Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Establish Fees for the Exchange's Proprietary Market Data Feeds: (i) MIAX Sapphire Top of Market Data Feed; (ii) MIAX Sapphire Complex Top of Market Data Feed; and (iii) MIAX Sapphire Liquidity Feed

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, notice is hereby given that on October 4, 2024, MIAX Sapphire, LLC (“MIAX Sapphire” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) a proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange is filing a proposal to amend the MIAX Sapphire Options Exchange Fee Schedule (the “Fee Schedule”) to establish fees for the Exchange's proprietary market data feeds: (i) MIAX Sapphire Top of Market (“ToM”) data feed; (ii) MIAX Sapphire Complex Top of Market (“cToM”) data feed; and (iii) MIAX Sapphire Liquidity Feed (“SLF”).

The text of the proposed rule change is available on the Exchange's website at https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings, at MIAX Sapphire's principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

On July 19, 2024, the Exchange filed a proposal to establish the ToM, cToM and SLF data feeds (collectively, the “market data feeds”) for MIAX Sapphire. The Exchange now proposes to amend the Fee Schedule to establish fees for each of these market data feeds. The Exchange also proposes to waive such fees during an Initial Waiver Period, which would run for six full calendar months from the initial effective date (August 12, 2024) of the proposed fees to incentivize market participants to subscribe and make the Exchange's proprietary market data more widely available. The Exchange initially filed this proposal on August 8, 2024 (SR-SAPPHIRE-2024-18). The Exchange withdrew SR-SAPPHIRE-2024-18 on October 3, 2024 and submitted this proposal.

The ToM data feed contains top of book quotations based on options orders and quotes resting on the Exchange's Simple Order Book as well as administrative messages, such as other real-time Exchange System functions. The cToM data feed includes the same types of information as ToM, but for Complex Orders on the Exchange's Strategy Book. This information includes the Exchange's best bid and offer for a complex strategy, with aggregate size, based on displayable orders in the complex strategy. The cToM data feed also provides subscribers with the following information: (i) the identification of the complex strategies currently trading on the Exchange; (ii) complex strategy last sale information; and (iii) the status of securities underlying the complex strategy ( e.g., halted, open, or resumed). ToM subscribers are not required to subscribe to cToM, and cToM subscribers are not required to subscribe to ToM.

The Exchange notes that there is no requirement that any Member or market participant subscribe to either the ToM or cToM data feeds. Instead, a Member may choose to maintain subscriptions to ToM or cToM based on their trading strategies and individual business decisions. Moreover, persons (including broker-dealers) who subscribe to any exchange proprietary data feed must also have equivalent access to consolidated Options Information from the Options Price Reporting Authority (“OPRA”) for the same classes or series of options that are included in the proprietary data feed (including for exclusively listed products), and proprietary data feeds cannot be used to meet that particular requirement. The proposed fees described below would not apply differently based upon the size or type of firm, but rather based upon the type of subscription a firm has to ToM or cToM and their use thereof, which are based upon factors deemed relevant by each firm.

The SLF data feed provides market participants with a direct data feed that allows subscribers to receive real-time updates of options orders, products traded on MIAX Sapphire, MIAX Sapphire System status, and MIAX Sapphire underlying trading status. When an order is received or an order state changes, published order information will be transmitted over SLF, including time stamp, action, product ID, order ID, order side, order type, order price, original order size, open order size, time in force, origin, open or close, and route instruction. For complex orders, complex strategy definition notification and complex order notice are also included. Subscribers to the SLF will get a list of all options symbols and strategies that will be traded and sourced on that feed at the start of every session.

Each of the proposed fees are described below. Again, the Exchange proposes to not charge the proposed fees during the Initial Waiver Period. Even though the Exchange proposes to waive these particular fees during the Initial Waiver Period, the Exchange believes that it is appropriate to provide market participants with the overall structure of the fees by outlining the structure and amounts in the Fee Schedule so that there is general awareness that the Exchange intends to assess such fees upon expiration of the defined term of the Initial Waiver Period.

ToM

The Exchange proposes to charge a monthly fee of $1,200 to Internal Distributors and $2,000 to External Distributors for the ToM data feed after the expiration of the Initial Waiver Period. The proposed fees are intended to cover the Exchange's costs with compiling and producing the ToM data feed described in the Exchange's cost analysis detailed below. The Exchange proposes to assess Internal Distributors fees that are less than the fees assessed for External Distributors because External Distributors may monetize their receipt of the ToM data feed by charging their customers fees for receipt of the Exchange's data. Internal Distributors do not have the same ability. The Exchange does not propose to charge any additional fees based on a Distributor's use of the ToM data feed ( e.g., displayed versus non-displayed use), redistribution fees, or individual per user fees.

cToM

The Exchange proposes to charge a monthly fee of $1,200 to Internal Distributors and $2,000 to External Distributors for the cToM data feed after the expiration of the Initial Waiver Period. The proposed fees are intended to cover the Exchange's costs with compiling and producing the cToM data feed described in the Exchange's cost analysis detailed below. The Exchange proposes to assess Internal Distributors fees that are less than the fees assessed for External Distributors because External Distributors may monetize their receipt of the cToM data feed by charging their customers fees for receipt of the Exchange's data. Internal Distributors do not have the same ability. The Exchange does not propose to charge any additional fees based on a Distributor's use of the cToM data feed ( e.g., displayed versus non-displayed use), redistribution fees, or individual per user fees.

SLF

The Exchange proposes to charge a monthly fee of $3,000 to Internal Distributors and $3,500 to External Distributors for the SLF data feed after the expiration of the Initial Waiver Period. The proposed fees are intended to cover the Exchange's costs with compiling and producing the SLF data feed described in the Exchange's Cost Analysis detailed below. The Exchange proposes to assess Internal Distributors fees that are less than the fees assessed for External Distributors because External Distributors may monetize their receipt of the SLF data feed by charging their customers fees for receipt of the Exchange's data. Internal Distributors do not have the same ability. The Exchange does not propose to charge any additional fees based on a Distributor's use of the SLF data feed ( e.g., displayed versus non-displayed use), redistribution fees, or individual per user fees.

The Exchange proposes that each Distributor would be charged for each month it is credentialed to receive ToM, cToM, and/or SLF in the Exchange's production environment. Fees for each of the market data feeds will be reduced for new Distributors who subscribe to a market data feed mid-month for the first month they subscribe following the expiration of the Initial Waiver Period, as described above. New Distributors who subscribe mid-month for each market data feed would be assessed a pro-rata percentage of the applicable Distribution fee based on the percentage of the number of trading days remaining in the affected calendar month as of the date on which they have been first credentialed to receive each of the market data feeds in the production environment, divided by the total number of trading days in the affected calendar month.

The Exchange believes the proposed fees will allow the Exchange to offset the expenses the Exchange has and will continue to incur associated with compiling and disseminating the market data feeds. Further, the Exchange believes it provided sufficient transparency in the Cost Analysis provided below, which provides a basis for how the Exchange determined to charge such fees.

The Exchange issued an alert publicly announcing the proposed fees on July 23, 2024.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with the provisions of Section 6(b) of the Act in general, and furthers the objectives of Section 6(b)(4) of the Act, in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees and other charges among its Members and other persons using its facilities. Additionally, the Exchange believes that the proposed fees are consistent with the objectives of Section 6(b)(5) of the Act in that they are designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to a free and open market and national market system, and, in general, to protect investors and the public interest, and, particularly, are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.

In 2019, Commission staff published guidance suggesting the types of information that self-regulatory organizations (“SROs”) may use to demonstrate that their fee filings comply with the standards of the Exchange Act (the “Staff Guidance”). While the Exchange understands that the Staff Guidance does not create new legal obligations on SROs, the Staff Guidance is consistent with the Exchange's view about the type and level of transparency that exchanges should meet to demonstrate compliance with their existing obligations when they seek to charge new fees. The Staff Guidance provides that in assessing the reasonableness of a fee, the Staff would consider whether the fee is constrained by significant competitive forces. To determine whether a proposed fee is constrained by significant competitive forces, the Staff Guidance further provides that the Staff would consider whether the evidence provided by an SRO in a fee filing proposal demonstrates (i) that there are reasonable substitutes for the product or service that is the subject of a proposed fee; (ii) that “platform” competition constrains the fee; and/or (iii) that the revenue and cost analysis provided by the SRO otherwise demonstrates that the proposed fee would not result in the SRO taking supra-competitive profits. The Exchange provides sufficient evidence below to support the findings that the proposed fees are reasonable because the projected revenue and cost analysis contained herein demonstrates that the proposed fees would not result in the Exchange taking supra-competitive profits.

Cost Analysis

In general, the Exchange believes that exchanges, in setting fees of all types, should meet very high standards of transparency to demonstrate why each new fee or fee increase meets the requirements of the Act that fees be reasonable, equitably allocated, not unfairly discriminatory, and not create an undue burden on competition among Members and markets. The Exchange believes this high standard is especially important when an exchange imposes various fees for market participants to access an exchange's market data. The Exchange believes that it is important to demonstrate that these fees are based on its costs and reasonable business needs. Accordingly, the Exchange included a cost analysis below in connection with the proposed market data fees and the costs associated with compiling and providing the ToM, cToM, and SLF feeds (the “Cost Analysis”).

Accordingly, in proposing to charge fees for market data, the Exchange is especially diligent in assessing those fees in a transparent way against its own aggregate costs of providing the related service, and in carefully and transparently assessing the impact on Members—both generally and in relation to other Members—to ensure the fees will not create a financial burden on any participant and will not have an undue impact in particular on smaller Members and competition among Members in general. The Exchange does not believe it needs to otherwise address questions about market competition in the context of this filing because the proposed fees are consistent with the Act based on the Exchange's Cost Analysis. The Exchange also believes that this level of diligence and transparency is called for by the requirements of Section 19(b)(1) under the Act, and Rule 19b-4 thereunder, with respect to the types of information SROs should provide when filing fee changes, and Section 6(b) of the Act, which requires, among other things, that exchange fees be reasonable and equitably allocated, not designed to permit unfair discrimination, and that they do not impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. This proposal addresses those requirements, and the analysis and data in this section are designed to clearly and comprehensively show how they are met.

The Exchange's affiliates previously completed a study of their aggregate costs to produce market data and provide connectivity and port services, defined above as its Cost Analysis. Personnel began to plan for and develop the Exchange beginning in early 2023, and costs included in this Cost Analysis are related to the development and buildout of the Exchange since that time. During the Exchange's development and buildout that occurred throughout 2023 and continues to today, the Exchange routinely studied its aggregate costs to produce and disseminate Exchange market data, which were used to determine the proposed pricing for the market data feeds as part of the Exchange's Cost Analysis. The Cost Analysis required a detailed analysis of the Exchange's aggregate baseline costs, including a determination and allocation of costs for core services provided by the Exchange—transaction execution, market data, membership services, physical connectivity, and port access (which provide order entry, cancellation and modification functionality, risk functionality, the ability to receive drop copies, and other functionality). The Exchange separately divided its costs between those costs necessary to deliver each of these core services, including infrastructure, software, human resources ( i.e., personnel), and certain general and administrative expenses (“cost drivers”).

As an initial step, the Exchange determined the total cost for the Exchange and its affiliated markets for each cost driver as part of the Exchange's 2024 budget review process. The 2024 budget review is a company-wide process that occurs over the course of many months, includes meetings among senior management, department heads, and the Finance Team. Each department head is required to send a “bottom up” budget to the Finance Team allocating costs at the profit and loss account and vendor levels for the Exchange and its affiliated markets based on a number of factors, including server counts, additional hardware and software utilization, current or anticipated functional or non-functional development projects, capacity needs, end-of-life or end-of-service intervals, number of members, market model ( e.g., price time or pro-rata, simple only or simple and complex markets, auction functionality, etc.), which may impact message traffic, individual system architectures that impact platform size, storage needs, dedicated infrastructure versus shared infrastructure allocated per platform based on the resources required to support each platform, number of available connections, and employees allocated time. All of these factors result in different allocation percentages among the Exchange and its affiliated markets, i.e., the different percentages of the overall cost driver allocated to the Exchange and its affiliated markets will cause the dollar amount of the overall cost allocated among the Exchange and its affiliated markets to also differ. Because the Exchange's parent company currently owns and operates five separate and distinct marketplaces, the Exchange must determine the costs associated with each actual market—as opposed to the Exchange's parent company simply concluding that all cost drivers are the same at each individual marketplace and dividing total cost by five (evenly for each marketplace). Rather, the Exchange's parent company determines an accurate cost for each marketplace, which results in different allocations and amounts across each exchange for the same cost drivers, due to the unique factors of each marketplace as described above. This allocation methodology also ensures that no cost would be allocated twice or double-counted between the Exchange and its affiliated markets. The Finance Team then consolidates the budget and sends it to senior management, including the Chief Financial Officer and Chief Executive Officer, for review and approval. Next, the budget is presented to the Board of Directors and the Finance and Audit Committees for each exchange for their approval. The above steps encompass the first step of the cost allocation process. For the 2024 budget process for MIAX Sapphire, only costs and anticipated revenues associated with the electronic exchange were considered. While MIAX Sapphire plans on opening its trading floor in 2025 costs and anticipated revenues from the trading floor were not included as part of any analysis for MIAX Sapphire for 2024.

The next step involves determining what portion of the cost allocated to the Exchange pursuant to the above methodology is to be allocated to each core service, e.g., market data, connectivity, ports, and transaction services. The Exchange and its affiliated markets adopted an allocation methodology with thoughtful and consistently applied principles to guide how much of a particular cost amount allocated to the Exchange should be allocated within the Exchange to each core service. This is the final step in the cost allocation process and is applied to each of the cost drivers set forth below. For instance, fixed costs that are not driven by client activity ( e.g., message rates), such as data center costs, were allocated more heavily to the provision of physical connectivity (for example, 62% of the data center total expense amount is allocated to all provisions of connectivity), with smaller allocations to ToM, cToM and SLF (2.0% combined), and the remainder to the provision of ports, transaction execution, and membership services (36%). This next level of the allocation methodology at the individual exchange level also took into account factors similar to those set forth under the first step of the allocation methodology process described above, to determine the appropriate allocation to connectivity or market data versus allocations for other services. This allocation methodology was developed through an assessment of costs with senior management intimately familiar with each area of the Exchange's operations. After adopting this allocation methodology, the Exchange then applied an allocation of each cost driver to each core service, resulting in the cost allocations described below. Each of the below cost allocations is unique to the Exchange and represents a percentage of overall cost that was allocated to the Exchange pursuant to the initial allocation described above.

By allocating segmented costs to each core service, the Exchange was able to estimate by core service the potential margin it might earn based on different fee models. The Exchange notes that it has five primary sources of revenue that it can potentially use to fund its operations: transaction fees, connectivity and port service fees, membership fees, regulatory fees, and market data fees. Accordingly, the Exchange must cover its expenses from these five primary sources of revenue. The Exchange also notes that as a general matter each of these sources of revenue is based on services that are interdependent. For instance, the Exchange's system for executing transactions is dependent on physical hardware and connectivity; only Members and parties that they sponsor to participate directly on the Exchange may submit orders to the Exchange; some Members (but not all) consume market data from the Exchange in order to trade on the Exchange; and, the Exchange consumes market data from external sources in order to comply with regulatory obligations. Accordingly, given this interdependence, the allocation of costs to each service or revenue source required judgment of the Exchange and was weighted based on estimates of the Exchange that the Exchange believes are reasonable, as set forth below. While there is no standardized and generally accepted methodology for the allocation of an exchange's costs, the Exchange's methodology is the result of an extensive review and analysis and will be consistently applied going forward for any other cost-justified potential fee proposals. In the absence of the Commission attempting to specify a methodology for the allocation of exchanges' interdependent costs, the Exchange will continue to be left with its best efforts to attempt to conduct such an allocation in a thoughtful and reasonable manner.

Through the Exchange's extensive Cost Analysis, the Exchange analyzed nearly every expense item in the Exchange's general expense ledger to determine whether each such expense relates to the provision of the market data feeds, and, if such expense did so relate, what portion (or percentage) of such expense actually supports the provision of the market data feeds, and thus bears a relationship that is, “in nature and closeness,” directly related to the market data feeds. In turn, the Exchange allocated certain costs more to physical connectivity and others to ports, while certain costs were only allocated to such services at a very low percentage or not at all, using consistent allocation methodologies as described above. Based on this analysis, the Exchange estimates that the aggregate monthly cost to provide ToM, cToM, and SLF data feeds is $59,161 (the Exchange divided the annual cost for each of ToM, cToM, and SLF by 12 months, then added all three numbers together), as further detailed below.

Costs Related To Offering ToM, cToM, and SLF Data Feeds

The following chart details the individual line-item (annual) costs considered by the Exchange to be related to offering the ToM, cToM, and SLF data feeds to its Members and other customers, as well as the percentage of the Exchange's overall costs that such costs represent for such area ( e.g., as set forth below, the Exchange allocated approximately 6.2% of its overall Human Resources cost to offering ToM, cToM, and SLF data feeds).