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Federal Register / Vol. 86, No. 189 / Monday, October 4, 2021 / Notices
revenue from access fees 42 for 2020
for MIAX Emerald was $7,244,000.
MIAX Emerald projects that the total revenue from access fees for 2021 for MIAX Emerald will be $20,910,179, 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 options exchanges, including the revenue and expense associated with the Proposed Access Fees. For example, the 2020 operating margin for MIAX
Emerald was 12%.49 Based on 42 As 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.
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.
49 This information is provided in response to the SIG Comment Letter. See supra note 7.

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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 twelve 12 matching engines on MIAX Emerald and a vast majority choose to connect to all twelve 12
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, 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, and the proposed tiered-pricing structure will help make the rates consistent with other exchanges while not raising costs for a majority of the Exchanges Members and non-Members.
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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The Guidance provides that in determining whether a proposed fee is constrained by significant competitive forces, the Commission will consider whether there are reasonable substitutes for the product or service that is the subject of a proposed fee. As described below, the Exchange believes substitute products and services are available to market participants, including, among other things, other options exchanges that market participants may connect to in lieu of the Exchange, indirect connectivity to the Exchange via a thirdparty reseller.
There is also no regulatory requirement that any market participant connect to any one options exchange, that any market participant connect at a particular connection speed or act in a particular capacity on the Exchange, or trade any particular product offered on an exchange. Moreover, membership is not a requirement to participate on the Exchange. A market participant may submit orders to the Exchange via a Sponsored User.51 Indeed, the Exchange is unaware of any one options exchange whose membership includes every registered broker-dealer. Based on a recent analysis conducted by the Cboe Exchange, Inc. Cboe, as of October 21, 2020, only three 3 of the brokerdealers, out of approximately 250
broker-dealers, were members of at least one exchange that lists options for trading and were members of all 16
options exchanges.52 Additionally, the Cboe Fee Filing found that several broker-dealers were members of only a single exchange that lists options for trading and that the number of members at each exchange that trades options varies greatly.53
The Exchange notes that non-Member third-parties, such as Service Bureaus and Extranets, resell the Exchanges connectivity. This indirect connectivity is another viable alternative for market participants to trade on the Exchange without connecting directly to the Exchange and thus not pay the Exchanges connectivity fees, which 51 See Exchange Rule 210. The Sponsored User is subject to the fees, if any, of the Sponsoring Member. The Exchange notes that the Sponsoring Member is not required to publicize, let alone justify or file with the Commission its fees, and as such could charge the Sponsored User any fees it deems appropriate, even if such fees would otherwise be considered supra-competitive, or otherwise potentially unreasonable or uncompetitive.
52 See Securities Exchange Act Release No. 90333
November 4, 2020, 85 FR 71666 November 10, 2020 SRCBOE2020105 the Cboe Fee Filing. The Cboe Fee Filing cited to the October 2020 Active Broker Dealer Report, provided by the Commissions Office of Managing Executive, on October 8, 2020.
53 Id.

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