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Federal Register / Vol. 86, No. 189 / Monday, October 4, 2021 / Notices
changes reflect this competitive environment.
The Exchange believes the proposal to move from a flat fee per month for the 10Gb ULL connection to a tiered-pricing structure is reasonable, equitably allocated and not unfairly discriminatory because the Exchange believes the proposed structure would encourage firms to be more economical and efficient in the number of connections they purchase. The Exchange believes this will enable the Exchange to better monitor and provide access to the Exchanges network to ensure sufficient capacity and headroom in the System.
The Exchange believes that the proposal to move to a tiered-pricing structure for its 10Gb ULL connections is reasonable, equitably allocated and not unfairly discriminatory because the majority of Members and non-Members that purchase 10Gb ULL connections will either save money or pay the same amount after the tiered-pricing structure is implemented. After the effective date of the First Proposed Rule Change on August 1, 2021, approximately 80% of the firms that purchased at least one 10Gb ULL connection experienced a decrease in their monthly connectivity fees while only approximately 20% of firms experienced an increase in their monthly connectivity fees as a result of the proposed tiered-pricing structure when compared to the flat monthly fee structure. To illustrate, firms that purchase only one 10Gb ULL
connection per month used to pay the flat rate of $10,000 per month for that one 10Gb ULL connection. Pursuant to the proposed tiered-pricing structure, these firms now pay $9,000 per month for that one 10Gb ULL connection, saving $1,000 per month or $12,000
annually. Further, firms that purchase two 10Gb ULL connections per month previously paid a flat rate of $20,000 per month $10,000 2 for those two 10Gb ULL connections. Pursuant to the proposed tiered-pricing structure, these firms now pay $18,000 per month $9,000 2 for those two 10Gb ULL
connections, saving $2,000 per month or $24,000 annually. Additionally, any firm that is a Member of both MIAX and MIAX Pearl Options and purchases four total 10Gb ULL connections, can allocate two 10Gb ULL connections to MIAX at the $9,000 rate saving $2,000
per month as compared to the flat fee and two 10Gb ULL connections to MIAX Pearl Options at the $9,000 rate saving an additional $2,000 per month as compared to the flat fee, for a total savings of $4,000 per month, or $48,000
annually, due to the shared MENI
infrastructure of MIAX and MIAX Pearl.

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The Exchange also notes that firms that primarily route orders seeking bestexecution generally only need a limited number of connections to fulfill that obligation. Therefore, the connectivity costs will likely be lower for these firms based on the proposed tiered-pricing structure. The firms that engage in advanced trading strategies typically require multiple connections and, therefore, generate higher costs by utilizing more of the Exchanges resources. These firms experienced increased connectivity costs based on the proposed tiered-pricing structure, as shown by the 20% of firms that may have experienced an increase in their monthly connectivity fees. Additionally, the firms that purchase a higher amount of 10Gb ULL connections tend to have specific business-driven trading strategies, as opposed to firms engaging solely in order routing as part of their best-execution obligations.
The Exchange believes that exchanges, in setting fees of all types, should meet very high standards of transparency to demonstrate why each new fee or fee increase meets the requirements of the Act that fees be reasonable, equitably allocated, not unfairly discriminatory, and not create an undue burden on competition among market participants. The Exchange believes this high standard is especially important when an exchange imposes various access fees for market participants to access an exchanges marketplace. The Exchange deems connectivity to be access fees. It records these fees as part of its Access Fees revenue in its financial statements. The Exchange believes that it is important to demonstrate that these fees are based on its costs and reasonable business needs.
The Exchange believes the Proposed Access Fees will allow the Exchange to offset expense the Exchange has and will incur, and that the Exchange is providing sufficient transparency as described below into how the Exchange determined to charge such fees.
Accordingly, the Exchange is providing an analysis of its revenues, costs, and profitability associated with the Proposed Access Fees. This analysis includes information regarding its methodology for determining the costs and revenues associated with the Proposed Access Fees.
In order to determine the Exchanges costs to provide the access services associated with the Proposed Access Fees, the Exchange conducted an extensive cost review in which the Exchange analyzed nearly every expense item in the Exchanges general expense ledger to determine whether each such expense relates to the
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Proposed Access Fees, and, if such expense did so relate, what portion or percentage of such expense actually supports the access services. The sum of all such portions of expenses represents the total cost to the Exchange to provide the access services associated with 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 cost to the Exchange to provide the access services associated with the Proposed Access Fees.
In order to determine the Exchanges projected revenue associated with the Proposed Access Fees, the Exchange analyzed the number of Members and non-Members currently utilizing the 10Gb ULL fiber connection, and, utilizing a recent monthly billing cycle representative of 2021 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 due to lower trading volume and vice versa, 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 2020. However, since the revenue and expense associated with the Proposed Access Fees were not in place in 2020 or for the first seven months of 2021, the Exchange believes its 2020 Audited Unconsolidated Financial Statement is not representative of its current total annualized 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
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