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lotter on DSK11XQN23PROD with NOTICES1

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Federal Register / Vol. 86, No. 158 / Thursday, August 19, 2021 / Notices
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 4.69% 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 that annualized revenue for providing the access services associated with the Proposed Access Fees would be approximately $3.21 million per annum, based on a recent billing cycle. The Exchange projects that its annualized expense for providing the services associated with the Proposed Access Fees will be approximately $1.32
million per annum. Accordingly, on a fully-annualized basis, the Exchange believes its total projected revenue for providing the access services associated with the Proposed Access Fees will not result in excessive pricing or supracompetitive profit, as the Exchange will
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make a profit margin of approximately 59% $3.21 million in total revenue minus $1.32 million in expense = $1.89
million in profit per annum.
Additionally, this profit margin does not take into account the cost of capital expenditures CapEx the Exchange projects 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 or its affiliates. Stated differently, no expense amount of the Exchange is allocated twice. The Exchange notes that, with respect to expenses associated with the Exchanges affiliates, MIAX Pearl and MIAX
Emerald, those expenses 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
Pearl or MIAX Emerald.
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 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 Exchanges 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 supracompetitive 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
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supra-competitive 22 profit. Of note, the Guidance defines supracompetitive profit as profits that exceed the profits that can be obtained in a competitive market.23 With the proposed changes, the Exchange anticipates it will have a profit margin of approximately 59% based on the Proposed Access Fees. 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%;
Nasdaqs 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%;
Cboes operating profit margin for all of 2020 was approximately 74%; and BZXs operating profit margin for all of 2020 was approximately 52%.
The Exchange further believes its proposed fees are reasonable, equitably allocated and not unfairly discriminatory because the Exchange believes that it benefits overall competition in the marketplace to allow relatively new entrants like the Exchange and its affiliates, MIAX Pearl and MIAX Emerald, to propose fees that may help these new entrants recoup their substantial investment in building out costly infrastructure. The Exchange and its affiliates have historically set their fees purposefully low in order to attract business and market share. The Exchange notes that the concept of a tiered-pricing structure for ports is not new or novel.24
22 See
supra note 14.
id.
24 See Cboe BZX Exchange, Inc. BZX Options Fee Schedule, Options Logical Port Fees, Ports with Bulk Quoting Capabilities charging $1,500/month for the 1st and 2nd port, $2,500/month for the 3rd port or more; Cboe Exchange, Inc. Cboe Fee Schedule, Logical Connectivity Fees charging $750/month per port for BOE/FIX Logical Ports 1
to 5 and $800/month per port for BOE/FIX Logical Ports greater than 5; charging $1,500/month per port for BOE Bulk Logical Ports 1 to 5, $2,500/
month per port for BOE Bulk Logical Ports 6 to 30, and $3,000/month per port for BOE Bulk Logical Ports greater than 30; The Nasdaq Stock Market LLC Nasdaq, Options 7, Pricing Schedule, Section 3 Nasdaq Options MarketPorts and Other Services charging $1,500/month per port for first 23 See
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