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Federal Register / Vol. 86, No. 18 / Friday, January 29, 2021 / Notices
Schedule on the BOX Market LLC
Options Facility to Establish BOX
Connectivity Fees for Participants and Non-Participants Who Connect to the BOX Network the BOX Order.5 On May 21, 2019, the Commission issued the Staff Guidance on SRO Rule Filings Relating to Fees.6
The Exchange believes that the Proposed Access Fees are consistent with the Act because they i are reasonable, equitably allocated, not unfairly discriminatory, and not an undue burden on competition; ii comply with the BOX Order and the Guidance; iii are supported by evidence including data and analysis, constrained by significant competitive forces; and iv are supported by specific information including quantitative information, fair and reasonable because they will permit recovery of the Exchanges costs less than all and will not result in excessive pricing or supracompetitive profit. Accordingly, the Exchange believes that the Commission should find that the Proposed Access Fees are consistent with the Act.

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2. Statutory Basis The Exchange believes that its proposal to amend its Fee Schedule is consistent with Section 6b of the Act 7
in general, and furthers the objectives of Section 6b4 of the Act 8 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 9
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.
For November 2020, the Exchange had only a 3.39% market share of the U.S. options industry.10 The Exchange 5 See Securities Exchange Act Release No. 85459
March 29, 2019, 84 FR 13363 April 4, 2019 SR
BOX201824, SRBOX201837, and SRBOX
201904.
6 See Staff Guidance on SRO Rule Filings Relating to Fees May 21, 2019, at https www.sec.gov/tm/
staff-guidance-sro-rule-filings-fees the Guidance.
7 15 U.S.C. 78fb.
8 15 U.S.C. 78fb4.
9 15 U.S.C. 78fb5.
10 See The Options Clearing Corporation OCC
publishes options and futures volume in a variety of formats, including daily and monthly volume by exchange, available here: https www.theocc.com/
market-data/volume/default.jsp.

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is not aware of any evidence that a market share of approximately 34%
provides the Exchange with anticompetitive pricing power. If the Exchange were to attempt to establish unreasonable pricing, then no market participant would join or connect, and existing market participants would disconnect.
Separately, the Exchange is not aware of any reason why market participants could not simply drop their connections and cease being Members of the Exchange if the Exchange were to establish unreasonable and uncompetitive price increases for its connectivity alternatives. Market participants choose to connect to a particular exchange and because it is a choice, the Exchange must set reasonable connectivity pricing, otherwise prospective members would not connect and existing members would disconnect or connect through a third-party reseller of connectivity. No options market participant is required by rule, regulation, or competitive forces to be a Member of the Exchange. As evidence of the fact that market participants can and do disconnect from exchanges based on connectivity pricing, R2G Services LLC R2G filed a comment letter after BOXs proposed rule changes to increase its connectivity fees SRBOX201824, SRBOX
201837, and SRBOX201904.11 The R2G Letter stated, when BOX
instituted a $10,000/month price increase for connectivity; we had no choice but to terminate connectivity into them as well as terminate our market data relationship. The cost benefit analysis just didnt make any sense for us at those new levels.
Accordingly, this example shows that if an exchange sets too high of a fee for connectivity and/or market data services for its relevant marketplace, market participants can choose to disconnect from the exchange.
The Exchange believes that its proposal is consistent with Section 6b4 of the Act because the Proposed Access Fees will not result in excessive or supra-competitive profit. The costs associated with providing access to Exchange Members and non-Members, as well as the general expansion of a state-of-the-art infrastructure, are extensive, have increased year-overyear, and are projected to increase yearover-year in the future.
The Exchange believes the proposed increase to the 10Gb ULL connection is 11 See Letter from Stefano Durdic, R2G, to Vanessa Countryman, Acting Secretary, Commission, dated March 27, 2019 the R2G
Letter.

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an equitable allocation of reasonable fees because 10Gb ULL purchasers: 1
Consume the most bandwidth and resources of the network; 2 transact the vast majority of the volume on the Exchange; and 3 require the high touch network support services provided by the Exchange and its staff, including more costly network monitoring, reporting and support services, resulting in a much higher cost to the Exchange.
The Exchange believes that the proposed increase to the 10Gb ULL fees are equitably allocated among users of the network connectivity alternatives, as the users of the 10Gb ULL connections consume the most bandwidth and resources of the network. Specifically, the Exchange notes that these users account for approximately greater than 99% of message traffic over the network, while the users of the 1Gb connections account for approximately less than 1%
of message traffic over the network. In the Exchanges experience, users of the 1Gb connections do not have a business need for the high performance network solutions required by 10Gb ULL users.
The Exchanges high performance network solutions and supporting infrastructure including employee support, provides unparalleled system throughput with the network ability to support access to several distinct options markets and the capacity to handle approximately 38 million quote messages per second. On an average day, the Exchange and MIAX handle over approximately 8,304,500,000
billion total messages. Of that total, users of the 10Gb ULL connections generate approximately 8.3 billion messages, and users of the 1Gb connections generate approximately 4.5
million messages. However, in order to achieve a consistent, premium network performance, the Exchange must build out and maintain a network that has the capacity to handle the message rate requirements of its most heavy network consumers. These billions of messages per day consume the Exchanges resources and significantly contribute to the overall network connectivity expense for storage and network transport capabilities. Given this difference in network utilization rate, the Exchange believes that it is reasonable, equitable, and not unfairly discriminatory that the 10Gb ULL users pay for the vast majority of the shared network resources from which all Member and non-Member users benefit, but is designed and maintained from a capacity standpoint to specifically handle the message rate and performance requirements of 10Gb and 10Gb ULL users.

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