Overview
Title
Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To Increase the Number of Additional Limited Service MIAX Express Interface Ports Available to Market Makers
Agencies
ELI5 AI
The Miami Stock Exchange is giving market helpers more online tools to use because more people are trading and the system is busier, but the helpers have the choice to use them or not.
Summary AI
The Miami International Securities Exchange, LLC has submitted a proposal to the Securities and Exchange Commission to increase the number of Limited Service MIAX Express Interface Ports available to market makers without changing existing fees. This expansion is needed due to higher customer demand and market volatility, which have increased network traffic. Even though this expansion will come at a cost, the Exchange aims to offer more ports to ensure sufficient and equal access to its systems for all market participants, while maintaining fair competition and efficient port usage. They emphasize that the decision to purchase additional ports is voluntary for market makers.
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AnalysisAI
Overview of the Document
This document is a proposed rule change filed by the Miami International Securities Exchange, LLC (MIAX Options) to the Securities and Exchange Commission (SEC). The proposal seeks to increase the number of Limited Service MIAX Express Interface Ports available to market makers. This initiative stems from an increasing demand in the marketplace and heightened volatility, which have resulted in higher network traffic. The current fees for these ports will remain unchanged, and the additional ports will be offered without the expectation of generating significant profits.
Significant Issues and Concerns
One major concern highlighted in the document is the complexity of the cost analysis related to providing additional ports. The explanation is detailed and includes various allocations and estimations of expenses, which may confuse readers unfamiliar with technical financial allocations. The allocation process involves many estimations and percentages, some of which may seem arbitrary without more detailed supporting data.
Furthermore, the document mentions a significant upfront cost of $175,000 for the network expansion. However, it lacks a detailed breakdown of what this expense includes. This omission could raise questions about whether the costs are justified or if more efficient alternatives exist. Additionally, the explanation of why certain portions of expenses like employee compensation and occupancy costs are allocated to the ports might be seen as subjective without further context.
Another point of interest is the document's note on an 11% fee increase from SFTI, a service provider. The significance of this increase compared to other costs is not fully explained, which may cause confusion regarding its impact on the overall expense structure.
Public Impact
For the general public, especially investors and market participants, the document illustrates how MIAX aims to handle current market demands and maintain fairness in accessing trading systems. By enhancing their network capacity, MIAX aims to ensure that all members, regardless of their size or influence, can access its systems equally. This decision can help maintain orderly market operations and reassure investors of a stable trading environment.
Impact on Stakeholders
The document potentially has several impacts on specific stakeholders:
Market Makers: The proposal allows market makers to purchase additional ports, offering them the flexibility to adapt to increased market volatility and traffic. However, it's a business decision to invest in these ports, which might not be necessary for all.
Exchange Members and Participants: The network expansion is designed to address increased demand and volatility, thus providing continuity in services. The availability of additional ports should help members maintain their trading operations without disruption.
Investors: By ensuring that the infrastructure can handle increased traffic, MIAX boosts investor confidence in the robustness and reliability of its systems, which is crucial for maintaining trust in the financial markets.
Regulatory Oversight: The SEC and other regulatory bodies may view this proposal as an effort by MIAX to comply with obligations to ensure fair and orderly market access, aligning with regulatory expectations.
In conclusion, while the document primarily highlights the technical and financial considerations of adding additional service ports, its implications extend to broader market operations and stakeholders, reaffirming MIAX's commitment to supporting a dynamic trading environment.
Financial Assessment
The document details a proposed change by the Miami International Securities Exchange to increase the availability of Limited Service MIAX Express Interface Ports for Market Makers. This change involves several financial elements that deserve exploration.
Existing Fee Structure and Financial Considerations
Market Makers wishing to utilize additional Limited Service MIAX Express Interface Ports would be subject to an existing monthly fee of $100 per port. This fee has remained unchanged since 2016, indicating a stable pricing model for these ports. The Exchange does not plan to change this fee despite increasing the number of ports available, meaning Market Makers will incur costs based solely on the number of ports they choose to use. The consistency of the fee helps manage costs for Market Makers but suggests no immediate financial benefit to the Exchange in terms of increased monthly revenues for each additional port.
Cost and Revenue Analysis
The Exchange anticipates a one-time capital expenditure (CapEx) of approximately $175,000 for network expansion to make these additional ports available. This expenditure includes hardware, software, and support necessary for accommodating the increased demand. By projecting that six to seven Market Makers will purchase these ports, the Exchange estimates additional annualized revenue of just $16,800. This anticipated revenue is modest compared to the upfront investment, illustrating a significant discrepancy between the costs incurred by the Exchange and the expected revenue.
Furthermore, the Exchange foresees ongoing operating expenses (OpEx) associated with supporting these ports, projected at $100,371 annually. Even after excluding the initial CapEx, the Exchange projects an annual financial loss of $83,571 for managing the additional ports. This shortfall emphasizes that the initiative is not profit-driven but rather aims at meeting Market Maker demand and possibly enhancing service levels.
Allocation of Expenses
The breakdown of costs reveals specific allocations such as approximately $12,393 in third-party expenses and $87,978 in total internal expenses. Employee compensation figures prominently, with related expenses amounting to $58,870 out of a total $9,811,685 across broader operations. Additionally, depreciation, amortization, and occupancy costs are detailed, with allocations of $26,362 and $2,746 respectively.
The document describes a methodology where the Exchange allocates specific portions of its overall expenses to the services associated with the new ports. These percentages raise questions about the basis of these allocations and whether they align with actual usage and cost, potentially leading to subjective assessments.
Regulatory and Competitive Context
From a regulatory perspective, maintaining such low fees for additional ports might promote efficient port usage, aligning with the Exchange's obligations under Regulation Systems Compliance and Integrity. This financial model may foster a disciplined approach among Market Makers while supporting broader network integrity.
Overall, the financial references indicate a careful balancing act by the Exchange to provide additional infrastructure without imposing significant financial burdens on the Market Makers or extracting substantial profits, yet they highlight potential challenges related to the recovery of the set costs. The lack of financial pressures to increase fees may benefit Market Makers but poses questions about sustainable long-term network and service expansions without external financial support measures.
Issues
• The document contains a detailed explanation of costs associated with providing additional Limited Service MIAX Express Interface Ports, but the explanation is lengthy and complex, which might make it difficult for some readers to understand.
• The allocation of expenses to the two additional Limited Service MEI Ports involves numerous estimations and percentages, some of which might be considered arbitrary without further supporting data.
• The document mentions a significant upfront cost of $175,000 for network expansion without a detailed breakdown of what this entails, potentially raising concerns about whether this expense is justified.
• Physical expenses, such as those related to employee compensation, occupancy, and third-party services, are discussed, but the justification of allocating specific portions of these expenses could be considered subjective.
• While the document states that the Exchange does not anticipate generating a profit from the additional ports, it does not clearly address whether other cost recovery measures could offset these expenses.
• There is a complaint about an 11% fee increase from SFTI, but it's not clear why this is a significant concern compared to other costs.
• There are several technical terms and references to specific regulations and figures that may be difficult for a general audience to comprehend without prior knowledge.