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Federal Register / Vol. 86, No. 168 / Thursday, September 2, 2021 / Notices
certain products and services for the Exchange to be able to provide the access services associated with the Proposed Access Fees is projected to be $40,166 for 2021.23 The Exchange represents that it determined whether third-party expenses related to the access services associated with the Proposed Access Fees, and, if such expense did so relate, determined what portion or percentage of such expense represents the cost to the Exchange to provide access services associated with the Proposed Access Fees. This includes allocating a portion of fees paid to: 1
Equinix, for data center services approximately 1.80% of the Exchanges total applicable Equinix expense; 2
Zayo Group Holdings, Inc. for network services approximately 0.90%; 3
Secure Financial Transaction Infrastructure and various other services providers approximately 0.90%; and 4 various other hardware and software providers approximately 0.90%.
In addition, the Exchange states that the total internal expense, relating to the internal costs of the Exchange to provide the access services associated with the Proposed Access Fees, is projected to be $856,918 for 2021.24 The Exchange represents that: 1 The Exchanges employee compensation and benefits expense relating to providing the access services associated with the Proposed Access Fees is projected to be $783,513, which is a portion of the Exchanges total projected expense of $9,163,894 for employee compensation and benefits approximately 8.55%; 2
the Exchanges depreciation and amortization expense relating to providing the access services associated with the Proposed Access Fees is projected to be $64,456, which is a portion of the Exchanges total projected expense of $2,864,716 for depreciation and amortization approximately 2.25%; 25 and 3 the Exchanges occupancy expense relating to providing the access services associated with the Proposed Access Fees is projected to be $8,949, which is a portion of the Exchanges total projected expense of $497,180 for occupancy approximately 1.80%.
The Exchange states that this cost and revenue analysis shows that the
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23 See
Notice, supra note 5, at 3735152.
24 See Notice, supra note 5, at 3735253.
25 The Exchange states that the total projected expense of $2,864,716 for depreciation and amortization differs from the projected expense of depreciation and amortization projected by the Exchange in a different filing SRPEARL202132
because the Exchange factors in the depreciation of its own internally developed software when assessing costs for Full Service MEO Ports, resulting in a higher depreciation expense number in this filing. See Notice, supra note 5, at 37353, n.30.

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proposed rule change will not result in excessive pricing or supra-competitive profit.26 The Exchange projects that, on a fully-annualized basis, the Proposed Access Fees will have an expense of $897,084 per annum and a projected revenue of $1,467,000 per year, resulting in a projected profit margin of 39% $1,467,000 in projected revenue minus $897,084 in projected expense =
$578,916 profit per year. The Exchange states that this estimated profit margin for Full Service MEO Port fees is well below the operating profit margins of other competing exchanges based on financial statements filed by them in 2019 Form 1 amendments.27 The Exchange also states that its proposed increased Full Service MEO Port fees are in line with, or cheaper than, the similar port fees or similar membership fees charged by other options exchanges.28
The Exchange further states that its proposed fees are reasonable, equitably allocated and not unfairly discriminatory because the Exchange, and its affiliates Miami International Securities Exchange, LLC MIAX and MIAX Emerald, LLC MIAX Emerald, are still recouping the initial expenditures from building out their systems while legacy exchanges have already paid for and built their systems.29 The Exchange also notes that its affiliates, MIAX and MIAX Emerald, also charge fees for their high throughput, low latency MEI Ports in a similar fashion as the Exchange charges for its MEO Ports.30 Furthermore, the Exchange notes that it has historically undercharged for Full Service MEO
Ports as compared to other options exchanges and the proposed monthly fee increases for Full Service MEO Ports would bring the Exchanges fees more in line with that of other options exchanges, while maintaining a competitive fee structure for Full Service MEO Ports.31
The Exchange states that the proposed fees are equitably allocated, not unfairly discriminatory, and do not impose an unnecessary or inappropriate burden on competition because the Proposed Access Fees do not favor certain categories of market participants,32 the 26 See
Notice, supra note 5, at 37353.
Notice, supra note 5, at 37354. The Exchange states that Nasdaq ISE, LLCs operating profit margin for 2019 was 83% and Nasdaq PHLX
LLCs operating profit margin for 2019 was 67%.
28 See Notice, supra note 5, at 37349. See also Notice, supra note 5, at 37348 n.9.
29 See Notice, supra note 5, at 37354.
30 See MIAX Fee Schedule, Section 5dii;
MIAX Emerald Fee Schedule, Section 5dii.
31 See Notice, supra note 5, at 37349.
32 See id. at 37354.
27 See
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allocation of the Proposed Access Fees reflects the network resources consumed by the various size of the market participants, with the lowest bandwidth consuming members paying the least, and the highest bandwidth consuming paying the most; 33 and options market participants are not forced to connect to and purchase MEO
Ports from all options exchanges.34
When exchanges file their proposed rule changes with the Commission, including fee filings like the Exchanges present proposal, they are required to provide a statement supporting the proposals basis under the Act and the rules and regulations thereunder applicable to the exchange.35 The instructions to Form 19b4, on which exchanges file their proposed rule changes, specify that such statement should be sufficiently detailed and specific to support a finding that the proposed rule change is consistent with those requirements. 36
Section 6 of the Act, including Sections 6b4, 5, and 8, require the rules of an exchange to 1 provide for the equitable allocation of reasonable fees among members, issuers, and other persons using the exchanges facilities; 37 2 perfect the mechanism of a free and open market and a national market system, protect investors and the public interest, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers; 38 and 3 not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.39
In temporarily suspending the Exchanges fee change, the Commission intends to further consider whether the proposal to increase fees for the Exchanges Full Service MEO Ports is consistent with the statutory requirements applicable to a national securities exchange under the Act. In particular, the Commission will consider whether the proposed rule change satisfies the standards under the Act and the rules thereunder requiring, among other things, that an exchanges rules provide for the equitable allocation of reasonable fees among members, issuers, and other persons 33 See
Notice, supra note 5, at 37355.
a more detailed description of the Exchanges justifications for the proposed rule change, see Notice, supra note 5, at 3734955.
35 See 17 CFR 240.19b4 Item 3 entitled SelfRegulatory Organizations Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change.
36 Id.
37 15 U.S.C. 78fb4.
38 15 U.S.C. 78fb5.
39 15 U.S.C. 78fb8.
34 For
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