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Federal Register / Vol. 86, No. 158 / Thursday, August 19, 2021 / Notices
lotter on DSK11XQN23PROD with NOTICES1

non-transaction fees, one MIAX Emerald Member dropped its access to MIAX
Emerald as a result of those fees.16
Accordingly, these examples show that if an exchange sets too high of a fee for ports and/or other non-transaction fees, including other access fees, for its relevant marketplace, market participants can choose to drop their access to such exchange.
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 Members to the Exchange may require the purchase of additional hardware to support those Members as well as enhanced monitoring and reporting of customer performance that the Exchange and its affiliates provide.
Further, as the total number Members increases, the Exchange and its affiliates may need to increase their data center footprint and consume more power, resulting in increased costs charged by their third-party data center provider.
Accordingly, the cost to the Exchange and its affiliates to provide access to its System for market participants is not fixed. The Exchange believes the Proposed Access Fees are reasonable in order to offset a portion of the costs to the Exchange associated with providing access to its network infrastructure.
The Exchange only has four primary sources of revenue: Transaction fees, access fees which includes the Proposed Access Fees, regulatory fees, and market data fees. Accordingly, the Exchange must cover all of its expenses from these four primary sources of revenue.
The Exchange believes that the Proposed Access Fees are fair and 16 See Securities Exchange Act Release No. 91460
April 2, 2021, 86 FR 18349 April 8, 2021 SR
EMERALD202111 Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To Adopt Port Fees, Increase Certain Network Connectivity Fees, and Increase the Number of Additional Limited Service MIAX Emerald Express Interface Ports Available to Market Makers adopting tiered MEI Port fee structure ranging from $5,000 to $20,500 per month.

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reasonable because they will not result in excessive pricing or supracompetitive profit, when comparing the total annual expense that the Exchange projects to incur in connection with providing these access services versus the total annual revenue that the Exchange projects to collect in connection with services associated with the Proposed Access Fees. For 2021,17 the total annual expense for providing the access services associated with the Proposed Access Fees is projected to be approximately $0.88
million. The approximately $0.88
million in projected total annual expense is comprised of the following, all of which 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.18 As noted above, the Exchange believes it is more appropriate to analyze the Proposed Access Fees utilizing its 2021 revenue and costs, which utilize the same presentation methodology as set forth in the Exchanges previously-issued Audited Unconsolidated Financial Statements.19
The $0.88 million 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. It does not include general costs of operating matching systems and other trading technology, and no expense amount was allocated twice.
As discussed, the Exchange conducted an extensive cost review in which the Exchange analyzed expense items in the Exchanges general expense ledger this includes over 150 separate and distinct expense items to 17 The Exchange has not yet finalized its 2021
year end results.
18 The percentage allocations used in this proposed rule change may differ from past filings from the Exchange or its affiliates due to, among other things, changes in expenses charged by thirdparties, adjustments to internal resource allocations, and different system architecture of the Exchange as compared to its affiliates.
19 For example, the Exchange previously noted that all third-party expense described in its prior fee filing was contained in the information technology and communication costs line item under the section titled Operating Expenses Incurred Directly or Allocated From Parent, in the Exchanges 2019 Form 1 Amendment containing its financial statements for 2018. See Securities Exchange Act Release No. 87877 December 31, 2019, 85 FR 738 January 7, 2020 SREMERALD
201939. Accordingly, the third-party expense described in this filing is attributed to the same line item for the Exchanges 2021 Form 1 Amendment, which will be filed in 2022.

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determine whether each such expense relates to the access services associated with the Proposed Access Fees, and, if such expense did so relate, what portion or percentage of such expense actually supports those services, and thus bears a relationship that is, in nature and closeness, directly related to those services. The sum of all such portions of expenses represents the total cost of the Exchange to provide access services associated with the Proposed Access Fees.
For 2021, 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 $0.05 million. This includes, but is not limited to, a portion of the fees paid to: 1 Equinix, for data center services, for the primary, secondary, and disaster recovery locations of the Exchanges trading system infrastructure; 2 Zayo Group Holdings, Inc. Zayo for network services fiber and bandwidth products and services linking the Exchanges office locations in Princeton, New Jersey and Miami, Florida, to all data center locations; 3 Secure Financial Transaction Infrastructure SFTI,20
which supports connectivity and feeds for the entire U.S. options industry; 4
various other services providers including Thompson Reuters, NYSE, Nasdaq, and Internap, which provide content, connectivity services, and infrastructure services for critical components of options connectivity and network services; and 5 various other hardware and software providers including Dell and Cisco, which support the production environment in which Members connect to the network to trade, receive market data, etc.. For clarity, only a portion of all fees paid to such third-parties is included in the third-party expense herein, and no expense amount is allocated twice.
Accordingly, the Exchange does not allocate its entire information technology and communication costs to the access services associated with the Proposed Access Fees.
20 In fact, on October 22, 2019, the Exchange was notified by SFTI that it is again raising its fees charged to the Exchange by approximately 11%, without having to show that such fee change complies with the Act by being reasonable, equitably allocated, and not unfairly discriminatory. It is unfathomable to the Exchange that, given the critical nature of the infrastructure services provided by SFTI, that its fees are not required to be rule-filed with the Commission pursuant to Section 19b1 of the Act and Rule 19b4 thereunder. See 15 U.S.C. 78sb1 and 17
CFR 240.19b4, respectively.

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