2024-19660. Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change by MIAX Sapphire, LLC To Adopt Connectivity and Certain Port Fees for Members and Non-Members

1G b Connectivity

Cost drivers	Allocated annual cost a	Allocated monthly cost b	% of all
Human Resources	$125,167	$10,431	1.2
Connectivity (external fees, cabling, switches, etc.)	522	44	2.0
Internet Services and External Market Data	3,675	306	2.5
Data Center	12,571	1,048	2.0
Hardware and Software Maintenance and Licenses	9,826	819	2.0
Depreciation	27,679	2,307	2.3
Allocated Shared Expenses	47,021	3,918	1.7
Total	226,461	18,872	1.5
a  The Annual Cost includes figures rounded to the nearest dollar.
b  The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and rounding up or down to the nearest dollar.

10G b ULL Connectivity

Cost drivers	Allocated annual cost a	Allocated monthly cost b	% of all
Human Resources	$3,533,950	$294,496	34.5
Connectivity (external fees, cabling, switches, etc.)	14,741	1,228	57.7
Internet Services and External Market Data	103,750	8,646	69.8
Data Center	354,917	29,576	57.7
Hardware and Software Maintenance and Licenses	277,415	23,118	55.9
Depreciation	781,473	65,123	63.6
Allocated Shared Expenses	1,327,593	110,633	47
Total	6,393,839	532,820	41.1
a  The Annual Cost includes figures rounded to the nearest dollar.
b  The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and rounding up or down to the nearest dollar.

Below are additional details regarding each of the line-item costs considered by the Exchange to be related to offering physical 1Gb and 10Gb ULL connectivity.

Human Resources

The Exchange notes that it and its affiliated markets anticipate that by year-end 2024, there will be 289 employees (excluding employees at non-options/equities exchange subsidiaries of Miami International Holdings, Inc. (“MIH”), the holding company of the Exchange and its affiliated markets), and each department leader has direct knowledge of the time spent by each employee with respect to the various tasks necessary to operate the Exchange. Specifically, twice a year, and as needed with additional new hires and new project initiatives, in consultation with employees as needed, managers and department heads assign a percentage of time to every employee and then allocate that time amongst the Exchange and its affiliated markets to determine each market's individual Human Resources expense. Then, managers and department heads assign a percentage of each employee's time allocated to the Exchange into buckets including network connectivity, ports, market data, and other exchange services. This process ensures that every employee is 100% allocated, ensuring there is no double counting between the Exchange and its affiliated markets.

For personnel costs (Human Resources), the Exchange calculated an allocation of employee time for employees whose functions include providing and maintaining physical connectivity and performance thereof (primarily the Exchange's network infrastructure team, which spends most of their time performing functions necessary to provide physical connectivity). As described more fully above, the Exchange's parent company allocates costs to the Exchange and its affiliated markets and then a portion of the Human Resources costs allocated to the Exchange is then allocated to connectivity. From that portion allocated to the Exchange that applied to connectivity, the Exchange then allocated weighted averages of 49.1% for 10Gb ULL connectivity and 1.7% for 1Gb connectivity of each employee's time from the above group.

The Exchange also allocated Human Resources costs to provide physical ( print page 71631) connectivity to a limited subset of personnel with ancillary functions related to establishing and maintaining such connectivity (such as information security, sales, membership, and finance personnel). The Exchange allocated cost on an employee-by-employee basis ( i.e., only including those personnel who support functions related to providing physical connectivity) and then applied a smaller allocation to such employees' time to 10Gb ULL connectivity (18.4%). This other group of personnel with a smaller allocation of Human Resources costs also have a direct nexus to 10Gb ULL connectivity, whether it is a sales person selling a connection, finance personnel billing for connectivity or providing budget analysis, or information security ensuring that such connectivity is secure and adequately defended from an outside intrusion.

The estimates of Human Resources cost were therefore determined by consulting with such department leaders, determining which employees are involved in tasks related to providing physical connectivity, and confirming that the proposed allocations were reasonable based on an understanding of the percentage of time such employees devote to those tasks. This includes personnel from the Exchange departments that are predominately involved in providing 1Gb and 10Gb ULL connectivity: Business Systems Development, Trading Systems Development, Systems Operations and Network Monitoring, Network and Data Center Operations, Listings, Trading Operations, and Project Management. Again, the Exchange allocated 49.1% for 10Gb ULL connectivity and 1.7% for 1Gb connectivity of each of their employee's time assigned to the Exchange for 10Gb ULL and 1Gb connectivity, as stated above. Employees from these departments perform numerous functions to support 10Gb ULL connectivity, such as the installation, re-location, configuration, and maintenance of 10Gb ULL connections and the hardware they access. This hardware includes servers, routers, switches, firewalls, and monitoring devices. These employees also perform software upgrades, vulnerability assessments, remediation and patch installs, equipment configuration and hardening, as well as performance and capacity management. These employees also engage in research and development analysis for equipment and software supporting 10Gb ULL connectivity and design, and support the development and on-going maintenance of internally-developed applications as well as data capture and analysis, and Member and internal Exchange reports related to network and system performance. The above list of employee functions is not exhaustive of all the functions performed by Exchange employees to support 10Gb ULL and 1Gb connectivity, but illustrates the breath of functions those employees perform in support of the above cost and time allocations.

Lastly, the Exchange notes that senior level executives' time was only allocated to the 10Gb ULL and 1Gb connectivity related Human Resources costs to the extent that they are involved in overseeing tasks related to providing physical connectivity. The Human Resources cost was calculated using a blended rate of compensation reflecting salary, equity and bonus compensation, benefits, payroll taxes, and 401(k) matching contributions.

Connectivity (External Fees, Cabling, Switches, etc.)

The Connectivity cost driver includes external fees paid to connect to other exchanges and third parties, cabling and switches required to operate the Exchange. The Connectivity cost driver is more narrowly focused on technology used to complete connections to the Exchange and to connect to external markets. The Exchange notes that its connectivity to external markets is required in order to receive market data to run the Exchange's matching engine and basic operations compliant with existing regulations, primarily Regulation NMS.

The Exchange relies on various connectivity providers for connectivity to the entire U.S. options industry, and infrastructure services for critical components of the network that are necessary to provide and maintain its System Networks and access to its System Networks via 1Gb and 10Gb ULL connectivity. Specifically, the Exchange utilizes connectivity providers to connect to other national securities exchanges and the Options Price Reporting Authority (“OPRA”). The Exchange understands that these service providers provide services to most, if not all, of the other U.S. exchanges and other market participants. Connectivity provided by these service providers is critical to the Exchanges daily operations and performance of its System Networks to which market participants connect to via 1Gb and 10Gb ULL connectivity. Without these services providers, the Exchange would not be able to connect to other national securities exchanges, market data providers or OPRA and, therefore, would not be able to operate and support its System Networks. The Exchange does not employ a separate fee to cover its connectivity provider expense and recoups that expense, in part, by charging for 1Gb and 10Gb ULL connectivity.

Internet Services and External Market Data

The next cost driver consists of internet Services and external market data. Internet services includes third-party service providers that provide the internet, fiber and bandwidth connections between the Exchange's networks, primary and secondary data centers, and office locations in Princeton, New Jersey and Miami, Florida.

External market data includes fees paid to third parties, including other exchanges, to receive market data. The Exchange includes external market data fee costs towards the provisions of physical connectivity because such market data is necessary for certain services related to connectivity, including pre-trade risk checks and checks for other conditions ( e.g., re-pricing of orders to avoid locked or crossed markets and trading collars). Since external market data from other exchanges is consumed at the Exchange's matching engine level, (to which physical connectivity provides access) in order to validate orders before additional orders enter the matching engine or are executed, the Exchange believes it is reasonable to allocate an amount of such costs to 1Gb and 10Gb ULL connectivity.

The Exchange relies on various content service providers for data feeds for the entire U.S. options industry, as well as content for critical components of the network that are necessary to provide and maintain its System Networks and access to its System Networks via 1Gb and 10Gb ULL connectivity. Specifically, the Exchange utilizes content service providers to receive market data from OPRA, other exchanges and market data providers. The Exchange understands that these service providers provide services to most, if not all, of the other U.S. exchanges and other market participants. Market data provided these service providers is critical to the Exchanges daily operations and performance of its System Networks to which market participants connect to via 1Gb and 10Gb ULL connectivity. Without these services providers, the Exchange would not be able to receive market data and, therefore, would not be able to operate and support its System Networks. The Exchange does not employ a separate fee to cover its ( print page 71632) content service provider expense and recoups that expense, in part, by charging for 1Gb and 10Gb ULL connectivity.

Data Center

Data Center costs includes an allocation of the costs the Exchange incurs to provide physical connectivity in the third-party data centers where it maintains its equipment (such as dedicated space, security services, cooling and power). The Exchange notes that it does not own the primary data center or the secondary data center, but instead, leases space in data centers operated by third parties. The Exchange has allocated a high percentage of the total Data Center cost to physical 1Gb and 10Gb ULL connectivity (59.7% combined) because the third-party data centers and the Exchange's physical equipment contained therein is the most direct cost in providing physical access to the Exchange. In other words, for the Exchange to operate in a dedicated space with connectivity by market participants to a physical trading platform, the data centers are a very tangible cost, and in turn, if the Exchange did not maintain such a presence then physical connectivity would be of no value to market participants.

Hardware and Software Maintenance and Licenses

Hardware and Software Licenses includes hardware and software licenses used to operate and monitor physical assets necessary to offer physical connectivity to the Exchange. This software is necessary for the Exchange to operate its options trading platform in order to maintain premium network performance. This hardware includes servers, network switches, cables, optics, protocol data units, and cabinets, to maintain a state-of-the-art technology platform. Accordingly, the Exchange allocated a high percentage of the total Hardware and Software Maintenance and License cost to physical 1Gb and 10Gb ULL connectivity (57.9% combined) because the hardware and software licenses are the most direct cost in providing physical access to the Exchange's platform.

Depreciation

All physical assets, software, and hardware used to provide 1Gb and 10Gb ULL connectivity, which also includes assets used for testing and monitoring of Exchange infrastructure, were valued at cost, and depreciated or leased over periods ranging from three to five years. Thus, the depreciation cost primarily relates to servers necessary to operate the Exchange, some of which are owned by the Exchange and some of which are leased by the Exchange in order to allow efficient periodic technology refreshes. The Exchange also included in the Depreciation cost driver certain budgeted improvements that the Exchange intends to capitalize and depreciate with respect to 1Gb and 10Gb ULL connectivity in the near-term. As with the other allocated costs in the Exchange's updated Cost Analysis, the Depreciation cost was therefore narrowly tailored to depreciation related to 1Gb and 10Gb ULL connectivity. As noted above, the Exchange allocated 63.6% of its allocated depreciation costs to providing physical 10Gb ULL connectivity and 2.3% of all depreciation costs to providing 1Gb connectivity.

Allocated Shared Expenses

Finally, as with other exchange products and services, a portion of general shared expenses was allocated to overall physical connectivity costs. These general shared costs are integral to exchange operations, including its ability to provide physical connectivity. Costs included in general shared expenses include office space and office expenses ( e.g., occupancy and overhead expenses), utilities, recruiting and training, marketing and advertising costs, professional fees for legal, tax and accounting services (including external and internal audit expenses), and telecommunications. Similarly, the cost of paying directors to serve on the Exchange's Board of Directors is also included in the Exchange's general shared expense cost driver.^[38] These general shared expenses are incurred by the Exchange's parent company, MIH, as a direct result of operating the Exchange and its affiliated markets.

The Exchange employed a process to determine a reasonable percentage to allocate general shared expenses to 1Gb and 10Gb ULL connectivity pursuant to its multi-layered allocation process. First, general expenses were allocated among the Exchange and affiliated markets as described above. Then, the general shared expense assigned to the Exchange was allocated across core services of the Exchange, including connectivity. Then, these costs were further allocated to sub-categories within the final categories, i.e., 1Gb and 10Gb ULL connectivity as sub-categories of connectivity. In determining the percentage of general shared expenses allocated to connectivity that ultimately apply to 1Gb and 10Gb ULL connectivity, the Exchange looked at the percentage allocations of each of the cost drivers and determined a reasonable allocation percentage. The Exchange also held meetings with senior management, department heads, and the Finance Team to determine the proper amount of the shared general expense to allocate to 1Gb and 10Gb ULL connectivity. The Exchange, therefore, believes it is reasonable to assign allocations, in the range of allocations for other cost drivers, while continuing to ensure that these expenses are only allocated once. Again, the general shared expenses are incurred by the Exchange's parent company as a result of operating the Exchange and its affiliated markets and it is therefore reasonable to allocate a percentage of those expenses to the Exchange and ultimately to specific product offerings such as 1Gb and 10Gb ULL connectivity.

Again, a portion of all shared expenses were allocated to the Exchange (and its affiliated markets) which, in turn, allocated a portion of that overall allocation to all physical connectivity on the Exchange. The Exchange then allocated 47% of the portion allocated to physical connectivity to 10Gb ULL connectivity and 1.7% of the portion allocated to physical connectivity to 1Gb connectivity. The Exchange believes these allocation percentages are reasonable because, while the overall dollar amounts may be higher than other cost drivers, the percentages are based on and in line with the percentage allocations of each of the Exchange's other cost drivers for each provision of connectivity. The percentage allocated to 10Gb ULL connectivity also reflects its importance to the Exchange's strategy and necessity towards the nature of the Exchange's overall operations, which is to provide a resilient, highly deterministic trading system that relies on faster 10Gb ULL connectivity than the Exchange's competitors to maintain premium performance. This allocation reflects the Exchange's focus on providing and maintaining high performance network connectivity, of which 10Gb ULL connectivity is a main contributor. The Exchange intends to differentiate itself by offering a “premium-product” network experience, as an operator of a high performance, ultra-low latency network with unparalleled system ( print page 71633) throughput, which system networks can support access to four distinct options markets and multiple competing market makers having affirmative obligations to continuously quote over 1,100,000 distinct trading products (per exchange), and the capacity to handle approximately 8 million quote messages per second. The “premium-product” network experience enables users of 10Gb ULL connections to receive the network monitoring and reporting services for those approximately 1,100,000 distinct trading products. These value add services are part of the Exchange's strategy for offering a high performance trading system, which utilizes 10Gb ULL connectivity.

The Exchange notes that the 47% allocation of general shared expenses for physical 10Gb ULL connectivity is higher than that allocated to general shared expenses for all other types of connectivity and ports. This is based on its allocation methodology that weighted costs attributable to each core service. While physical connectivity has several areas where certain tangible costs are heavily weighted towards providing such service ( e.g., Data Center, as described above), other types of connectivity and ports do not require as many broad or indirect resources as other core services.

* * * * *

Approximate Cost per 1Gb and 10Gb ULL Connection per Month

The Exchange divided the total monthly cost for 10Gb ULL connectivity of $532,820 by the number of physical 10Gb ULL connections the Exchange anticipates maintaining upon expiration of the full length of the waiver period for 10Gb ULL connections at the time the proposed pricing was determined (40), to arrive at a cost of approximately $13,321 per month (rounded to the nearest dollar), per physical 10Gb ULL connection.

Similarly, the Exchange divided the total monthly cost for 1Gb connectivity of $18,872 by the number of physical 1Gb connections the Exchange anticipates maintaining upon expiration of the waiver period at the time the proposed pricing was determined (12), to arrive at a cost of approximately $1,573 per month (rounded to the nearest dollar), per physical 1Gb connection.

* * * * *

Costs Related To Offering Full Service MEO Ports

The following chart details the individual line-item costs considered by the Exchange to be related to offering Full Service MEO Ports as well as the percentage of the Exchange's overall costs such costs represent for such area ( e.g., as set forth below, the Exchange allocated approximately 5.1% of its overall Human Resources cost to offering Full Service MEO Ports).

Full Service MEO Ports

Cost drivers	Allocated annual cost a	Allocated monthly cost b	% of all
Human Resources	$517,369	$43,114	5.1
Connectivity (external fees, cabling, switches, etc.)	160	13	0.6
Internet Services and External Market Data	929	77	0.6
Data Center	9,615	801	1.6
Hardware and Software Maintenance and Licenses	3,106	259	0.6
Depreciation	27,745	2,312	2.3
Allocated Shared Expenses	46,983	3,915	1.7
Total	605,907	50,491	3.9
a  The Annual Cost includes figures rounded to the nearest dollar.
b  The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and rounding up or down to the nearest dollar.

Below are additional details regarding each of the line-item costs considered by the Exchange to be related to offering Full Service MEO Ports.

Human Resources

With respect to Full Service MEO Ports, the Exchange calculated Human Resources cost by taking an allocation of employee time for employees whose functions include providing Full Service MEO Ports and maintaining performance thereof (including a broader range of employees such as technical operations personnel, market operations personnel, and software engineering personnel) as well as a limited subset of personnel with ancillary functions related to maintaining such connectivity (such as sales, membership, and finance personnel). Just as described above for connectivity, the estimates of Human Resources cost were again determined by consulting with department leaders, determining which employees are involved in tasks related to providing Full Service MEO Ports and maintaining performance thereof, and confirming that the proposed allocations were reasonable based on an understanding of the percentage of their time such employees devote to tasks related to providing Full Service MEO Ports and maintaining performance thereof. This includes personnel from the following Exchange departments that are predominately involved in providing Full Service MEO Ports: Business Systems Development, Trading Systems Development, Systems Operations and Network Monitoring, Network and Data Center Operations, Listings, Trading Operations, and Project Management. The Exchange notes that senior level executives were allocated Human Resources costs to the extent they are involved in overseeing tasks specifically related to providing Full Service MEO Ports. Senior level executives were only allocated Human Resources costs to the extent that they are involved in managing personnel responsible for tasks integral to providing Full Service MEO Ports. The Human Resources cost was again calculated using a blended rate of compensation reflecting salary, equity and bonus compensation, benefits, payroll taxes, and 401(k) matching contributions.

Connectivity (External Fees, Cabling, Switches, etc.)

The Connectivity cost driver includes external fees paid to connect to other exchanges and cabling and switches, as described above.

Internet Services and External Market Data

The next cost driver consists of internet services and external market data. Internet services includes third-party service providers that provide the internet, fiber and bandwidth ( print page 71634) connections between the Exchange's networks, primary and secondary data centers, and office locations in Princeton and Miami. For purposes of Full Service MEO Ports, the Exchange also includes a portion of its costs related to external market data. External market data includes fees paid to third parties, including other exchanges, to receive and consume market data from other markets. The Exchange includes external market data costs towards the provision of Full Service MEO Ports because such market data is necessary (in addition to physical connectivity) to offer certain services related to such ports, such as validating orders on entry against the NBBO and checking for other conditions ( e.g., halted securities).^[39] Thus, since market data from other exchanges is consumed at the Exchange's Full Service MEO Port level in order to validate orders, before additional processing occurs with respect to such orders, the Exchange believes it is reasonable to allocate a small amount of such costs to Full Service MEO Ports.

Data Center

Data Center costs includes an allocation of the costs the Exchange incurs to provide Full Service MEO Ports in the third-party data centers where it maintains its equipment as well as related costs for market data to then enter the Exchange's system via Full Service MEO Ports (the Exchange does not own the primary data center or secondary date center, but instead leases space in data centers operated by third parties).

Hardware and Software Maintenance and Licenses

Hardware and Software Licenses includes hardware and software licenses used to monitor the health of the order entry services provided by the Exchange, as described above.

Depreciation

The vast majority of the software the Exchange uses to provide Full Service MEO Ports has been developed in-house and the cost of such development, which takes place over an extended period of time and includes not just development work, but also quality assurance and testing to ensure the software works as intended, is depreciated over time once the software is activated in the production environment. Hardware used to provide Full Service MEO Ports includes equipment used for testing and monitoring of order entry infrastructure and other physical equipment the Exchange purchased and is also depreciated over time.

All hardware and software, which also includes assets used for testing and monitoring of order entry infrastructure, were valued at cost, depreciated or leased over periods ranging from three to five years. Thus, the depreciation cost primarily relates to servers necessary to operate the Exchange, some of which is owned by the Exchange and some of which is leased by the Exchange in order to allow efficient periodic technology refreshes. The Exchange allocated 2.3% of all depreciation costs to providing Full Service MEO Ports. The Exchange allocated depreciation costs for depreciated software necessary to operate the Exchange to Full Service MEO Ports because such software is related to the provision of Full Service MEO Ports. As with the other allocated costs in the Exchange's updated Cost Analysis, the Depreciation cost driver was therefore narrowly tailored to depreciation related to Full Service MEO Ports.

Allocated Shared Expenses

Finally, a portion of general shared expenses was allocated to overall Full Service MEO Port costs as without these general shared costs the Exchange would not be able to operate in the manner that it does and provide application sessions. The costs included in general shared expenses include general expenses of the Exchange, including office space and office expenses ( e.g., occupancy and overhead expenses), utilities, recruiting and training, marketing and advertising costs, professional fees for legal, tax and accounting services (including external and internal audit expenses), and telecommunications costs. The Exchange again notes that the cost of paying directors to serve on its Board of Directors is included in the calculation of Allocated Shared Expenses, and thus a portion of such overall cost amounting to less than 4% of the overall cost for directors was allocated to providing Full Service MEO Ports. The Exchange notes that the 1.7% allocation of general shared expenses for Full Service MEO Ports is lower than that allocated to general shared expenses for physical connectivity based on its allocation methodology that weighted costs attributable to each Core Service based on an understanding of each area. While Full Service MEO Ports have several areas where certain tangible costs are heavily weighted towards providing such service ( e.g., data centers, as described above), 10Gb ULL connectivity requires a broader level of support from Exchange personnel in different areas, which in turn leads to a broader general level of cost to the Exchange.

* * * * *

Approximate Cost per Full Service MEO Port per Month

The Exchange divided the total monthly cost for Full Service MEO Ports of $50,491 by the number of Full Service MEO Ports the Exchange anticipates maintaining upon expiration of the Initial Waiver Period at the time the proposed pricing was determined (112), to arrive at a cost of approximately $451 per month (rounded to the nearest dollar), per Full Service MEO Port.

* * * * *

Costs Related to Offering Limited Service MEO Ports

The following chart details the individual line-item costs considered by the Exchange to be related to offering Limited Service MEO Ports as well as the percentage of the Exchange's overall costs such costs represent for such area ( e.g., as set forth below, the Exchange allocated approximately 5% of its overall Human Resources cost to offering Limited Service MEO Ports).

Limited Service MEO Ports

Cost drivers	Allocated annual cost a	Allocated monthly cost b	% of all
Human Resources	$512,844	$42,737	5
Connectivity (external fees, cabling, switches, etc.)	158	13	0.6
Internet Services and External Market Data	921	77	0.6
Data Center	9,531	794	1.6
( print page 71635)
Hardware and Software Maintenance and Licenses	3,079	256	0.6
Depreciation	27,503	2,292	2.2
Allocated Shared Expenses	46,572	3,881	1.7
Total	600,608	50,050	3.9
a  The Annual Cost includes figures rounded to the nearest dollar.
b  The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and rounding up or down to the nearest dollar.

Below are additional details regarding each of the line-item costs considered by the Exchange to be related to offering Limited Service MEO Ports.

Human Resources

With respect to Limited Service MEO Ports, the Exchange calculated Human Resources cost by taking an allocation of employee time for employees whose functions include providing Limited Service MEO Ports and maintaining performance thereof (including a broader range of employees such as technical operations personnel, market operations personnel, and software engineering personnel) as well as a limited subset of personnel with ancillary functions related to maintaining such connectivity (such as sales, membership, and finance personnel). Just as described above for connectivity, the estimates of Human Resources cost were again determined by consulting with department leaders, determining which employees are involved in tasks related to providing Limited Service MEO Ports and maintaining performance thereof, and confirming that the proposed allocations were reasonable based on an understanding of the percentage of their time such employees devote to tasks related to providing Limited Service MEO Ports and maintaining performance thereof. This includes personnel from the following Exchange departments that are predominately involved in providing Limited Service MEO Ports: Business Systems Development, Trading Systems Development, Systems Operations and Network Monitoring, Network and Data Center Operations, Listings, Trading Operations, and Project Management. The Exchange notes that senior level executives were allocated Human Resources costs to the extent they are involved in overseeing tasks specifically related to providing Limited Service MEO Ports. Senior level executives were only allocated Human Resources costs to the extent that they are involved in managing personnel responsible for tasks integral to providing and maintaining Limited Service MEO Ports. The Human Resources cost was again calculated using a blended rate of compensation reflecting salary, equity and bonus compensation, benefits, payroll taxes, and 401(k) matching contributions.

Connectivity (External Fees, Cabling, Switches, etc.)

The Connectivity cost includes external fees paid to connect to other exchanges and cabling and switches, as described above.

Internet Services and External Market Data

The next cost driver consists of internet services and external market data. Internet services includes third-party service providers that provide the internet, fiber and bandwidth connections between the Exchange's networks, primary and secondary data centers, and office locations in Princeton and Miami. For purposes of Limited Service MEO Ports, the Exchange also includes a portion of its costs related to external market data. External market data includes fees paid to third parties, including other exchanges, to receive and consume market data from other markets. The Exchange includes external market data costs towards the provision of Limited Service MEO Ports because such market data is necessary (in addition to physical connectivity) to offer certain services related to such ports, such as validating orders on entry against the NBBO and checking for other conditions ( e.g., halted securities).^[40] Thus, since market data from other exchanges is consumed at the Exchange's Limited Service MEO Port level in order to validate orders, before additional processing occurs with respect to such orders, the Exchange believes it is reasonable to allocate a small amount of such costs to Limited Service MEI MEO.

Data Center

Data Center costs includes an allocation of the costs the Exchange incurs to provide Limited Service MEO Ports in the third-party data centers where it maintains its equipment as well as related costs for market data to then enter the Exchange's System via Limited Service MEO Ports (the Exchange does not own the primary data center or the secondary data center, but instead leases space in data centers operated by third parties).

Hardware and Software Maintenance and Licenses

Hardware and Software Licenses includes hardware and software licenses used to monitor the health of the order entry services provided by the Exchange, as described above.

Depreciation

The vast majority of the software the Exchange uses to provide Limited Service MEO Ports has been developed in-house and the cost of such development, which takes place over an extended period of time and includes not just development work, but also quality assurance and testing to ensure the software works as intended, is depreciated over time once the software is activated in the production environment. Hardware used to provide Limited Service MEO Ports includes equipment used for testing and monitoring of order entry infrastructure and other physical equipment the Exchange purchased and is also depreciated over time.

All hardware and software, which also includes assets used for testing and monitoring of order entry infrastructure, were valued at cost, depreciated or leased over periods ranging from three to five years. Thus, the depreciation cost primarily relates to servers necessary to operate the Exchange, some of which is owned by the Exchange and some of which is leased by the Exchange in order to allow efficient periodic ( print page 71636) technology refreshes. The Exchange allocated 2.2% of all depreciation costs to providing Limited Service MEO Ports. The Exchange allocated depreciation costs for depreciated software necessary to operate the Exchange because such software is related to the provision of Limited Service MEO Ports. As with the other allocated costs in the Exchange's updated Cost Analysis, the Depreciation cost driver was therefore narrowly tailored to depreciation related to Limited Service MEO Ports.

Allocated Shared Expenses

Finally, a portion of general shared expenses was allocated to overall Limited Service MEO Port costs as without these general shared costs the Exchange would not be able to operate in the manner that it does and provide Limited Service MEO Ports. The costs included in general shared expenses include general expenses of the Exchange, including office space and office expenses ( e.g., occupancy and overhead expenses), utilities, recruiting and training, marketing and advertising costs, professional fees for legal, tax and accounting services (including external and internal audit expenses), and telecommunications costs. The Exchange again notes that the cost of paying directors to serve on its Board of Directors is included in the calculation of Allocated Shared Expenses, and thus a portion of such overall cost amounting to less than 4% of the overall cost for directors was allocated to providing Limited Service MEO Ports. The Exchange notes that the 1.7% allocation of general shared expenses for Limited Service MEO Ports is lower than that allocated to general shared expenses for physical connectivity based on its allocation methodology that weighted costs attributable to each Core Service based on an understanding of each area. While Limited Service MEO Ports have several areas where certain tangible costs are heavily weighted towards providing such service ( e.g., data center, as described above), Limited Service MEO Ports require a broader level of support from Exchange personnel in different areas, which in turn leads to a broader general level of cost to the Exchange.

* * * * *

Approximate Cost per Limited Service MEO Port per Month

The Exchange divided the total monthly cost for Limited Service MEO Ports of $50,050 by the number of Limited Service MEO Ports the Exchange anticipates maintaining upon expiration of the Initial Waiver Period at the time the proposed pricing was determined (208, for charged ports, without the cap on the number of Limited Service MEO Ports), to arrive at a cost of approximately $241 per month (rounded to the nearest dollar), per Limited Service MEO Port.

* * * * *

Costs Related to Offering FIX, CTD and FXD Ports

The following charts detail the individual line-item costs considered by the Exchange to be related to offering FIX, CTD and FXD Ports as well as the percentage of the Exchange's overall costs such costs represent for such area ( e.g., as set forth below, the Exchange allocated approximately 1.3%, 0.9%, and 0.3% of its overall Human Resources cost to offering FIX Ports, CTD Ports, and FXD Ports, respectively).

FIX Ports

Cost drivers	Allocated annual cost a	Allocated monthly cost b	% of all
Human Resources	$135,037	$11,253	1.3
Connectivity (external fees, cabling, switches, etc.)	42	4	0.2
Internet Services and External Market Data	243	20	0.2
Data Center	2,510	209	0.4
Hardware and Software Maintenance and Licenses	811	66	0.2
Depreciation	7,242	604	0.6
Allocated Shared Expenses	12,263	1,022	0.4
Total	158,148	13,178	1
a  The Annual Cost includes figures rounded to the nearest dollar.
b  The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and rounding up or down to the nearest dollar.

CTD Ports

Cost drivers	Allocated annual cost a	Allocated monthly cost b	% of all
Human Resources	$93,848	$7,821	0.9
Connectivity (external fees, cabling, switches, etc.)	29	2	0.1
Internet Services and External Market Data	169	14	0.1
Data Center	1,744	145	0.3
Hardware and Software Maintenance and Licenses	563	47	0.1
Depreciation	5,033	419	0.4
Allocated Shared Expenses	8,522	710	0.3
Total	109,908	9,158	0.7
a  The Annual Cost includes figures rounded to the nearest dollar.
b  The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and rounding up or down to the nearest dollar.

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FXD Ports

Cost drivers	Allocated annual cost a	Allocated monthly cost b	% of all
Human Resources	$31,283	$2,607	0.3
Connectivity (external fees, cabling, switches, etc.)	10	1	0.04
Internet Services and External Market Data	56	5	0.04
Data Center	581	48	0.1
Hardware and Software Maintenance and Licenses	188	16	0.04
Depreciation	1,678	140	0.1
Allocated Shared Expenses	2,841	237	0.1
Total	36,637	3,054	0.2
a  The Annual Cost includes figures rounded to the nearest dollar.
b  The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and rounding up or down to the nearest dollar.