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 Establish Market Data Fees
Agencies
ELI5 AI
MIAX Emerald wants to start charging for special market information that used to be free, and they say these fees are needed to cover their costs and stay fair to everyone. They’re trying to balance out how much everyone pays, but some parts might be tricky for people to understand, like why certain fees are different or how they decide what costs to include.
Summary AI
MIAX Emerald, LLC has submitted a proposed rule change to the Securities and Exchange Commission (SEC) to introduce fees for market data products including Top of Market (ToM), Administrative Information Subscriber (AIS) feed, and MIAX Order Feed (MOR). These changes aim to end a previous waiver period where market data fees were not charged, establishing new monthly fees for internal and external distributors. The exchange justifies these fees by detailing the costs involved in providing these data products and argues that the fees are fair, reasonable, and necessary to cover increased expenses while maintaining transparency and competitiveness. The proposed fees are designed to comply with regulatory requirements and are intended to create a fair allocation of costs among users.
Keywords AI
Sources
AnalysisAI
The document in question is a notice from the Federal Register detailing a proposal by MIAX Emerald, LLC to introduce market data fees. As a self-regulatory organization, MIAX Emerald has submitted this rule change to the Securities and Exchange Commission (SEC) for immediate effectiveness. This proposal affects the fee structure for its market data products, including Top of Market (ToM), Administrative Information Subscriber (AIS) feed, and MIAX Order Feed (MOR). The proposed fee structure will transition from a waiver period, where such fees were not charged, to a model with specified monthly charges for both internal and external distributors.
General Summary
The ECXchange justifies this introduction of fees as essential for covering increased operational expenses. They underscore that these fees are necessary for sustaining the infrastructure that supports the market data products. The filing presents a detailed financial explanation aimed at demonstrating that the fees are fair, reasonable, and compliant with industry standards. There is an effort to show transparency by providing a cost-based justification and by outlining how the fees are being allocated among different types of users.
Significant Issues and Concerns
One of the prominent challenges with the document is its complexity, particularly in the financial justifications and allocations. It uses intricate financial terminology and assumptions that may not be easily understood by readers without a financial or regulatory background. For example, the document mentions allocating only 1% of certain expenses to third-party service providers such as Equinix and Zayo, but the reasons behind the specific allocation percentage are not thoroughly elaborated.
Another issue is the potential perception of inequity in fee setting between internal and external distributors. While MIAX Emerald endeavors to justify the different fee levels, some stakeholders might view this as favoring organizations with broader usage rights, potentially breeding concerns about fairness.
Additionally, the document describes a net loss for MIAX Emerald based on the anticipated annual revenue and costs associated with the new fee structure. This could raise questions about the sustainability of such pricing models, although the exchange does not explore long-term strategies to address this concern within the document.
Impact on the Public
Broadly, the introduction of market data fees may impact investors and market participants who rely on this data for trading decisions. If MIAX Emerald's fees are deemed excessive, the cost could be transferred to end-users, potentially influencing the affordability and accessibility of financial data. Therefore, the public might see changes in service costs passed down from market participants or brokerage firms utilizing MIAX Emerald's data feeds.
Impact on Specific Stakeholders
For MIAX Emerald itself, this fee structure represents an attempt to recoup operational costs and justify its market data services economically. It could potentially enhance the financial sustainability of their services but might be challenging if the market perceives these fees unfavorably.
For market participants, particularly smaller firms, the fees could represent an increased operational cost. This could inadvertently favor larger firms with deeper resources able to absorb or pass on these costs more easily.
Regulators and policymakers will need to consider the potential precedent this fee structure sets and gauge its fairness and alignment with competitive market practices. The document mentions perceived inconsistencies in regulatory requirements between MIAX Emerald and other service providers, like SFTI, underscoring a need for clear, uniform oversight.
In summary, while MIAX Emerald's proposal to introduce market data fees aims to address operational cost recovery, it raises considerations about clarity, equity, and long-term viability, making it a significant issue for both market participants and regulatory bodies.
Financial Assessment
The document outlines MIAX Emerald's proposal to amend its fee schedule by introducing market data fees. These fees are designed to charge different amounts to internal and external distributors for various market data products. For the ToM market data feed, internal distributors are proposed to be charged $1,250 per month, while external distributors are to be charged $1,750 per month. Similarly, the AIS market data feed has the same fee structure for internal and external distributors. However, for the MOR market data feed, the charges are higher, with internal distributors being charged $3,000 per month and external distributors $3,500 per month.
The document raises several financial issues. For instance, while MIAX Emerald conducted a cost-based justification for these fees, the methodology may not be fully transparent to readers unfamiliar with financial analysis and jargon. This lack of clarity is compounded by the complex financial allocations presented, which might be difficult for stakeholders without a financial background to grasp.
The financial allocations include a breakdown of projected expenses for 2020. The total annual expense for providing the market data products is projected to be $1,040,064. This includes a third-party expense of $19,105 and an internal expense of $1,020,959. Notably, the document states that only 1% of total costs were attributed to third-party services provided by companies like Equinix and Zayo. The reasoning behind this specific percentage allocation is briefly mentioned and might lack sufficient detail for full understanding.
Moreover, there is a projected annualized revenue for these market data products of $648,000. With an annualized total expense of $1,040,064, this results in a net loss of approximately ($392,064) per year. This projected loss raises questions about the long-term financial sustainability of MIAX Emerald's market data offerings, unless future strategies to address this loss are clarified.
The differential pricing between internal and external distributors might also raise concerns of fairness, despite efforts to justify this difference within the document. Internal distributors have more restricted usage rights compared to external ones, who can commercialize the data, a factor that contributes to the varied pricing.
Lastly, while the document touches on the auditing and tracking of usage in market data feeds, it does not delve deeply into how these aspects affect cost. This omission may leave some readers wondering about the broader financial implications of these operational processes.
Issues
• The document specifies that MIAX Emerald conducted a 'cost-based justification' for its market data fees but the methodology for this analysis may not be clear to all readers.
• The document provides complex and detailed financial allocations that could be difficult for the average stakeholder to understand without a financial background.
• Amount allocated to third-party expenses like Equinix and Zayo is 1% of total expenses, but the justification for this specific percentage allocation is brief and may lack clarity or depth.
• The document notes a net loss of $392,064 for MIAX Emerald on a fully-annualized basis, which may raise questions about long-term sustainability without further clarification on future plans.
• The explanation of how internal and external distributor fees are set differently could be perceived as favoring certain organizations with better usage rights, though an attempt is made to justify this difference.
• The term 'determinism' in network architecture improvements may be unclear to non-specialists.
• The expense allocations seem reasonable but the document makes several references to perceived inconsistencies in regulatory requirements applicable to MIAX Emerald versus other service providers like SFTI, which could imply potential disparities in regulatory oversight.
• The auditing and tracking of usage in market data feeds is briefly mentioned but not extensively detailed, potentially leaving information gaps about how it impacts cost.