party data center provider. The Exchange notes that other competing exchange operators own/operate their data centers, which offers them greater control over their data center costs.
Because those exchanges own and operate their data centers as profit centers, the Exchange is subject to additional costs. The Proposed Access Fees, which are charged for accessing the Exchanges data center network infrastructure, are directly related to the network and offset such costs.
The Exchange invests significant resources in network R&D to improve the overall performance and stability of its network. For example, the Exchange has a number of network monitoring tools some of which were developed inhouse, and some of which are licensed from third-parties, that continually monitor, detect, and report network
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performance, many of which serve as significant value-adds to the Exchanges Members and enable the Exchange to provide a high level of customer service.
These tools detect and report performance issues, and thus enable the Exchange to proactively notify a Member and the SIPs when the Exchange detects a problem with a Members connectivity. In fact, the Exchange often receives inquiries from other industry participants regarding the status of networking issues outside of the Exchanges own network environment that are impacting the industry as a whole via the SIPs, including inquiries from regulators, because the Exchange has a superior, state-of the-art network that, through its enhanced monitoring and reporting solutions, often detects and identifies industry-wide networking issues ahead of the SIPs. The Exchange also incurs costs associated with the maintenance and improvement of existing tools and the development of new tools.
Additionally, certain Exchangedeveloped network aggregation and monitoring tools provide the Exchange with the ability to measure network traffic with a much more granular level of variability. This is important as Exchange Members demand a higher level of network determinism and the ability to measure variability in terms of single digit nanoseconds. Also, routine R&D projects to improve the performance of the networks hardware infrastructure result in additional cost.
In sum, the costs associated with maintaining and enhancing a state-ofthe-art exchange network in the U.S.
options industry is a significant expense for the Exchange that also increases year-over-year, and thus the Exchange believes that it is reasonable to offset those costs through the Proposed Access Fees. The Exchange invests in and offers a superior network infrastructure as part of its overall options exchange services offering, resulting in significant costs associated with maintaining this network infrastructure, which are directly tied to the amount of the Proposed Access Fees that must be charged to access it, in order to recover those costs.
The Exchange believes it is reasonable to consider the expense and revenue for ports and connectivity alternatives together because ports and connectivity are inextricably linked components of the network infrastructure, and that both are necessary for a market participant to access the Exchange. The various types of connectivity and port alternatives that the Exchange offers provide a wide array of access alternatives necessary for a market
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