FR 2021-02405

Summary of the Document

The document pertains to a filing by MIAX Emerald with the Securities and Exchange Commission (SEC) to introduce new monthly Trading Permit fees for its members. These fees vary based on whether the member is a Market Maker or an Electronic Exchange Member. The charges are also dependent on the volume of trading activity and the number of option classes each member engages with. The Exchange argues that these fees are necessary to cover the operational costs of providing access to the Exchange, ensuring that the platform remains competitive while also accommodating the business needs of its members. The SEC is currently seeking comments from the public on this proposal before making a final decision.

Significant Issues and Concerns

One prominent issue is the complex and technical language used throughout the document, which may pose a comprehension barrier for individuals not familiar with financial and legal jargon. The comprehensive description of how costs are allocated and analyzed is extensive and could deter understanding. Furthermore, while the Exchange outlines a logical justification for the proposed fees, it does not provide specific data to support the claim of increasing costs year-over-year. This lack of concrete examples or benchmarks may raise questions about the transparency and accuracy of the financial calculations presented.

Another area of concern is the explanation of the criteria for the lower Trading Permit fee available to some Market Makers. The criteria are detailed and might be challenging to grasp without prior knowledge of the specific market dynamics. Similarly, the basis for choosing specific percentage allocations for certain expenses, such as those related to Equinix and Zayo, might seem arbitrary without clearer comparative data.

Impact on the Public

Broadly, this proposal may have varying effects on the public depending on their involvement in the securities market. For retail investors, who may rely indirectly on the services provided by MIAX Emerald, changes in fee structures could indirectly affect trading costs or market liquidity. However, given the intricate nature of exchange operations and fee distributions, the direct impact on everyday investors might be minimal unless passed down by brokers or Market Makers.

Impact on Specific Stakeholders

For Market Makers and Electronic Exchange Members, this proposal could lead to increased costs depending on their trading volume and the number of option classes they handle. The fees may particularly impact smaller Market Makers by potentially increasing their operational costs, although the document mentions an effort to attract and retain them through alternative lower fees for minimal volume. Larger entities might find these fees justified as necessary to maintain the infrastructure and quality of the options market.

Furthermore, MIAX Emerald's attempt to justify the fees through detailed financial analysis demonstrates its effort to ensure fair competition and equitable allocation, which might reassure industry stakeholders of the exchange's intentions. However, the lack of finalized cost data for 2020 might raise concerns regarding financial transparency among participants.

In conclusion, while the proposed fee changes aim to balance operational costs and market access, the document underscores the complexities of financial regulation impacting both institutional and individual stakeholders. The outcome of the SEC's decision post-comment period could shape the operational landscape for MIAX Emerald and its members.

The Federal Register document from MIAX Emerald, LLC discusses a proposed rule change related to the establishment of monthly trading permit fees. The financial details within the document revolve around the fees to be charged to members and the rationale behind these charges.

Fee Structure

The Exchange proposes a differentiated fee structure for its members depending on their role. For Electronic Exchange Members (EEMs), a monthly fee of $1,000 per trading permit is proposed. Market Makers are subjected to a tiered fee structure based on their assignments:

• $7,000 for assignments in up to 10 option classes or up to 20% of option classes by national average daily volume (ADV).
• $12,000 for assignments in up to 40 option classes or up to 35% of option classes by ADV.
• $17,000 for assignments in up to 100 option classes or up to 50% of option classes by ADV.
• $22,000 for assignments in over 100 option classes or over 50% of option classes by ADV, up to all option classes listed.

An alternative lower fee of $15,500 is also outlined for certain Market Makers meeting specific trading volume conditions.

Cost and Revenue Analysis

The proposed fees are intended to recover a portion of the costs associated with operating the Exchange’s network. The document states that the total annual expense for providing access services is projected to be around $2.5 million. This figure is broken down into third-party expenses of $190,621 and internal costs amounting to $2,046,137. Specific allocations within the internal costs include $1,403,101 for employee compensation, $571,888 for depreciation and amortization, and $71,148 for occupancy expenses.

The projected annual revenue from these fees is also expected to be approximately $2.5 million, suggesting a profit margin of just above 10%, equating to $263,242.

Financial Allocation and Transparency Issues

The document goes into great detail about how costs are allocated to support the claimed transparency of the Exchange's fee determinations. However, the allocation of expenses, such as those related to Equinix and Zayo, appears somewhat abstract. The document mentions allocation percentages, like 10% for Equinix expenses, without providing clear benchmarks or comparisons, which could obscure the reasoning behind these allocations.

Additionally, while the document reports a projected profit margin, the absence of finalized financial data from the year 2020 may cause uncertainty regarding the reliability of these projections in the reader's mind.

Overall, while the document lists extensive financial details and justifications for the proposed fees, the complexity and volume of information, coupled with the lack of visual aids or simplified summaries, might present challenges to the general audience it aims to inform.