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Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices
Proposed Access Fees, and, if such expense did so relate, what portion or percentage of such expense actually supports the services included in the Proposed Access Fees. The sum of all such portions of expenses represents the total cost of the Exchange to provide 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 total cost to the Exchange to provide the Proposed Access Fees.
In order to determine the Exchanges projected revenues associated with providing the Proposed Access Fees, the Exchange analyzed the number of Members and non-Members currently utilizing the Exchanges services associated with the Proposed Access Fees, and, utilizing a recent monthly billing cycle representative of 2020
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 through reaching certain tiers, 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 2019.
However, since the revenue and expense associated with the Proposed Access Fees were not in place in 2019
or for the first three quarters of 2020, the Exchange believes its 2019 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 2020 revenue and costs, as described herein, which utilize the same presentation methodology as set forth in the Exchanges previously-issued Audited Unconsolidated Financial
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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 BOX Network the BOX Order.31 On May 21, 2019, the Commission issued the Staff Guidance on SRO Rule Filings Relating to Fees.32 On December 20, 2019, the Exchange adopted Connectivity Fees in a filing utilizing a cost-based justification framework that is substantially similar to the cost-based justification framework utilized for the instant Proposed Access Fees.33
Accordingly, 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 comprehensive revenue and cost data and analysis that they are fair and reasonable because they do not result in excessive pricing or supra-competitive profit; and iv utilize a cost-based justification framework that is substantially similar to a framework previously used by the Exchange to establish Connectivity Fees.
Accordingly, the Exchange believes that the Commission should find that the Proposed Fees are consistent with the Act.
The proposed rule change is immediately effective upon filing with the Commission pursuant to Section 19b3A of the Act.
2. Statutory Basis The Exchange believes that its proposal to amend its Fee Schedule is
consistent with Section 6b of the Act 34
in general, and furthers the objectives of Section 6b4 of the Act 35 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 36 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 customer, issuers, brokers and dealers.
The Exchange launched trading on March 1, 2019. For the month of December 2020, the Exchange had a market share of only approximately 3.58% of the U.S. options industry.37
The Exchange is not aware of any evidence that a market share of approximately 3.6% provides the Exchange with anti-competitive 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 to an exchange or not connect to an exchange if an exchange were to establish prices for its non-transaction fees that, in the determination of such market participant, did not make business or economic sense for such market participant to connect to such exchange. 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 non-transaction fee pricing, R2G
Services LLC R2G filed a comment letter after BOXs proposed rule changes to increase its connectivity fees SR
BOX201824, SRBOX201837, and SRBOX201904.38 The R2G Letter stated, when BOX instituted a 34 15

31 See
Securities Exchange Act Release No. 85459
March 29, 2019, 84 FR 13363 April 4, 2019 SR
BOX201824, SRBOX201837, and SRBOX
201904.
32 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.
33 See Securities Exchange Act Release No. 87877
December 31, 2019, 84 FR 738 January 7, 2020
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37 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.
38 See Letter from Stefano Durdic, R2G, to Vanessa Countryman, Acting Secretary, Commission, dated March 27, 2019 the R2G
Letter.
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