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Federal Register / Vol. 86, No. 189 / Monday, October 4, 2021 / Notices
billions of messages per day consume the Exchanges resources and significantly contribute to the overall network connectivity expense for storage and network transport capabilities. Given that 10Gb ULL
purchasers utilize the most resources across the network, the Exchange believes that it is reasonable to operate at a profit margin of approximately 30%
for connectivity, inclusive of the Proposed Access Fees and all other connectivity alternatives. Such profit margin should enable the Exchange to continue to invest in its network and systems, maintain its current infrastructure, support future enhancements to network connectivity, and continue to offer enhanced customer reporting and monitoring services.
While the proposed fees are similar to or less than that of other options exchanges,40 as discussed above, the incremental increase in revenue generated from the 30% profit margin for connectivity will allow the Exchange and MIAX Pearl to further invest in their system architecture and matching engine functionality to the benefit of all market participants. The ability to continue to invest in technology and systems will also enable the Exchange to improve the determinism and overall performance of not only its system connectivity, but overall performance including the resiliency and efficiency of its matching engines. The revenue generated under the proposed rule change would also provide the exchange with the resources necessary to further innovate and enhance its systems and seek additional improvements or functionality to offer market participants generally. The Exchange believes that these investments, in turn, will benefit all investors by encouraging other exchanges to further invest, innovate, and improve their own systems in response.
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 revenue that is derived from its access fees is in line with the revenue that is derived from access fees of competing exchanges. For example, the total revenue from access fees 41 for 2020
40 See
supra notes 16, 18 and 20.
described in the Exchanges Audited Financial Statements, fees for access services are assessed to exchange members for the opportunity to trade and use other related functions of the exchanges. See https www.sec.gov/Archives/
edgar/vprr/2100/21000461.pdf.
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for MIAX was $15,805,000. MIAX
projects that the total revenue from access fees for 2021 for MIAX will be $21,727,396, inclusive of the Proposed Access Fees described herein. Similarly, the total revenue from access fees 42
for 2020 for MIAX Pearl was $11,422,000. MIAX Pearl projects that the total revenue from access fees for 2021 for MIAX Pearl will be $20,001,243, inclusive of the Proposed Access Fees described herein.
The Exchanges projected revenue from access fees is still less than, or similar to, the access fee revenues generated by access fees charged by other U.S. options exchanges. For example, the Cboe Exchange, Inc.
Cboe reported $70,893,000 in access and capacity fee 43 revenue for 2020. Cboe C2 Exchange, Inc. C2
reported $19,016,000 in access and capacity fee revenue for 2020.44 Cboe BZX Exchange, Inc. BZX reported $38,387,000 in access and capacity fee revenue for 2020.45 Cboe EDGX
Exchange, Inc. EDGX reported $26,126,000 in access and capacity fee revenue for 2020.46 PHLX reported $20,817,000 in Trade Management Services revenue for 2019.47 The Exchange notes it is unable to compare access fee revenues with PHLX or other affiliated NASDAQ exchanges because after 2019, the Trade Management Services line item was bundled into a much larger line item in PHLXs Form 1, simply titled Market services. 48
The Exchange also believes that, based on the 2020 Audited Financial Statements of competing options exchanges, the Exchanges overall operating margin is in line with or less than the operating margins of competing 42 As described in MIAX Pearls Audited Financial Statements, fees for access services are assessed to exchange members for the opportunity to trade and use other related functions of the exchanges. See Form 1 Amendment, at https
www.sec.gov/Archives/edgar/vprr/2100/
21000460.pdf.
43 According to Cboe, access and capacity fees represent fees assessed for the opportunity to trade, including fees for trading-related functionality. See Form 1 Amendment, at https www.sec.gov/
Archives/edgar/vprr/2100/21000465.pdf.
44 See id.
45 See id.
46 See id.
47 According to PHLX, Trade Management Services includes a wide variety of alternatives for connectivity to and accessing the PHLX
markets for a fee. These participants are charged monthly fees for connectivity and support in accordance with PHLXs published fee schedules. See Form 1 Amendment, at https
www.sec.gov/Archives/edgar/vprr/2001/
20012246.pdf.
48 See Form 1 Amendment, at https
www.sec.gov/Archives/edgar/vprr/2100/
21000475.pdf.

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options exchanges, including the revenue and expense associated with the Proposed Access Fees. For example, the 2020 operating margin for MIAX
was 46%. The 2020 operating margin for MIAX Pearl was 18%.49 Based on competing exchanges Form 1
Amendments, ISEs operating profit margin for 2020 was approximately 85%; PHLXs operating profit margin for 2020 was approximately 49%;
NASDAQs operating profit margin for 2020 was approximately 62%; Arcas operating profit margin for 2020 was approximately 55%; Amexs operating profit margin for 2020 was approximately 59%; Cboes operating profit margin for 2020 was approximately 74%; and BZXs operating profit margin for 2020 was approximately 52%.
The Exchange believes that the Proposed Access Fees are reasonable, equitably allocated and not unfairly discriminatory because, for one 10Gb ULL connection, the Exchange provides each Member or non-Member access to all twenty-four 24 matching engines on MIAX and a vast majority choose to connect to all twenty-four 24 matching engines. The Exchange believes that other exchanges require firms to connect to multiple matching engines.50 Further, the Exchange notes that no Member or non-Member has altered its use of 10Gb ULL connectivity since the proposed fee changes went into effect on August 1, 2021 via the First Proposed Rule Change.
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 49 This information is provided in response to the SIG Comment Letter. See supra note 7.
50 See Specialized Quote Interface Specification, Nasdaq PHLX, Nasdaq Options Market, Nasdaq BX
Options, Version 6.5a, Section 2, Architecture revised August 16, 2019, available at http
www.nasdaqtrader.com/content/technicalsupport/
specifications/TradingProducts/SQF6.5a-2019Aug.pdf. The Exchange notes that it is unclear whether the NASDAQ exchanges include connectivity to each matching engine for the single fee or charge per connection, per matching engine.
See also NYSE Technology FAQ and Best Practices:
Options, Section 5.1 How many matching engines are used by each exchange? September 2020. The Exchange notes that NYSE provides a link to an Excel file detailing the number of matching engines per options exchange, with Arca and Amex having 19 and 17 matching engines, respectively.

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