Notice2021-15032
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Fees for Purge Ports
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Published
July 15, 2021
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 86 Issue 133 (Thursday, July 15, 2021)</title>
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[Federal Register Volume 86, Number 133 (Thursday, July 15, 2021)]
[Notices]
[Pages 37373-37376]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15032]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92360; File No. SR-EMERALD-2021-22]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Fees for Purge Ports
July 9, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 1, 2021, MIAX Emerald, LLC (``MIAX Emerald'' 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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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 Exchange's Fee
Schedule (the ``Fee Schedule'') to amend the fees for Purge Ports.\3\
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\3\ See Fee Schedule, Section 5(d)(ii).
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The text of the proposed rule change is available on the Exchange's
website at <a href="http://www.miaxoptions.com/rule-filings/emerald">http://www.miaxoptions.com/rule-filings/emerald</a>, at MIAX'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
The Exchange currently provides Market Makers \4\ the option to
purchase Purge Ports to assist in their quoting activity. Purge Ports
provide Market Makers with the ability to send quote purge messages to
the Exchange System.\5\ Purge Ports are not capable of sending or
receiving any other type of messages or information. The use of Purge
Ports is completely optional and no rule or regulation requires that a
Market Maker utilize them.
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\4\ The term ``Market Makers'' refers to Lead Market Makers
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered
Market Makers (``RMMs'') collectively. See Exchange Rule 100.
\5\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
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The Exchange proposes to amend the monthly fee for Purge Ports
under Section 5(d)(ii) of the Fee Schedule. Unlike other options
exchanges that provide purge port functionality and charge fees on a
per port basis,\6\ the
[[Page 37374]]
Exchange offers Purge Ports as a package and provides Market Makers
with the option to receive up to two (2) Purge Ports per matching
engine \7\ to which it connects via a Full Service MEI Port.\8\ The
Exchange currently has twelve (12) matching engines which means Market
Makers may receive up to twenty-four (24) Purge Ports for a single
monthly fee. The Exchange currently assesses Market Makers a fee of
$1,500 per month, regardless of the number of Purge Ports allocated to
the Market Maker. Assuming a Market Maker connects to all twelve (12)
matching engines during a month, with two Purge Ports per matching
engine, this results in a cost of $62.50 per Purge Port ($1,500 divided
by 24) for the month. The Exchange now proposes to increase the fee to
$7,500 per month. Market Makers will continue to receive two (2) Purge
Ports to each matching engine to which they are connected for the
single flat monthly fee. Assuming a Market Maker connects to all twelve
(12) matching engines during the month, with two Purge Ports per
matching engine, this would result in a cost of $312.50 per Purge Port
($7,500 divided by 24).
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\6\ See Cboe BXZ Exchange, Inc. (``BZX'') Options Fee Schedule,
Options Logical Port Fees, Purge Ports ($750 per purge port per
month); Cboe EDGX Exchange, Inc. (``EDGX'') Options Fee Schedule,
Options Logical Port Fees, Purge Ports ($750 per purge port per
month); Cboe Exchange, Inc. (``Cboe'') Fee Schedule ($850 per purge
port per month). In Cboe's Purge Ports Frequently Asked Questions,
Cboe recommends that at least two purge ports be obtained per
exchange for redundancy purposes. See <a href="https://cdn.cboe.com/resources/features/Cboe_USO_PurgePortsFAQs.pdf">https://cdn.cboe.com/resources/features/Cboe_USO_PurgePortsFAQs.pdf</a>. See also Nasdaq
GEMX, Options 7, Pricing Schedule, Section 6.C.(3). Nasdaq GEMX, LLC
(``Nasdaq GEMX'') assesses its members $1,250 per SQF Purge Port per
month, subject to a monthly cap of $17,500 for SQF Purge Ports and
SQF Ports, applicable to market makers.
\7\ ``Matching Engine'' means a part of the MIAX Emerald
electronic system that processes options orders and trades on a
symbol-by-symbol basis. Some Matching Engines will process option
classes with multiple root symbols, and other Matching Engines may
be dedicated to one single option root symbol. A particular root
symbol may only be assigned to a single designated Matching Engine.
A particular root symbol may not be assigned to multiple Matching
Engines. See Fee Schedule, Definitions.
\8\ Full Service MEI Ports provide Market Makers with the
ability to send Market Maker simple and complex quotes, eQuotes, and
quote purge messages to the MIAX Emerald System. Full Service MEI
Ports are also capable of receiving administrative information.
Market Makers are limited to two Full Service MEI Ports per Matching
Engine. See Fee Schedule, Definitions.
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The Exchange has historically undercharged for Purge Port as
compared to other options exchanges \9\ because the Exchange provides
Purge Ports as a package for a single monthly fee. As described above,
this package includes two Purge Ports for each of the Exchange's twelve
(12) matching engines. The Exchange understands other options exchanges
charge fees on a per port basis. The proposed monthly fee increase for
Purge Ports would bring the Exchange's fees more in line with that of
other options exchanges, while maintaining a competitive fee structure
for Purge Port.
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\9\ See supra note 6.
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Implementation Date
The proposed fee changes will become effective on July 1, 2021.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \10\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \11\ in
particular, in that it provides for the equitable allocation of
reasonable dues, fees and other charges among Exchange Members and
issuers and other persons using any facility or system which the
Exchange operates or controls. The Exchange also believes the proposal
furthers the objectives of Section 6(b)(5) of the Act \12\ in that it
is designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general to protect
investors and the public interest and is not designed to permit unfair
discrimination between customers, issuers, brokers and dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4).
\12\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed fees are reasonable,
equitably allocated and not unfairly discriminatory because, for the
flat fee, the Exchange provides each Market Maker two Purge Ports for
each matching engine to which that Market Maker is connected. The
Exchange currently has twelve (12) matching engines. Accordingly, each
Market Maker that is connected to all twelve (12) matching engines
receives a total of twenty-four (24) Purge Ports for the existing flat
fee of $1,500 per month. On a per Purge Port basis, that equals $62.50
per Purge Port ($1,500 divided by 24). The Exchange believes that
increasing the flat monthly fee for Purge Port (regardless of the
number of matching engines to which it connects and consequently
regardless of the number of Purge Ports allocated to the Market Maker)
is equitable, reasonable, and competitive with the fees charged by
other exchanges that offer comparable purge port services. The Exchange
believes that most such exchanges charge per port for each match
engine. For example, BXZ charges a monthly fee of $750 per purge port
per month, EDGX charges a monthly fee of $750 per purge port, Cboe
charges a monthly fee of $850 per purge port,\13\ and Nasdaq GEMX
assesses its members $1,250 per SQF Purge Port per month.\14\ When
calculated on a per purge port basis, each of the above exchanges
charge monthly per purge port fees that are higher than the proposed
$7,500 per month ($312.50 per Purge Port).
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\13\ See supra note 6. Cboe further recommends that at least two
purge ports be obtained per exchange for redundancy purposes. See
<a href="https://cdn.cboe.com/resources/features/Cboe_USO_PurgePortsFAQs.pdf">https://cdn.cboe.com/resources/features/Cboe_USO_PurgePortsFAQs.pdf</a>.
This guidance applies to Cboe's affiliate exchanges, BZX and EDGX.
\14\ See supra note 6.
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The Exchange operates in a highly competitive environment. Indeed,
there are currently 16 registered options exchanges that trade options.
Based on publicly available information, no single options exchange has
more than 15% of the market share and currently the Exchange represents
only approximately 3.27% of the market share.\15\ The Commission has
repeatedly expressed its preference for competition over regulatory
intervention in determining prices, products, and services in the
securities markets. Particularly, in Regulation NMS, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues and, also, recognized that current regulation of the
market system ``has been remarkably successful in promoting market
competition in its broader forms that are most important to investors
and listed companies.'' \16\ The Exchange is not aware of any evidence
that a market share of approximately 6-7% provides the Exchange with
anti-competitive pricing power. If the Exchange were to attempt to
establish unreasonable pricing, then no market participant would
purchase Purge Ports, and existing market participants would cease
paying for Purge Ports, which are optional services offered by the
Exchange. The Exchange believes that the proposed rule change is
consistent with Section 6(b)(4) of the Act,\17\ in that it provides for
the equitable allocation of reasonable dues, fees and other charges
among Members and other persons using any facility or system which the
Exchange operates or controls because Purge Ports are optional
functionality offered to Market Makers. The Exchange further believes
the proposed fees are reasonable as the Exchange believes that the
proposed fees are lower on a per port basis than
[[Page 37375]]
the fees assessed by other exchanges that provide similar
functionality.\18\ Indeed, if the Exchange's proposed fees that are
excessively higher than established fees for similar services on other
exchanges, then the proposed fees would simply serve to reduce demand
for the Exchange's services, which as noted, is entirely optional. The
Exchange notes that Market Makers are not required by rule or
regulation to purchase Purge Ports. It is entirely a business decision
of each Market Maker that determines to purchase Purge Ports.
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\15\ See the Exchange's ``The Market at a Glance'', available at
<a href="https://www.miaxoptions.com/">https://www.miaxoptions.com/</a> (last visited June 30, 2021).
\16\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
\17\ 15 U.S.C. 78f(b)(4).
\18\ See supra note 6.
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Additionally, Market Makers are not precluded from using the purge
messages provided by either the MEI protocol or the cancel messages
provided by the FIX protocol. Under the MEI protocol, Market Makers may
request that all quotations for all underlyings, or for a specific
underlying, be removed, and that new inbound quotations for all
underlyings, or specific underlyings, be blocked. Under the FIX
protocol, Electronic Exchange Members (``EEMs'') may also request that
all, or a subset, of orders for an MPID, or all Day or GTC orders for
an MPID, on the requesting session, be canceled. As such, a dedicated
Purge Port is not required or necessary. Rather, Purge Ports were
specially developed as an optional service to further assist firms in
effectively managing risk.
The Exchange operates in a highly competitive market in which
exchanges offer various types of access services as a means to
facilitate the trading activities of Members and other participants. As
Purge Ports provide voluntary risk management functionality, excessive
fees would simply serve to reduce demand for this optional product. The
Exchange also believes that the proposed Purge Port fees are not
unfairly discriminatory because they will apply uniformly to all Market
Makers that choose to use dedicated Purge Ports. Purge Ports are
completely voluntary and, as they relate solely to optional risk
management functionality, no Market Maker is required or under any
regulatory obligation to utilize them. All Market Makers that
voluntarily select the Purge Port service will be charged the same
amount for the same respective services.
As Purge Ports are only available for purging and not for
activities such as order or quote entry, the Purge Ports are not
designed to permit unfair discrimination but rather are designed to
enable Market Makers to manage their quoting risk and meet their
heightened quoting obligations that other market participants are not
subject to, which, in turn, benefits all market participants. The
Exchange believes the proposed fee increase will continue to encourage
better use of dedicated Purge Ports. This may, concurrent with the
ports that carry quotes and other information necessary for market
making activities, enable more efficient, as well as fair and
reasonable, use of Market Makers' resources. The Exchange also believes
that the proposed fee increase is non-discriminatory because the
proposed Purge Port fees will apply uniformly to all Market Makers.
Purge Ports are completely voluntary and no Market Maker is required or
under any regulatory obligation to utilize them. All Market Makers that
voluntarily request this service will be charged the same amount for
the same service. Separately, the Exchange is not aware of any reason
why market participants could not simply drop their Purge Ports if the
Exchange were to establish unreasonable prices for its Purge Ports
that, in the determination of such market participant, did not make
business or economic sense for such market participant. No options
market participant is required by rule, regulation, or competitive
forces to utilize Purge Ports. As evidence of the fact that market
participants can and do drop their access to exchanges based on non-
transaction fee pricing, R2G Services LLC (``R2G'') filed a comment
letter after BOX's proposed rule changes to increase its connectivity
fees (SR-BOX-2018-24, SR-BOX-2018-37, and SR-BOX-2019-04). The R2G
Letter stated, ``[w]hen BOX instituted a $10,000/month price increase
for connectivity; we had no choice but to terminate connectivity into
them as well as terminate our market data relationship. The cost
benefit analysis just didn't make any sense for us at those new
levels.'' Similarly, the Exchange noted in a recent filing that once it
issued a notice that it was adopting Trading Permit fees, among other
non-transaction fees, one Member dropped its access to the Exchange as
a result of those fees.\19\ Accordingly, these examples show that if an
exchange sets too high of a fee for non-transaction fees for its
relevant marketplace, market participants can choose to no longer
access that particular exchange.
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\19\ See Securities Exchange Act Release No. 91033 (February 1,
2021), 86 FR 8455 (February 5, 2021) (SR-EMERALD-2021-03).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
The Exchange believes the proposed rule change does not impose any
burden intra-market competition because the use of Purge Ports is an
optional service offered by the Exchange and no Market Maker is
required or under any regulatory obligation to utilize them. The
Exchange offers Purge Ports as a package and provides Market Makers
with the option to receive up to two (2) Purge Ports per matching
engine to which it connects via a Full Service MEI Port. The Exchange
currently has twelve (12) matching engines which means Market Makers
may receive up to twenty-four (48) Purge Ports for a single monthly
fee. The Exchange does not believe that the proposed change represents
a significant departure from previous pricing offered by the Exchange
or pricing offered by the Exchange's competitors. Additionally, Market
Makers may opt to disfavor the Exchange's pricing if they believe that
alternatives offer them better value. Accordingly, the Exchange does
not believe that the proposed change will impair the ability of Market
Makers or competing venues to maintain their competitive standing in
the financial markets.
The Exchange believes that fees for the proposed Purge Ports and
connectivity, in general, are constrained by the robust competition for
order flow among exchanges and non-exchange markets. Further, excessive
fees for connectivity, including Purge Port fees, would serve to impair
an exchange's ability to compete for order flow rather than burdening
competition. The Exchange also does not believe the proposed rule
change would impact intramarket competition as it would apply to all
Market Makers equally.
The Exchange also does not believe that the proposed rule change
will result in any burden on inter-market competition that is not
necessary or appropriate in furtherance of the purposes of the Act. The
Exchange operates in a highly competitive environment, and as discussed
above, its ability to price access and ports is constrained by
competition among exchanges and third parties. There are 15 other U.S.
options exchanges, which the Exchange must consider in its pricing
discipline in order to compete for market participants. In this
competitive environment, market participants are free to choose which
competing exchange to use to satisfy their business needs. As a result,
the Exchange believes this proposed rule change permits fair
competition among national securities exchanges.
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Accordingly, the Exchange does not believe its proposed fee changes
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act,\20\ and Rule 19b-4(f)(2) \21\ thereunder.
At any time within 60 days of the filing of the proposed rule change,
the Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act. If the Commission takes such
action, the Commission shall institute proceedings to determine whether
the proposed rule should be approved or disapproved.
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\20\ 15 U.S.C. 78s(b)(3)(A)(ii).
\21\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#d1a3a4bdb4fcb2bebcbcb4bfa5a291a2b4b2ffb6bea7"><span class="__cf_email__" data-cfemail="e795928b82ca84888a8a82899394a7948284c9808891">[email protected]</span></a>. Please include
File Number SR-EMERALD-2021-22 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-EMERALD-2021-22.
This file number should be included on the subject line if email is
used. To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for website
viewing and printing in the Commission's Public Reference Room, 100 F
Street NE, Washington, DC 20549, on official business days between the
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be
available for inspection and copying at the principal office of the
Exchange. All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-EMERALD-2021-22 and should
be submitted on or before August 5, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15032 Filed 7-14-21; 8:45 am]
BILLING CODE 8011-01-P
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