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Federal Register / Vol. 86, No. 158 / Thursday, August 19, 2021 / Notices
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.
Further, the Exchange notes that, without the specific third-party and internal items listed above, the Exchange would not be able to provide the access services associated with the Proposed Access Fees to its Members and their customers. Each of these expense items, including physical hardware, software, employee compensation and benefits, occupancy costs, and the depreciation and amortization of equipment, have been identified through a line-by-line item analysis to be integral to providing access services. The Proposed Access Fees are intended to recover the Exchanges costs of providing access to its System. Accordingly, the Exchange believes that the Proposed Access Fees are fair and reasonable because they do not result in excessive pricing or supracompetitive 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 21 profit. Of note, the Guidance defines supracompetitive profit as profits that exceed the profits that can be obtained in a competitive market.22 With the proposed changes, the Exchange anticipates it will have a profit margin of approximately 58% based on the Proposed Access Fees. 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 similar to or 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%;
Nasdaqs operating profit margin for all of 2020 was approximately 62%; NYSE
Arca, Inc.s Arca operating profit 21 See 22 See
supra note 13.
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access to the Exchange is offered on terms that are not unfairly discriminatory, as well as to ensure sufficient capacity and headroom in the System.
There is also no regulatory requirement that any market participant access any one options exchange, that each Market Maker access the Exchange utilizing more than the two free Limited Service MEI Ports that the Exchange provides, access the Exchange in a particular capacity, or trade any particular product offered on the Exchange. Moreover, membership is not a requirement to participate on the Exchange. A market participant may submit orders to the Exchange via a Sponsored User.24 Indeed, the Exchange is unaware of any one options exchange whose membership includes every registered broker-dealer. Based on a recent analysis conducted by Cboe, as of October 21, 2020, only three 3 of the broker-dealers, out of approximately 250
broker-dealers, were members of at least one exchange that lists options for trading and were members of all 16
options exchanges.25 Additionally, the Cboe Fee Filing found that several broker-dealers were members of only a single exchange that lists options for trading and that the number of members at each exchange that trades options varies greatly.26

margin for all of 2020 was approximately 55%; NYSE American LLCs Amex operating profit margin for all of 2020 was approximately 59%;
Cboes operating profit margin for all of 2020 was approximately 74%; and BZXs operating profit margin for all of 2020 was approximately 52%.
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, 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. The Exchange notes that the concept of a tiered-pricing structure for ports is not new or novel.23
The Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive. In such an environment, the Exchange must continually adjust its fees for services and products, in addition to order flow, to remain competitive with other exchanges. The Exchange believes that the proposed changes reflect this competitive environment.
The Exchange believes the proposal to move from a flat fee per month to a tiered-pricing structure is reasonable, equitably allocated and not unfairly discriminatory because the Exchange believes the proposed structure would encourage firms to be more economical and efficient in the number of Limited Service MEI Ports they purchase. The Exchange believes this will enable the Exchange to better monitor and provide access to the Exchanges network in order to ensure that the Exchange meets its obligations under the Act such that
B. Self-Regulatory Organizations Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
With respect to intra-market competition, the Exchange does not believe that the proposed rule change would place certain market participants at the Exchange at a relative disadvantage compared to other market participants or affect the ability of such market participants to compete. As stated above, the Exchange does not believe its proposed pricing will impose
23 See Cboe BZX Exchange, Inc. BZX Options Fee Schedule, Options Logical Port Fees, Ports with Bulk Quoting Capabilities charging $1,500/month for the 1st and 2nd port, $2,500/month for the 3rd port or more; Cboe Exchange, Inc. Cboe Fee Schedule, Logical Connectivity Fees charging $750/month per port for BOE/FIX Logical Ports 1
to 5 and $800/month per port for BOE/FIX Logical Ports greater than 5; charging $1,500/month per port for BOE Bulk Logical Ports 1 to 5, $2,500/
month per port for BOE Bulk Logical Ports 6 to 30, and $3,000/month per port for BOE Bulk Logical Ports greater than 30; The Nasdaq Stock Market LLC Nasdaq, Options 7, Pricing Schedule, Section 3 Nasdaq Options MarketPorts and Other Services charging $1,500/month per port for first 5 ports, $1,000/month per port for the next 15 ports, and $500/month per port for all ports over 20.

24 See Exchange Rule 210. The Sponsored User is subject to the fees, if any, of the Sponsoring Member. The Exchange notes that the Sponsoring Member is not required to publicize, let alone justify or file with the Commission its fees, and as such could charge the Sponsored User any fees it deems appropriate, even if such fees would otherwise be considered supra-competitive, or otherwise potentially unreasonable or uncompetitive.
25 See Securities Exchange Act Release No. 90333
November 4, 2020, 85 FR 71666 November 10, 2020 SRCBOE2020105 the Cboe Fee Filing. The Cboe Fee Filing cited to the October 2020 Active Broker Dealer Report, provided by the Commissions Office of Managing Executive, on October 8, 2020.
26 Id.

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