Notice2021-15033
Self-Regulatory Organizations; MIAX PEARL, 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
Full Text
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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 37376-37379]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15033]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92363; File No. SR-PEARL-2021-30]
Self-Regulatory Organizations; MIAX PEARL, 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 PEARL, LLC (``MIAX Pearl'' 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 MIAX Pearl Fee
Schedule (the ``Fee Schedule'') to amend the fees for MIAX Express
Network (``MEO'') \3\ Purge Ports.\4\
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\3\ ``MEO Interface'' or ``MEO'' means a binary order interface
for certain order types as set forth in Rule 516 into the MIAX Pearl
System. See the Definitions Section of the Fee Schedule and Exchange
Rule 100.
\4\ See the Definitions Section of the Fee Schedule.
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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/pearl">http://www.miaxoptions.com/rule-filings/pearl</a> at MIAX
Pearl'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 Members \5\ the option to purchase
Purge Ports to assist in their order activity. Purge Ports provide
Members with the ability to send quote purge messages to the MIAX Pearl
System.\6\ 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 Member
utilize them.
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\5\ The term ``Member'' means an individual or organization that
is registered with the Exchange pursuant to Chapter II of Exchange
Rules for purposes of trading on the Exchange as an ``Electronic
Exchange Member'' or ``Market Maker.'' Members are deemed
``members'' under the Exchange Act. See the Definitions Section of
the Fee Schedule and Exchange Rule 100.
\6\ 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
[[Page 37377]]
Section (5)(d) of the Fee Schedule. Unlike other options exchanges that
provide purge port functionality and charge fees on a per port
basis,\7\ the Exchange offers Purge Ports as a package and provides
Members with the option to receive up to two (2) Purge Ports per
matching engine \8\ to which it connects via an MEO Purge Port. The
Exchange currently has twelve (12) matching engines, which means
Members may receive up to twenty-four (24) Purge Ports for a single
monthly fee. The Exchange currently assesses Members a fee of $750 per
month, regardless of the number of Purge Ports allocated to the Member.
Assuming a Member connects to all twelve (12) matching engines during a
month, with two Purge Ports per matching engine, this results in a cost
of $31.25 per Purge Port ($750 divided by 24) for the month. This fee
has been unchanged since the Exchange adopted Purge Port fees in
2018.\9\ The Exchange now proposes to increase the fee to $7,500 per
month. Members 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 Member 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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\7\ 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.
\8\ A ``matching engine'' is a part of the MIAX Pearl electronic
system that processes options quotes and trades on a symbol-by-
symbol basis. Some matching engines will process option classes with
multiple root symbols, and other matching engines will 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, Section 5)d)ii), note 29.
\9\ See Securities Exchange Act Release No. 83867 (March 13,
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
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The Exchange has historically undercharged for Purge Port as
compared to other options exchanges \10\ 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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\10\ See supra note 7.
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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 \11\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \12\ 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 \13\ 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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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4).
\13\ 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 Member two (2) Purge Ports for
each matching engine to which that Member is connected. The Exchange
currently has twelve (12) matching engines. Accordingly, each Member
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 $31.25 per Purge Port
($750 divided by 24). This flat fee has remain unchanged since the
Exchange adopted fees for Purge Ports in 2018.\14\ 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
Member) 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,\15\ and Nasdaq GEMX
assesses its members $1,250 per SQF Purge Port per month.\16\ 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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\14\ See supra note 9.
\15\ See supra note 7. 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.
\16\ See supra note 7.
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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 4.98% of the market share.\17\ 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.'' \18\ 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,\19\ in that it provides for
the equitable allocation of reasonable dues, fees and other charges
among Members and other
[[Page 37378]]
persons using any facility or system which the Exchange operates or
controls because Purge Ports are optional functionality offered to
Members. 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 the fees assessed by other exchanges that provide similar
functionality.\20\ Indeed, if the Exchange 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 Members are not required by rule or regulation to
purchase Purge Ports. It is entirely a business decision of each Member
that determines to purchase Purge Ports.
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\17\ See MIAX's ``The Market at a Glance'', available at <a href="https://www.miaxoptions.com/">https://www.miaxoptions.com/</a> (last visited June 30, 2021).
\18\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
\19\ 15 U.S.C. 78f(b)(4).
\20\ See supra note 7.
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Additionally, Members are not precluded from using the existing
purge messages provided by either the MEO protocol or the cancel
messages provided by the FIX protocol. Under the MEO protocol, Members
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, Members 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
Members that choose to use dedicated Purge Ports. Purge Ports are
completely voluntary and, as they relate solely to optional risk
management functionality, no Member is required or under any regulatory
obligation to utilize them. All Members 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 Members to better manage their market risk, 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 orders and other
information necessary for market making activities, enable more
efficient, as well as fair and reasonable, use of Members' resources.
The Exchange also believes that the proposed fee increase is non-
discriminatory because the proposed Purge Port fees will apply
uniformly to all Members. Purge Ports are completely voluntary and no
Member is required or under any regulatory obligation to utilize them.
All Members 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's affiliate, MIAX Emerald, LLC
(``MIAX Emerald''), noted in a recent filing that once MIAX Emerald
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.\21\ 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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\21\ 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 Member is required or
under any regulatory obligation to utilize them. The Exchange offers
Purge Ports as a package and provides Members with the option to
receive up to two (2) Purge Ports per matching engine to which it
connects via an MEO Port. The Exchange currently has twelve (12)
matching engines which means Members may receive up to twenty-four (24)
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, Members 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 Members 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
Members 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
[[Page 37379]]
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. 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,\22\ and Rule 19b-4(f)(2) \23\ 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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\22\ 15 U.S.C. 78s(b)(3)(A)(ii).
\23\ 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#0c7e796069216f6361616962787f4c7f696f226b637a"><span class="__cf_email__" data-cfemail="3f4d4a535a125c5052525a514b4c7f4c5a5c11585049">[email protected]</span></a>. Please include
File Number SR-PEARL-2021-30 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-PEARL-2021-30. 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-PEARL-2021-30 and should be submitted on
or before August 5, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15033 Filed 7-14-21; 8:45 am]
BILLING CODE 8011-01-P
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