FR 2024-29333

General Summary

MIAX Sapphire, LLC, a securities exchange, has submitted a proposal to change its fee schedule concerning certain market data feeds. The new fees will apply to the MIAX Sapphire Top of Market, Complex Top of Market, and Liquidity Feed data services. Initially, these fees will be waived for six months, ostensibly to promote the broader adoption of these services among market participants. The proposal outlines the specific costs involved in providing these data feeds and claims that the fees are designed to be competitive with other exchanges. The plan maintains that the fee structure is fair and unbiased, applying consistently across all subscribers depending on how the data is used and distributed.

Significant Issues or Concerns

The document intricately details the financial allocations and calculations for the proposed fees. Such complexity may imply potential for errors or intentional manipulation, raising the need for careful verification of these numbers. The technical nature of the allocation method used might prove challenging for the average individual to fully understand, suggesting that more straightforward communication might be beneficial.

Moreover, the justification of these fees rests on cost models and future revenue projections that have yet to be realized. This creates a level of uncertainty about their accuracy and reliability. Although competition is mentioned, the document does not provide an extensive comparison with other markets, which could be helpful to assess the claims made.

The document proposes an initial waiver of fees, likely to attract more users. While this strategy could be seen as trying to corner a larger market share, it might raise questions regarding fair competition with existing exchanges. Additionally, the document alludes to the possibility of future fee adjustments but lacks specific criteria for when and how these adjustments might occur, leaving open questions about future fee stability.

Broad Impact on the Public

For the general public, especially individuals with investments or those involved in trading, these changes may influence the access and cost of critical market data. Market data is fundamental to making informed investment decisions, and any modifications to its availability or pricing could affect how individual investors and smaller firms participate in the market. While the waiver period may lower barriers temporarily, future costs may ultimately affect some participants' ability to access these data services.

Impact on Specific Stakeholders

Investors and market participants could be influenced positively by the initial fee waiver, which reduces costs in the short term. This incentive might broaden access to important trading data, allowing even smaller players to compete more effectively in the market. However, the long-term fee increases that might follow could disproportionately impact smaller firms and individual investors who may not have the same resources as larger institutions.

Market data vendors, on the other hand, could face higher operational costs due to increased distribution fees, although they may also benefit from the ability to monetize data distribution. These vendors will need to carefully weigh the new fee structures against their business models to determine the actual impact.

In conclusion, while the proposed changes by MIAX Sapphire aim to align market data fees with the incurred costs and promote transparency, stakeholders must scrutinize these proposals to understand their long-term implications fully. The balance between fostering competitive market conditions and ensuring fair access to essential market data will be crucial as these changes come into effect.

The document involves a detailed proposal by MIAX Sapphire, LLC regarding the establishment of fees for its proprietary market data feeds. The proposed fees are structured across three different feeds: the MIAX Sapphire Top of Market (ToM), MIAX Sapphire Complex Top of Market (cToM), and the MIAX Sapphire Liquidity Feed (SLF).

Summary of Financial References

The financial allocations proposed for these data feeds involve monthly fees which are specific to the type of distributor:

• For both the ToM and cToM feeds, the Exchange proposes to charge $1,200 per month to internal distributors and $2,000 per month to external distributors after an initial waiver period.
• The SLF data feed comes with a proposed monthly fee of $3,000 for internal distributors and $3,500 for external distributors, also post waiver period.

These fees are intended to cover the Exchange's costs of compiling and producing these data feeds, including the component costs which are calculated at approximately $59,161 per month.

Relationship to Identified Issues

Several issues are notable in the context of these financial allocations:

1. Complexity in Cost Allocations: The document outlines highly detailed and potentially complicated financial allocations, which might be prone to errors or difficult to verify. This can be seen in the meticulous breakdowns required to arrive at the monthly cost of $59,161 for all feeds combined. The complex methodology described could challenge stakeholders in understanding the accurate allocation or validation of these costs.

2. Revenue Projections and Realization: The proposal's justification hinges on projections of annual revenue of $726,000 against an estimated annual cost of $709,927—a planned profit margin of only 2.2%. Reliance on these projections suggests potential volatility if the anticipated subscriber uptake does not materialize, raising concerns about the reliability and accuracy of these financial expectations.

3. Competition and Fairness: The document's mention of fee waivers for an initial period can be viewed as a strategy to capture market share. The potential competitive impact may raise questions about fair market practices, as the Exchange uses a temporary fee waiver to presumably attract new business.

4. Transparency and Documentation: The explanations for cost structures are embedded within a discussion of internal methodologies, referencing numerous documents and analyses not fully included, which can reduce transparency for those without access to supplementary materials.

5. Guidance for Future Adjustments: The proposal indicates potential for future fee adjustments based on cost or revenue outcomes but lacks explicit criteria for such adjustments. This introduces ambiguity about when and how fees might be altered—something stakeholders might view as a lack of transparency in financial planning and allocation.

Conclusion

The financial aspects of the proposal present a sophisticated arrangement of fees meant to correspond to specific service costs while forecasting modest profits. However, the combination of complex cost allocations, speculative revenue projections, and indistinct future adjustment criteria may lead to uncertainties regarding the proposal's financial reliability and fair market practices. These issues are emblematic of the broader challenges faced in regulatory settings when justifying new fee structures based on predicted administrative costs and anticipated market behavior.