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Federal Register / Vol. 86, No. 156 / Tuesday, August 17, 2021 / Notices
the providing the access services associated with the Proposed Access Fees will not result in excessive pricing or supra-competitive profit, as the Exchange and MIAX Pearl will make a profit margin of only approximately 30% inclusive of the Proposed Access Fees and all other connectivity alternatives $22.8 million in total connectivity revenue minus $15.9
million in expense = $6.9 million in profit per annum. Additionally, this profit margin does not take into account the cost of capital expenditures CapEx the Exchange and MIAX
Pearl historically spent or are projected to spend each year on CapEx going forward.
For the avoidance of doubt, none of the expenses included herein relating to the access services associated with the Proposed Access Fees relate to the provision of any other services offered by the Exchange or MIAX Pearl. Stated differently, no expense amount of the Exchange is allocated twice. The Exchange notes that, with respect to the MIAX Pearl expenses included herein, those expenses only cover the MIAX
Pearl options market; expenses associated with the MIAX Pearl equities market and the Exchanges affiliate, MIAX Emerald, are accounted for separately and are not included within the scope of this filing. Stated differently, no expense amount of the Exchange is also allocated to MIAX
Pearl Equites or MIAX Emerald.
The Exchange believes it is reasonable, equitable and not unfairly discriminatory to allocate the respective percentages of each expense category described above towards the total cost to the Exchange of operating and supporting the network, including providing the access services associated with the Proposed Access Fees because the Exchange performed a line-by-line item analysis of all the expenses of the Exchange, and has determined the expenses that directly relate to providing access to the Exchange and MIAX Pearl. Further, the Exchange notes that, without the specific thirdparty and internal items listed above, the Exchange would not be able to provide the access services associated with the Proposed Access Fees to its Members and their customers. Each of these expense items, including physical hardware, software, employee compensation and benefits, occupancy costs, and the depreciation and amortization of equipment, have been identified through a line-by-line item analysis to be integral to providing access services. The Proposed Access Fees are intended to recover the Exchanges and MIAX Pearls costs of
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providing access to their Systems.
Accordingly, the Exchange believes that the Proposed Access Fees are fair and reasonable because they do not result in excessive pricing or supra-competitive profit, when comparing the actual costs to the Exchange versus the projected annual revenue from the Proposed Access Fees.
The Exchange believes the proposed changes are reasonable, equitably allocated and not unfairly discriminatory, and do not result in a supra-competitive 18 profit. Of note, the Guidance defines supracompetitive profit as profits that exceed the profits that can be obtained in a competitive market.19 With the proposed changes, the Exchange and MIAX Pearl anticipate they will have a profit margin of approximately 30%, inclusive of the Proposed Access Fees and all other connectivity alternatives.
Based on the 2020 Audited Financial Statements of competing options exchanges since the 2021 Audited Financial Statements will likely not become publicly available until early July 2022, after the Exchange has submitted this filing, the Exchanges profit margin is well below the operating profit margins of other competing exchanges. For example, Nasdaq ISE, LLCs ISE operating profit margin for all of 2020 was approximately 85%; Nasdaq PHLX
LLCs PHLX operating profit margin for all of 2020 was approximately 49%;
the Nasdaq Stock Market LLCs Nasdaq operating profit margin for all of 2020 was approximately 62%;
NYSE Arca, Inc.s Arca operating profit margin for all of 2020 was approximately 55%; NYSE American LLCs Amex operating profit margin for all of 2020 was approximately 59%;
Cboe Exchange, Inc.s Cboe operating profit margin for all of 2020
was approximately 74%; and Cboe BZX
Exchange, Inc.s BZX operating profit margin for all of 2020 was approximately 52%.
The Exchange believes that the Proposed Access Fees are reasonable, equitably allocated and not unfairly discriminatory because, for one 10Gb ULL connection, the Exchange provides each Member or non-Member access to all twenty-four 24 matching engines on MIAX. Under the proposed pricingstructure, the Exchange will assess each Member or non-Member $9,000 for the first 10Gb ULL connection. For that $9,000 monthly fee, each Member or non-Member has access to all twentyfour matching engines each month. This 18 See 19 See
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results in a per matching engine connectivity cost of only $375 $9,000
divided by 24. The Exchange believes its connectivity cost to be less than or similar to connectivity fees charged by competing options exchanges.20
The Exchange further believes its proposed fees are reasonable, equitably allocated and not unfairly discriminatory because the Exchange believes that it benefits overall competition in the marketplace to allow relatively new entrants like the Exchange and its affiliates, MIAX Pearl and MIAX Emerald, to propose fees that may help these new entrants recoup their substantial investment in building out costly infrastructure. The Exchange and its affiliates have historically set their fees purposefully low in order to attract business and market share, and the proposed tiered-pricing structure will help make the rates consistent with other exchanges while not raising costs for a majority of the Exchanges Members and non-Members.
The Guidance provides that in determining whether a proposed fee is constrained by significant competitive forces, the Commission will consider whether there are reasonable substitutes for the product or service that is the subject of a proposed fee. As described below, the Exchange believes substitute products and services are available to market participants, including, among other things, other options exchanges that market participants may connect to in lieu of the Exchange, indirect connectivity to the Exchange via a thirdparty reseller and/or trading of any options products, including proprietary products, in the Over-the-Counter OTC markets.
There is also no regulatory requirement that any market participant connect to any one options exchange, that any market participant connect at a particular connection speed or act in a particular capacity on the Exchange, or 20 See The Nasdaq Stock Market LLC
NASDAQ Rules, General 8: Connectivity, Section 1. Co-Location Services charging a monthly fee of $10,000 per 10Gb fiber connection, $15,000
per 10Gb Ultra fiber connection, and $20,000 per 40Gb fiber connection, plus installation fees ranging from $1,000 to $1,500. The Exchange notes that the same connectivity fees described above for NASDAQ also apply to its affiliates, Nasdaq ISE, LLC and NASDAQ PHLX LLC. See Nasdaq ISE
Rules, General 8: Connectivity and NASDAQ PHLX
Rules, General 8: Connectivity both incorporating by reference the fees in NASDAQ Rules, General 8:
Connectivity. See also NYSE American LLC
Options Fee Schedule, Section IV charging the following connectivity fees: $6,000 per connection initial charge plus $5,000 monthly per 1Gb circuit connection; $15,000 per connection initial charge plus $22,000 monthly per 10Gb LX LCN circuit connection; and $15,000 per connection initial charge plus $22,000 monthly charge per 40Gb LCN
circuit connection.

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