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khammond on DSKJM1Z7X2PROD with NOTICES

Federal Register / Vol. 86, No. 156 / Tuesday, August 17, 2021 / Notices staff that operates and supports the network. The Exchange currently has approximately 150 employees.
Approximately two-thirds of the Exchanges staff are in the Technology department, and the majority of those staff have some role in the operation and performance of the access services associated with the Proposed Access Fees. Without this office space, the Exchange would not be able to operate and support the network and provide the access services associated with the Proposed Access Fees to its Members and their customers. Accordingly, the Exchange believes it is reasonable to allocate the identified portion of its occupancy expense because such amount represents the Exchanges actual cost to house the equipment and personnel who operate and support the Exchanges network infrastructure and the access services associated with the Proposed Access Fees. The Exchange did not allocate all of the occupancy expense toward the cost of providing the access services associated with the Proposed Access Fees, only the portion which the Exchange identified as being specifically mapped to operating and supporting the network, approximately 53% of the total applicable occupancy expense. The Exchange believes this allocation is reasonable because it represents the Exchanges cost to provide the access services associated with the Proposed Access Fees, and not any other service, as supported by its cost review.
The Exchange notes that a material portion of its total overall expense is allocated to the provision of access services including connectivity, ports, and trading permits. The Exchange believes this is reasonable and in line, as the Exchange operates a technologybased business that differentiates itself from its competitors based on its trading systems that rely on access to a high performance network, resulting in significant technology expense. Over two-thirds of Exchange staff are technology-related employees. The majority of the Exchanges expense is technology-based. As described above, the Exchange has only four primary sources of fees to recover their costs;
thus, the Exchange believes it is reasonable to allocate a material portion of their total overall expense towards access fees.
Accordingly, based on the facts and circumstances presented, the Exchange believes that its provision of the access services associated with the Proposed Access Fees will not result in excessive pricing or supra-competitive profit. To illustrate, on a going-forward, fullyannualized basis, the Exchange projects
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that annualized revenue for providing the access services associated with the Proposed Access Fees would be approximately $14.6 million per annum, based on a recent billing cycle.17 The Exchange projects that their annualized revenue for providing network connectivity services all connectivity alternatives to be approximately $14.63
million per annum. The Exchange projects that their annualized expense for providing network connectivity services all connectivity alternatives to be approximately $7.2 million per annum. Accordingly, on a fullyannualized basis, the Exchange believes its total projected revenue for the providing the access services associated with the Proposed Access Fees will not result in excessive pricing or supracompetitive profit, as the Exchange will make a profit margin of only approximately 51% inclusive of the Proposed Access Fees and all other connectivity alternatives $14.63 million in total connectivity revenue minus $7.2
million in expense = $7.43 million in profit per annum. Additionally, this profit margin does not take into account the cost of capital expenditures CapEx the Exchange historically spent or is projected to spend each year on CapEx going forward.
For the avoidance of doubt, none of the expenses included herein relating to the access services associated with the Proposed Access Fees relate to the provision of any other services offered by the Exchange. Stated differently, no expense amount of the Exchange is allocated twice. The Exchange notes that expenses associated with the Exchanges affiliates, MIAX and MIAX
Pearl, are accounted for separately and are not included within the scope of this filing. Stated differently, no expense amount of the Exchange is also allocated to MIAX or MIAX Pearl.
The Exchange believes it is reasonable, equitable and not unfairly discriminatory to allocate the respective percentages of each expense category described above towards the total cost to the Exchange of operating and supporting the network, including providing the access services associated with the Proposed Access Fees because the Exchange performed a line-by-line item analysis of all the expenses of the Exchange, and has determined the expenses that directly relate to providing access to the Exchange.
Further, the Exchange notes that, without the specific third-party and 17 The Exchange also projects approximately $2,800 in monthly revenue through 1Gb connections; however, the Exchange does not propose to adjust the fees for those connections at this time.

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internal items listed above, the Exchange would not be able to provide the access services associated with the Proposed Access Fees to its Members and their customers. Each of these expense items, including physical hardware, software, employee compensation and benefits, occupancy costs, and the depreciation and amortization of equipment, have been identified through a line-by-line item analysis to be integral to providing access services. The Proposed Access Fees are intended to recover the costs of providing access to its System.
Accordingly, the Exchange believes that the Proposed Access Fees are fair and reasonable because they do not result in excessive pricing or supra-competitive profit, when comparing the actual costs to the Exchange versus the projected annual revenue from the Proposed Access Fees.
The Exchange believes the proposed changes are reasonable, equitably allocated and not unfairly discriminatory, and do not result in a supra-competitive 18 profit. Of note, the Guidance defines supracompetitive profit as profits that exceed the profits that can be obtained in a competitive market.19 With the proposed changes, the Exchange anticipates it will have a profit margin of approximately 51%, inclusive of the Proposed Access Fees and all other connectivity alternatives. Based on the 2020 Audited Financial Statements of competing options exchanges since the 2021 Audited Financial Statements will likely not become publicly available until early July 2022, after the Exchange has submitted this filing, the Exchanges profit margin is similar to or below the operating profit margins of other competing exchanges. For example, Nasdaq ISE, LLCs ISE
operating profit margin for all of 2020
was approximately 85%; Nasdaq PHLX
LLCs PHLX operating profit margin for all of 2020 was approximately 49%;
the Nasdaq Stock Market LLCs Nasdaq operating profit margin for all of 2020 was approximately 62%;
NYSE Arca, Inc.s Arca operating profit margin for all of 2020 was approximately 55%; NYSE American LLCs Amex operating profit margin for all of 2020 was approximately 59%;
Cboe Exchange, Inc.s Cboe operating profit margin for all of 2020
was approximately 74%; and Cboe BZX
Exchange, Inc.s BZX operating profit margin for all of 2020 was approximately 52%.
18 See 19 See
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supra note 9.
id.

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