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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Notices
1 of this project in 2020 was approximately $1.85 million. This expense does not include the significant increase in employee time and other resources necessary to maintain and service this network, which expense is captured in the operating expense discussed below. This project, which results in a material increase in expense of the Exchange, is, among other things, intended to enhance the overall trading experience at the Exchange, making it a venue that market participants want to access, thereby creating greater value in the Exchanges market data products.
The Exchange believes that it is reasonable, equitable and not unfairly discriminatory to assess internal distributors fees that are less than the fees assessed for external distributors for subscriptions to the Exchanges ToM, AIS and MOR data feeds because internal distributors have limited, restricted usage rights to the market data, as compared to external distributors which have more expansive usage rights. All Members and nonMembers that determine to receive any market data feed of the Exchange or its affiliates, MIAX and MIAX PEARL, must first execute, among other things, the MIAX Exchange Group Exchange Data Agreement the Exchange Data Agreement.23 Pursuant to the Exchange Data Agreement, Internal Distributors are restricted to the internal use of any market data they receive. This means that Internal Distributors may only distribute the Exchanges market data to the recipients officers and employees and its affiliates.24 External Distributors may distribute the Exchanges market data to persons who are not officers, employees or affiliates of the external distributor,25
and may charge their own fees for the distribution of such market data.
Accordingly, the Exchange believes it is fair, reasonable and not unfairly discriminatory to assess External Distributors a higher fee for the Exchanges market data products as External Distributors have greater usage rights to commercialize such market data. It also costs the Exchange more to support External Distributors versus internal distributors, as External Distributors have reporting and monitoring obligations that Internal Distributors do not have, thus requiring additional time and effort of Exchange staff. The Exchange believes the 23 See Exchange Data Agreement, available at https miaxweb2.pairsite.com/sites/default/files/
page-files/MIAX_Exchange_Group_Data_
Agreement_09032020.pdf.
24 See id.
25 See id.

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proposed fees are a reasonable allocation of its costs and expenses among its Members and other persons using its facilities since it is recovering the costs associated with distributing such data. Access to the Exchange is provided on fair and non-discriminatory terms. The Exchange believes the proposed fees are equitable and not unfairly discriminatory because the fee level results in a reasonable and equitable allocation of fees amongst users for similar services. Moreover, the decision as to whether or not to purchase market data is entirely optional to all users. Potential purchasers are not required to purchase the market data, and the Exchange is not required to make the market data available. Purchasers may request the data at any time or may decline to purchase such data. The allocation of fees among users is fair and reasonable because, if the market deems the proposed fees to be unfair or inequitable, firms can diminish or discontinue their use of this data.
The Exchange only has four primary sources of revenue: Transaction fees, 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 fees are fair and reasonable because they will not result in excessive pricing or supra-competitive profit, when comparing the total annual expense that the Exchange projects to incur in connection with providing these products versus the total annual revenue that the Exchange projects to collect in connection with the proposed market data fees. For 2020,26 the total annual expense for providing the market data products associated with the proposed fees for MIAX Emerald is projected to be approximately $1,040,064. The $1,040,064 in projected total annual expense is comprised of the following, all of which are directly related to providing the market data products associated with the proposed fees: 1 Third-party expense, relating to fees paid by MIAX Emerald to thirdparties for certain products and services;
and 2 internal expense, relating to the internal costs of MIAX Emerald to provide the market data products associated with the proposed fees.
The Exchange notes that the MIAX
Emerald architecture takes advantage of an advance in design to eliminate the need for a market data distribution gateway layer. The computation and dissemination via an application 26 The Exchange has not yet finalized its 2020
year end results.

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program interface API is done solely within the match engine environment and is then delivered via the Member and non-Member connectivity infrastructure. This architecture delivers a market data distribution system that is more efficient both in cost and performance. Earlier implementations like those implemented for the Exchanges affiliates, Miami International Securities Exchange, LLC
MIAX and MIAX PEARL, LLC
MIAX PEARL, require an additional server hardware level and network infrastructure making them more expensive to deploy, operate and maintain. All capital and operational expenses to support market data generation are a percentage of the total cost to support the MIAX Emerald match engines both in capital and operational expense. The Exchange believes that 10% of the functionality and support infrastructure is required to support the computation and dissemination of market data at the match engine layer, which serves as the basis for its cost allocation for market data products. Approximately 10% of the Exchange staff are required to support market data and fall under two categories: 1 The technical development, maintenance, operation and administration of market data computation and delivery; and 2 nontechnical administration including managing market data agreements and the auditing and tracking of member and non-member market data usage.
As noted above, the Exchange believes it is more appropriate to analyze the proposed fees utilizing its 2020 revenue and costs, which utilize the same presentation methodology as set forth in the Exchanges previouslyissued Audited Unconsolidated Financial Statements.27 The $1,040,064
in projected total annual expense is directly related to providing the market data products associated with the proposed fees, and not any other product or service offered by the Exchange. No expense amount was allocated twice.
As discussed, the Exchange conducted an extensive cost review in 27 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-part expense described in this filing is attributed to the same line item for the Exchanges 2020 Form 1 Amendment, which will be filed in 2021.

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