FR 2024-30350

The Securities and Exchange Commission (SEC) has released a document detailing a proposed rule change submitted by MIAX Sapphire, LLC. This proposal aims to introduce fees for connectivity and port services related to its trading platform. The suggested fees, intended to cover the operational costs, include an initial waiver period meant to encourage participation from market participants. Although the document is detailed and structured to comply with regulatory requirements, understanding its implications requires careful analysis.

General Summary

The document outlines MIAX Sapphire's intention to implement new pricing structures for the technical connectivity that market participants require to trade on their platform. This includes fees for different types of connections and ports that allow Members and non-Members to interact with the trading system. It explains the rationale behind the fee structure, including a comprehensive breakdown of the associated costs and the introduction of waiver periods to ease the transition.

Significant Issues or Concerns

Several issues surface in the document:

• Complexity for Non-Experts: The highly detailed breakdown of costs and complex legal jargon poses a challenge for those without specialist knowledge. Many stakeholders may find it difficult to follow or fully comprehend all aspects of the proposal.

• Heavy Use of Jargon: Terms like "MEO Ports," "ULL," and "CTD Ports" are used extensively but may not be familiar to all readers. This could obscure understanding for individuals who are not experts in financial markets or securities law.

• Cost Allocation Ambiguities: The document discusses at length how costs are segmented and allocated across different services. However, the precise methodology isn't always clear, potentially raising concerns about whether all expenses are correctly distributed without duplication.

• Comparison with Competitors: While the text mentions that fees are comparable or competitive, it does not provide direct comparisons or benchmarks against other exchanges, which would be valuable for context.

Impact on the Public

The document's proposals carry potential implications for various parties:

• Broad Public Impact: For the average consumer or investor, the direct impact may be minimal. However, changes in fees might indirectly influence the costs incurred by brokers and traders, which could trickle down to investors through broader market impacts such as liquidity and trade pricing.

• Specific Stakeholder Impact: Market participants, especially smaller trading firms, may face increased operational costs after the waiver period. While the waiver itself aims to mitigate initial hardships, longer-term impacts may alter competitive dynamics in the trading landscape.

Positive and Negative Impacts on Stakeholders

• Positive Impact: The initial waiver of fees provides a buffer period, helping firms adapt without immediate cost burdens. This strategy supports new participants in gaining access to MIAX Sapphire's trading systems without incurring upfront costs.

• Negative Impact: For smaller entities or those operating on tight margins, even the eventual imposition of what is described as 'modest' fees may be significant. The complexity and heightened costs of trading infrastructure could influence strategic decisions, possibly leading to a reduction in the diversity of market participants.

The SEC invites comments from the public on these proposed changes, offering an avenue for stakeholders to express support or concerns. Such feedback could refine the ultimate structure and implementation of the proposed fees, balancing the financial sustainability of MIAX Sapphire with the competitive and inclusive nature of the securities trading market.

The document issued by the Securities and Exchange Commission on the proposed rule changes by MIAX Sapphire, LLC, primarily discusses the implementation of various connectivity and port fees. These fees are relevant for both Members and non-Members interacting with the exchange. The financial elements of this proposal are significant, as they involve detailed cost analyses and projected revenue streams.

Spending and Financial Allocations

The document outlines monthly fees for connectivity to MIAX Sapphire's facilities. They propose charging $1,400 per month for a 1 Gigabit (Gb) connection and $13,500 per month for a 10Gb ultra-low latency (ULL) connection at their primary/secondary facilities. For the disaster recovery facility, the fees are $550 for a 1Gb connection and $2,750 for a 10Gb connection. These fees, notably higher for the 10Gb ULL connections due to their advanced capabilities, reflect the projected usage and the intense resource demands required to maintain such connections.

Port fees are broken down into several categories, reflecting different uses. FIX Port fees start at $275 for the first port and reduce for subsequent ports down to $75 per port beyond the fifth. Full Service MEO Port fees have a tiered structure ranging from $2,500 to $6,000, depending on the volume of option classes a market maker registers. There is a provision offering reduced fees if certain volume thresholds aren’t met. Additionally, MEO Market Makers could be charged $250 per month for any additional Limited Service MEO Ports over a given threshold. Clearing Trade Drop (CTD) Ports and FIX Drop Copy Ports each have specified fees of $450 and $250 per month, respectively.

Relevance to Identified Issues

One primary issue identified is the complexity of the terms used in the document, which could lead to confusion. The financial allocations refer to different types of fees with specific functions that might not be immediately clear to a general audience. For example, the nuanced differences between Full and Limited Service MEO Ports, and the distinctions between FIX, CTD, and FXD Ports, entail distinct costs and usage implications which are not extensively clarified.

There are extensive references to anticipated costs for providing connectivity and port services. The document detailed that the aggregate annual cost for 1Gb and 10Gb ULL connectivity is projected to tally $6,620,300. It also highlights the estimated monthly expenses for various port services, such as $50,491 for Full Service MEO Ports and $13,178 for FIX Ports, revealing a robust effort to itemize resource allocation and expected expenses.

Furthermore, the explanation includes revenue projections, stating an expected revenue of $241,200 from 1Gb connectivity usage and $6,810,000 from 10Gb ULL connectivity. These figures aim to showcase the potential profitability—albeit conservatively estimated—that MIAX Sapphire anticipates. Contrasting the projected revenues with costs raises questions about the emphasis on profitability versus service sustainability, as some services are expected to operate at a loss for strategic positioning.

Finally, the comparative rates for MIAX Sapphire against other exchanges are discussed but without sufficient detail to ascertain competitive positioning. This could lead to misconceptions if the proposed rates exceed customer expectations or market standards without explicit benchmarking in the document.

The document challenges readers with its intricate financial details, impacting understanding and clarity around these monetary references. Ensuring transparency in such financial propositions is crucial, especially when significant stakeholder investment and participation are necessary to align with these new structures.