Overview
Title
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To Adopt Port Fees and Increase Certain Network Connectivity Fees
Agencies
ELI5 AI
MIAX Emerald wants to charge more money for using their computer network and connecting fast to their system, and they say it's to help manage their costs better. Some people worry the new prices might be too high or confusing and could make it harder for smaller users to join in.
Summary AI
MIAX Emerald, LLC has proposed a new rule change to update its fee schedule. This change includes introducing new fees for accessing its system ports and increasing network connectivity fees for certain high-speed connections. The goal is to cover increased costs related to enhanced network transparency, reliability, and capacity, ensuring a high level of service for users who move substantial amounts of data through the exchange. The Securities and Exchange Commission is sharing this notice to invite public comments on the proposed changes.
Keywords AI
Sources
AnalysisAI
Commentary
Summary of the Document
The document is an official notice from the Securities and Exchange Commission (SEC) regarding a proposed rule change by MIAX Emerald, LLC, a self-regulatory organization. The proposal involves amending its fee schedule to introduce new charges for ports used to access its exchange and increasing fees for high-speed network connections. The exchange argues that these updates are necessary to cover rising operational and infrastructure costs. The proposal is presented to solicit public comments and insights into the perceived impacts of these changes.
Significant Issues and Concerns
One of the main concerns raised by the document is the complexity and justification of the new and increased fees. The proposed changes introduce a tiered structure for port and connectivity fees, but the rationale behind the specific tiers and charges is not immediately clear, potentially leading to confusion among stakeholders. The detailed cost allocation explanations provided are highly technical and may be difficult for the general public and market participants without specialized knowledge to fully grasp.
Additionally, while the document discusses the operational costs that necessitate the fee increases, it does not comprehensively compare these costs to the revenue generated from the fees. This lack of detailed cost-revenue analysis leaves open questions about whether there are ways to reduce costs through efficiency improvements. Furthermore, there is no detailed presentation of how these fees compare to industry standards or competitors, which could provide valuable context for assessing the fairness and necessity of the proposed changes.
Another issue is the potential impact on member firms. The document notes that some firms might discontinue their services due to these fee increases, highlighting a potential risk of reduced market competition. It also lacks a detailed exploration of how smaller market participants might be affected, which could raise concerns about equitable treatment and barriers to entry for these smaller players.
Impact on the Public Broadly
For the general public, particularly investors, the proposed fee changes may indirectly affect the costs of trading as various firms decide how to absorb or pass on these new fees. Should smaller or mid-sized firms struggle with the increased costs, there could be a reduction in market competition, which might lead to less favorable trading conditions for retail investors over time.
Impact on Specific Stakeholders
For stakeholders, particularly market participants who are members of the MIAX Emerald exchange, the proposed fee changes may have varying impacts. Larger firms with higher trading volumes may absorb these costs more readily due to their greater resources and economies of scale. However, smaller firms might face significant financial challenges, potentially leading to some choosing to disconnect from the exchange or reevaluate their membership.
Moreover, the administrative complexity of the new fee structure, especially concerning MEI Ports, could impose additional operational burdens on exchange members, requiring them to allocate more resources towards managing these fees.
In conclusion, while MIAX Emerald justifies the fee changes as necessary for covering operational costs, critics might argue that more transparency and simplification could aid understanding and acceptance among stakeholders. Providing more detailed comparative data with industry standards and exploring options for cost reduction could better address concerns surrounding fairness and potential competitive impacts.
Financial Assessment
The document details a proposed amendment to the MIAX Emerald fee schedule, focusing on financial allocations related to Port and Network Connectivity fees. The main financial references include the introduction of fees for various Ports and an increase in the monthly network connectivity fees.
The Exchange proposes several new charges and adjustments:
The FIX Port Fees will be assessed on a monthly basis at $550 for the first Port, $350 for Ports two through five, and $150 for any additional Ports.
Market Makers will see a new fee structure for the MEI Port, ranging from $5,000 to $20,500 based on the number of option classes or volume. Those not executing higher volumes may qualify for a reduced fee of $14,500.
Additional Limited Service MEI Ports will see an increase in their monthly fee from $50 to $100.
A flat fee of $1,500 is proposed for Market Makers using Purge Ports.
The CTD Port and FXD Port fees will each be set at $450 and $500 per month, respectively.
The 10Gb ULL connectivity fee will increase significantly to $10,000 for Members and non-Members.
The financial rationale for the fee increases is discussed extensively. The Exchange cites a need to offset various expenses, projecting total annual costs for services associated with the Proposed Access Fees to be approximately $9.3 million. This includes both third-party expenses of around $1,932,519 and internal expenses approaching $7,367,259.
Additionally, the document notes that the increased fees aim to support expanded infrastructure, especially for high-demand services like the 10Gb ULL connection. The capital expenditure for network improvements in 2020 is cited at $1.85 million.
The proposed fees, in compiling a total annual revenue projection of $10.2 million, lead to a profit margin of about 9% for the Exchange. This margin, however, does not account for the projected ongoing capital expense investments.
Issues and Concerns
Commentary on these proposals raises several concerns. The complexity of the new fee structure, particularly the tiered system for MEI Port fees, may present administrative challenges both for market participants and the Exchange. Additionally, the lack of a detailed breakdown of how added expenses specifically translate into the proposed fees may leave stakeholders questioning whether these allocations are reasonable or if potential efficiencies could reduce costs.
Furthermore, the reliance on a single month's billing cycle to project the annual revenue from the new fees might undermine the robustness of these financial estimates, given market dynamism. There's also the concern that the fee changes could prompt some participants to disconnect from MIAX Emerald if the financial burden is perceived as excessive or not well justified.
The document's lack of comparative analysis with competitors might leave unresolved doubts about the fairness of the fee increases, especially for smaller market participants who might be disproportionately impacted. The balance between generating revenue and fostering competitive access to the market is a critical consideration that appears somewhat underexplored.
Issues
• The document describes increased Port and Connectivity fees without a clear justification of why specific tiers and costs have been chosen, which could lead to questions about whether the fees are equitable and not excessive.
• While the document explains the allocation of costs associated with the Proposed Access Fees, the language is complex and might be challenging for some stakeholders to understand fully.
• The justification for the increase in fees is based on MIAX Emerald's need to offset operational and infrastructure costs, but it lacks a detailed breakdown of how these costs compare to the revenue generated through fees and whether efficiencies could reduce costs.
• There is extensive discussion of cost allocation methodologies without clear benchmarks or comparisons to industry standards, which could lead to concerns about whether these allocations are reasonable.
• The document acknowledges that the proposed fees might lead to member firms disconnecting from the exchange, raising concerns about whether the fee structure appropriately balances revenue generation with maintaining a competitive market.
• Some aspects of the cost justifications, such as increased fees from service providers like SFTI, are noted without documentation on whether such costs have been negotiated or alternatives explored, which might suggest potential for improved cost management.
• The complexity of the fee structure, particularly for MEI Ports, seems unnecessarily complicated and might be simplified to reduce administrative burdens on both the exchange and its members.
• The document does not provide a detailed analysis of the impact of fee increases on smaller market participants, which might raise concerns about equitable treatment and potential barriers to entry.
• The reliance on a single monthly billing cycle to project annual revenues may not provide a robust basis for fee setting, especially in a dynamic market.
• There is a lack of transparency concerning how proposed fee increases compare to those charged by competitors, which might be useful for validating the fairness of MIAX Emerald's fee proposal.