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lotter on DSK11XQN23PROD with NOTICES1

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Federal Register / Vol. 86, No. 158 / Thursday, August 19, 2021 / Notices
consistent with Section 6b of the Act 10
in general, and furthers the objectives of Section 6b4 of the Act 11 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among Exchange Members and issuers and other persons using any facility or system which the Exchange operates or controls. The Exchange also believes the proposal furthers the objectives of Section 6b5
of the Act 12 in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest and is not designed to permit unfair discrimination between customers, issuers, brokers and dealers.
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 additional Limited Service MEI Ports they purchase. The Exchange believes this will enable the Exchange to better monitor and provide access to the Exchanges network to ensure sufficient capacity and headroom in the System.
The Exchange notes that the firms that are primarily order routers seeking bestexecution do not utilize Limited Service MEI Ports on MIAX. Therefore, the fees described in the proposed tiered-pricing structure will only be allocated to market making firms that engage in advanced trading strategies and typically request multiple Limited Service MEI Ports. Accordingly, the firms engaged in market making business generate higher costs by utilizing more of the Exchanges resources. The market making firms that purchase higher amounts of Limited Service MEI Ports tend to have specific business oriented market making and 10 15

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taking strategies, as opposed to firms simply engaging in best-execution order routing business. The use of such additional Limited Service MEI Ports is entirely voluntary.
The Exchange believes that exchanges, in setting fees of all types, should meet very high standards of transparency to demonstrate why each new fee or fee increase meets the requirements of the Act that fees be reasonable, equitably allocated, not unfairly discriminatory, and not create an undue burden on competition among market participants. The Exchange believes this high standard is especially important when an exchange imposes various access fees for market participants to access an exchanges marketplace. The Exchange deems port fees to be access fees. It records these fees as part of its Access Fees revenue in its financial statements. The Exchange believes that it is important to demonstrate that these fees are based on its costs and reasonable business needs.
The Exchange believes the Proposed Access Fees will allow the Exchange to offset expense the Exchange has and will incur, and that the Exchange is providing sufficient transparency as described below into how the Exchange determined to charge such fees.
Accordingly, the Exchange is providing an analysis of its revenues, costs, and profitability associated with the Proposed Access Fees. This analysis includes information regarding its methodology for determining the costs and revenues associated with the Proposed Access Fees.
In order to determine the Exchanges costs to provide the access services associated with the Proposed Access Fees, the Exchange conducted an extensive cost review in which the Exchange analyzed every expense item in the Exchanges general expense ledger to determine whether each such expense relates to the Proposed Access Fees, and, if such expense did so relate, what portion or percentage of such expense actually supports the access services. The sum of all such portions of expenses represents the total cost of the Exchange to provide the access services associated with the Proposed Access Fees. For the avoidance of doubt, no expense amount was allocated twice.
The Exchange is also providing detailed information regarding the Exchanges cost allocation methodologynamely, information that explains the Exchanges rationale for determining that it was reasonable to allocate certain expenses described in this filing towards the cost to the Exchange to provide the access services associated with the Proposed Access Fees.

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In order to determine the Exchanges projected revenues associated with the Proposed Access Fees, the Exchange analyzed the number of Market Makers currently utilizing Limited Service MEI
Ports, and, utilizing a recent monthly billing cycle representative of 2021
monthly revenue, extrapolated annualized revenue on a going-forward basis. The Exchange does not believe it is appropriate to factor into its analysis future revenue growth or decline into its projections for purposes of these calculations, given the uncertainty of such projections due to the continually changing access needs of market participants, discounts that can be achieved due to lower trading volume and vice versa, market participant consolidation, etc. Additionally, the Exchange similarly does not factor into its analysis future cost growth or decline. The Exchange is presenting its revenue and expense associated with the Proposed Access Fees in this filing in a manner that is consistent with how the Exchange presents its revenue and expense in its Audited Unconsolidated Financial Statements. The Exchanges most recent Audited Unconsolidated Financial Statement is for 2020.
However, since the revenue and expense associated with the Proposed Access Fees were not in place in 2020
or for the first seven months of 2021, the Exchange believes its 2020 Audited Unconsolidated Financial Statement is not useful for analyzing the reasonableness of the total annual revenue and costs associated with the Proposed Access Fees. Accordingly, the Exchange believes it is more appropriate to analyze the Proposed Access Fees utilizing its 2021 revenue and costs, as described herein, which utilize the same presentation methodology as set forth in the Exchanges previously-issued Audited Unconsolidated Financial Statements. Based on this analysis, the Exchange believes that the Proposed Access Fees are fair and reasonable because they will not result in excessive pricing or supra-competitive profit when comparing the Exchanges total annual expense associated with providing the services associated with the Proposed Access Fees versus the total projected annual revenue the Exchange will collect for providing those services.

On March 29, 2019, the Commission issued its Order Disapproving Proposed Rule Changes to Amend the Fee Schedule on the BOX Market LLC
Options Facility to Establish BOX
Connectivity Fees for Participants and Non-Participants Who Connect to the
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