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Federal Register / Vol. 86, No. 156 / Tuesday, August 17, 2021 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES

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 supracompetitive 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.8 On May 21, 2019, the Commission issued the Staff Guidance on SRO Rule Filings Relating to Fees.9 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 will not result in excessive pricing or supracompetitive profit; and iv utilize a cost-based justification framework that is substantially similar to a framework previously used by the Exchange, and its affiliates MIAX and MIAX Emerald, LLC MIAX Emerald, to establish or increase other non-transaction fees.10
8 See Securities Exchange Act Release No. 85459
March 29, 2019, 84 FR 13363 April 4, 2019 SR
BOX201824, SRBOX201837, and SRBOX
201904.
9 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.
10 See Securities Exchange Act Release Nos.
91460 April 2, 2021, 86 FR 18349 SREMERALD
202111 proposal to adopt port fees, increase connectivity fees, and increase additional limited service ports; 91033 February 1, 2021, 86 FR 8455

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Accordingly, the Exchange believes that the Proposed Access Fees are consistent with the Act.

As of July 29, 2021, the Exchange had a market share of only 4.52% of the U.S.
equity options industry for the month of July 2021.11 The Exchange is not aware of any evidence that a market share of approximately 45% 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 access or not initially access 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 access 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 drop their access to exchanges based on nontransaction fee pricing, R2G Services LLC R2G filed a comment letter after BOXs proposed rule changes to increase its connectivity fees SRBOX
201824, SRBOX201837, and SR
BOX201904. 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. Similarly, the Exchanges affiliate, MIAX Emerald, noted in a recent filing that once MIAX Emerald issued a notice that it was instituting MEI Port fees, among other nontransaction fees, one MIAX Emerald Member dropped its access to MIAX
Emerald as a result of those fees.12
February 5, 2021 SREMERALD202103
proposal to adopt trading permit fees; 90980
January 25, 2021, 86 FR 7602 January 29, 2021
SRMIAX202102 proposal to increase connectivity fees.
11 See The market at a glance, available at https www.miaxoptions.com/ last visited July 29, 2021.
12 See Securities Exchange Act Release No. 91460
April 2, 2021, 86 FR 18349 April 8, 2021 SR
EMERALD202111 Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To Adopt Port Fees, Increase Certain Network Connectivity Fees, and Increase the Number of Additional Limited Service MIAX Emerald Express Interface Ports Available to Market Makers adopting tiered MEI Port fee
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Accordingly, these examples show that if an exchange sets too high of a fee for connectivity and/or other nontransaction fees for its relevant marketplace, market participants can choose to drop their access to such exchange.
In order to provide more detail and to quantify the Exchanges costs associated with providing access to the Exchange in general, the Exchange notes that there are material costs associated with providing the infrastructure and headcount to fully-support access to the Exchange. The Exchange incurs technology expense related to establishing and maintaining Information Security services, enhanced network monitoring and customer reporting, as well as Regulation SCI
mandated processes, associated with its network technology. While some of the expense is fixed, much of the expense is not fixed, and thus increases as the services associated with the Proposed Access Fees increase. For example, new Members to the Exchange may require the purchase of additional hardware to support those Members as well as enhanced monitoring and reporting of customer performance that the Exchange and its affiliates provide.
Further, as the total number Members increases, the Exchange and its affiliates may need to increase their data center footprint and consume more power, resulting in increased costs charged by their third-party data center provider.
Accordingly, the cost to the Exchange and its affiliates to provide access to its Members is not fixed. The Exchange believes the Proposed Access Fees are reasonable in order to offset a portion of the costs to the Exchange associated with providing access to its network infrastructure.
The Exchange only has four primary sources of revenue: Transaction fees, access fees which includes the Proposed 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 Access Fees are fair and reasonable because they will not result in excessive pricing or supracompetitive profit, when comparing the total annual expense that the Exchange and MIAX project to incur in connection with providing these access services versus the total annual revenue that the Exchange projects to collect in connection with services associated with the Proposed Access Fees. For structure ranging from $5,000 to $20,500 per month.

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