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lotter on DSK11XQN23PROD with NOTICES1

Federal Register / Vol. 86, No. 168 / Thursday, September 2, 2021 / Notices associated with the Proposed Access Fees versus the annual revenue the Exchange will collect for providing those services.23
The Exchange states that for 2021, the total annual expense for providing the access services associated with the Proposed Access Fees for the Exchange is projected to be approximately $844,741.24 The $844,741 in projected total annual expense is comprised of the following, all of which the Exchange states are directly related to the access services associated with the Proposed Access Fees: 1 Third-party expense, relating to fees paid by the Exchange to third-parties for certain products and services; and 2 internal expense, relating to the internal costs of the Exchange to provide the services associated with the Proposed Access Fees. The Exchange states that the $844,741 in projected total annual expense is directly related to the access services associated with the Proposed Access Fees, and not any other product or service offered by the Exchange.
The Exchange states that the total third-party expense, relating to fees paid by the Exchange to third-parties for 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 $188,815 for 2021.25 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 8% of the Exchanges total applicable Equinix expense; 2
Zayo Group Holdings, Inc. for network services approximately 4%; 3 Secure Financial Transaction Infrastructure and various other services providers approximately 3%; and 4 various other hardware and software providers approximately 5%.
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 $655,925 for 2021.26 The Exchange represents that: 1 The Exchanges employee compensation and benefits expense relating to providing 23 See
Notice, supra note 5, at 37382, 37386.
Notice, supra note 5, at 3738384.
25 See Notice, supra note 5, at 3738485.
26 See Notice, supra note 5, at 3738586.
24 See
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the access services associated with the Proposed Access Fees is projected to be $549,824, which is a portion of the Exchanges total projected expense of $9,163,894 for employee compensation and benefits approximately 6%; 2 the Exchanges depreciation and amortization expense relating to providing the access services associated with the Proposed Access Fees is projected to be $66,316, which is a portion of the Exchanges total projected expense of $1,326,325 for depreciation and amortization approximately 5%;
and 3 the Exchanges occupancy expense relating to providing the access services associated with the Proposed Access Fees is projected to be $39,775, which is a portion of the Exchanges total projected expense of $497,180 for occupancy approximately 8%.
The Exchange states that this cost and revenue analysis shows that the proposed rule change will not result in excessive pricing or supra-competitive profit.27 The Exchange projects that, on a fully-annualized basis, the Proposed Access Fees will have an expense of $844,741 per year and a projected revenue of $1,170,000 per year, resulting in a projected profit margin of 28% $1,170,000 in projected revenue minus $844,741 in projected expense =
$325,259 profit per year. The Exchange states that this estimated profit margin is well below the operating profit margins of other competing exchanges based on financial statements provided by them in Form 1 filings.28 The Exchange also claims that the Trading Permit fees are reasonable and equitable because they are in line with, or cheaper than, the trading permit fees or similar membership fees charged by other options exchanges. 29
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 and MIAX
Emerald, LLC, are still recouping the initial expenditures from building out their systems while the legacy exchanges have already paid for and built their systems.30 The Exchange also believes that removal of the Monthly 27 See
Notice, supra note 5, at 37386.
Notice, supra note 5, at 37386. 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%.
29 See Notice, supra note 5, at 37387. The Exchange cites fees from NYSE Arca, NYSE
American, and CBOE BZX Options Exchange in support of this statement. See id. at 37381 n.18. For a more detailed description of the Exchanges justifications for the proposed rule change, see Notice, supra note 5, at 3738188.
30 See Notice, supra note 5, at 37386.
28 See
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Volume Credit and Trading Permit fee credit is reasonable, equitable and not unfairly discriminatory because all market participants will no longer be offered the ability to receive the credit and access to the Exchange is offered on terms that are not unfairly discriminatory.31 In addition, the Exchange states that these credits were offered in order to attract order flow and membership after the Exchange first launched operations, and it is now appropriate to remove these credits in light of the current operating conditions of the Exchange.32
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,33 the difference in Trading Permit fees for FIX
versus MEO Interface users reflects the fact FIX Interface utilizes less capacity and resources of the Exchange while the MEO Interface offers lower latency and higher throughput, which utilizes greater capacity and resources of the Exchange; 34 and options market participants are not forced to connect to and purchase Trading Permits all options exchanges.35
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.36 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. 37
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; 38 2 perfect the mechanism of a free and open market and a national 31 See
Notice, supra note 5, at 3738283.
Notice, supra note 5, at 3738283.
33 See id. at 37387.
34 See Notice, supra note 5, at 37381.
35 For a more detailed description of the Exchanges justifications for the proposed rule change, see Notice, supra note 5, at 3738188.
36 See 17 CFR 240.19b4 Item 3 entitled SelfRegulatory Organizations Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change.
37 Id.
38 15 U.S.C. 78fb4.
32 See
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