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Federal Register / Vol. 86, No. 189 / Monday, October 4, 2021 / Notices 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 $14.6 million per annum, based on a recent billing cycle.38 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
38 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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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 nearly every expense 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 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 39 profit. Of note, the Guidance defines supracompetitive profit as profits that exceed the profits that can be obtained in a competitive market.40
With the proposed changes, the Exchange anticipates that its collective connectivity profit margin will be approximately 51%, inclusive of the Proposed Access Fees and all other connectivity alternatives. In order to achieve a consistent, premium network performance, the Exchange must build out and continue to maintain a network that has the capacity to handle the message rate requirements of not only firms that consume minimal Exchange connectivity resources, but also those 39 See 40 See
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supra note 12.
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firms that most heavily consume Exchange connectivity resources, network consumers, and purchasers of 10Gb ULL connectivity, which generate billions of messages per day across the Exchange. These 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 51% 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,41 as discussed above, the incremental increase in revenue generated from the 51% profit margin for connectivity will allow the Exchange to further invest in its 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 41 See
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supra notes 16, 18 and 20.

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