FR 2021-02398

MIAX Emerald, a national securities exchange, has filed a notice with the goal of implementing new fees within its operations. These fees include a one-time membership application fee and a series of Application Programming Interface (API) and Network Connectivity testing and certification fees. The document details the specific fees for different roles within the exchange, with Electronic Exchange Members (EEMs) assessed a $2,500 fee, whereas Market Makers will incur a $3,000 fee due to the greater complexity of their evaluation process.

Concerns and Issues

A significant issue with the document is the lack of detail provided for the specific cost breakdowns justifying these fees. While the document states that the fees are intended to recover incurred costs, it does not provide granular data or evidence for these expenses, which may make it difficult to verify whether the fees are fair or reasonable.

Moreover, there is a discrepancy between the fees charged to members and non-members, justified by MIAX Emerald's experience that non-member testing requires more resources. This rationale could potentially introduce bias, as it relies solely on the exchange's internal assessments without independent verification.

Additionally, the document's use of highly technical language and numerous industry-specific acronyms can pose a barrier to understanding for individuals not familiar with the securities exchange industry. This might limit accessibility to crucial information for a broader audience.

Furthermore, while the document notes that most members operate on multiple exchanges, it doesn't provide a detailed comparison of the fees with those of other exchanges, potentially leaving stakeholders without a clear benchmark to gauge MIAX Emerald’s pricing against industry norms.

Public and Stakeholder Impact

Broadly, the document’s changes may impact the public by potentially altering the cost structure for businesses wishing to become members of MIAX Emerald. This may affect trading costs indirectly if these entities pass on increased charges to their clients.

Specific stakeholders, such as non-members and smaller firms, may be negatively impacted by higher fees given their potentially limited resources compared to established, larger exchange members. Conversely, existing members may find the fees reasonable if they trust MIAX Emerald's ability to efficiently ensure system integrity and connectivity, thereby justifying the proposed costs.

In summary, while the proposed fees are presented as necessary for cost recovery, the lack of detailed cost analysis and use of complex industry language may obscure full understanding and leave room for potential biases in the system's application. These changes may have varied impacts across different stakeholders, depending on their size, role, and familiarity with exchange systems.

The document presents a proposal by MIAX Emerald to amend its fee schedule, introducing new fees that would impact both members and non-members of the exchange. These fees are designed to cover costs associated with membership applications and testing and certification processes, including API and network connectivity.

Summary of Financial References

The financial structure within the document indicates several proposed fee changes:

• One-time membership application fees: Applicants for MIAX Emerald membership as an Electronic Exchange Member (EEM) will incur a fee of $2,500, whereas Market Makers will be charged $3,000.

• API Testing and Certification fees: Members are proposed to pay $1,000 if they are EEMs and $2,500 if they are Market Makers. For non-members, the fee is slightly higher at $1,200.

• Network Connectivity Testing and Certification fees: Members will be charged $1,000 per 1Gb connection and $4,000 per 10Gb ultra-low-latency (ULL) connection. Non-members will face slightly higher fees of $1,200 and $4,200 for the respective connections.

These fees are aimed at recovering the costs incurred by the exchange for the services provided. The document mentions that processing membership applications costs the Exchange approximately $4,000-$5,000 per application. It also outlines that the cost to perform API testing and certification averages $2,500 per instance, with costs estimated at $2,000 for EEM and non-member testing, and $3,000 for Market Maker testing. Similarly, costs for network connectivity testing are approximated at $2,500 for each 1Gb connection and $5,000 for each 10Gb ULL connection.

Relationship to Identified Issues

The document's financial references relate directly to several issues identified. Firstly, the document outlines fees intended to cover the costs of services provided by MIAX Emerald. However, it lacks a granular breakdown of these costs, which raises a potential issue regarding transparency and verification of the fee's reasonableness. Without detailed cost analysis, stakeholders may find it challenging to confirm whether these fees are fair or necessary.

Moreover, cost discrepancies between member and non-member fees are justified by MIAX Emerald on the grounds of their own experience, suggesting that non-member interactions typically require more resources. This rationale, although potentially valid, might present an issue if such justificatory claims are not independently verifiable. A more transparent exposition of this reasoning could ameliorate concerns regarding potential bias or favoritism.

The document also mentions that members often belong to multiple exchanges, suggesting that these fees are a common industry practice. However, the lack of detailed comparisons or benchmarks against these other exchanges leaves an information gap for those unfamiliar with broader industry standards. This could hinder stakeholders' ability to assess the competitiveness or fairness of MIAX's proposed fees.

Finally, the complexity of the language used, including technical jargon and numerous footnotes, potentially complicates the understanding of financial implications for stakeholders who lack deep familiarity with the specific operations of the exchange. Simplifying these descriptions or providing clearer contexts might help improve comprehension and more broadly facilitate stakeholder engagement.