FR 2021-01939

Summary

The document outlines a proposal by the Miami International Securities Exchange LLC to modify its fee structure, specifically increasing the cost for its 10-gigabit ultra-low latency fiber connections from $9,300 to $10,000 per month. This fee change would apply to both members and non-members. The Exchange argues that this increase is justified by rising operational costs and is structured to align with the usage of its high-performing network infrastructure.

Issues and Concerns

The proposed fee increase raises several issues. Firstly, the document does not clearly articulate why the existing fees are inadequate or how the additional funds will directly benefit users or enhance market efficiency. This lack of transparency in how funds will be utilized might raise questions regarding the necessity and fairness of the fee hike.

Secondly, the financial arrangements seem to heavily benefit specific service providers, such as Equinix and Zayo Group Holdings, Inc., raising concerns about potential favoritism or lack of consideration of more cost-effective alternatives. The Exchange heavily relies on these providers, without exploring other options that might offer similar services at a reduced cost.

Moreover, the language and structure of the document are notably complex and dense, likely hindering a layperson's understanding of the justification for these financial decisions. The Exchange also presents detailed accounts of cost reviews and revenue projections; however, it fails to concisely connect these figures to tangible benefits for its members and non-members.

Public Impact

This proposal could broadly impact stakeholders by increasing costs for those reliant on the Exchange's connectivity services. Higher fees could potentially be passed down to customers, including individual investors, which might increase barriers to market participation. The document vaguely addresses market competitiveness without thoroughly exploring potential adverse effects on smaller market participants or providing options to mitigate the impact of these increased fees.

Impact on Stakeholders

Specific stakeholders, primarily members and non-members utilizing high-bandwidth services, will directly feel the impact of the fee increase. These stakeholders are those who rely heavily on the Exchange's high-speed infrastructure and will see additional cost burdens.

On the flipside, the document suggests these fees are intended to cover service maintenance and improvements. This might imply potential benefits for stakeholders through more reliable and efficient connectivity, though this rationale is not clearly detailed.

Lastly, the statement that written comments were neither solicited nor received may indicate a lack of proactive engagement with stakeholders, which could translate into unilateral decision-making without thorough consideration of those affected. This lack of transparency and stakeholder engagement might lead to dissatisfaction among users who feel they had no input or were not adequately consulted.

Conclusion

The document presents a significant operational change that has the potential to affect various market participants. While it outlines the Exchange's internal reasoning for the fee increase, clearer communication on how these changes will benefit users and maintain market integrity could improve stakeholder relations and justify the fee adjustments. Additionally, ensuring a broad and transparent engagement process with varied market participants would reinforce confidence in the Exchange's decision-making processes.

The document outlines a proposed rule change filed by the Miami International Securities Exchange LLC (MIAX), which involves amending its fee schedule for network connectivity services. The changes center on increasing fees for a specific type of connection, namely the 10-gigabit ultra-low latency (ULL) fiber connection, which currently costs $9,300 per month. The proposed increase will adjust the fee to $10,000 per month for both members and non-members.

Financial Summary

The document provides a comprehensive breakdown of the financial aspects associated with the proposed fee increases. Initially, it delineates the current fees for various connection types: $1,400 for a 1Gb connection, $6,100 for a 10Gb connection, and $9,300 for the 10Gb ULL connection. By proposing an increase to $10,000 for the 10Gb ULL option, MIAX is aiming to generate additional revenue.

The expense associated with providing network connectivity services is projected to be $17.9 million annually. This figure includes third-party expenses, such as those paid to service providers like Equinix and Zayo Group Holdings, Inc., and internal expenses, which cover employee compensation, benefits, and other operational costs. Specifically, third-party expenses amount to $4,079,910, while internal costs are $13,831,434.

Revenue Projections and Justifications

MIAX projects combined monthly revenue from the 10Gb ULL connections to reach approximately $1,400,000, and estimates annual revenue from the proposed access fees to be about $16.8 million. When considering all network connectivity services, projected annual revenue could be $19.4 million. With projected annual expenses at $17.9 million, this would equate to an 8% profit margin.

The Exchange asserts that the network improvements and associated costs justify the fee increase. However, the document highlights issues in transparency and clarity regarding whether these allocations provide tangible benefits to the users or the market.

Issues and Allocations

Certain concerns arise regarding financial allocations, as the narrative stresses complex financial assessments and methodologies without explicitly linking these to specific benefits for network users or the broader market. The document mentions hefty spending on established service providers like Equinix and Zayo Group, suggesting a potential lack of competition or negotiation for better terms, thus raising questions about favoritism or the absence of exploring alternative providers.

Moreover, the financial justifications are predominantly anchored on technical and financial evaluations instead of exploring broader economic impacts or competitive effects, particularly on smaller market participants. There's an absence of discussion on how these increased fees might impact smaller entities or whether there are feasible alternatives to mitigate fee increases.

In summary, while the document provides detailed allocations and revenue numbers, it leaves gaps in illustrating how these financial changes will directly translate into member benefits or market improvements, signalling a need for enhanced transparency and stakeholder engagement.