Notice2021-15037
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change by MIAX PEARL, LLC To Amend the MIAX Pearl Options Fee Schedule
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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 37388-37391]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15037]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92367; File No. SR-PEARL-2021-31]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change by MIAX PEARL,
LLC To Amend the MIAX Pearl Options Fee Schedule
July 9, 2021.
Pursuant to the provisions of 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 Options
Fee Schedule (the ``Fee Schedule'').
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 proposes to amend the Add/Remove Tiered Rebates/Fees
set forth in Section 1)a) of the Fee Schedule that apply to the MIAX
Pearl Market Maker \3\ Origin, to modify the volume threshold for the
alternative Volume Criteria in Tier 3.
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\3\ ``Market Maker'' means a Member registered with the Exchange
for the purpose of making markets in options contracts traded on the
Exchange and that is vested with the rights and responsibilities
specified in Chapter VI of Exchange Rules. See the Definitions
Section of the Fee Schedule.
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Background
The Exchange currently assesses transaction rebates and fees to all
market participants which are based upon the total monthly volume
[[Page 37389]]
executed by the Member \4\ on MIAX Pearl in the relevant, respective
origin type (not including Excluded Contracts) \5\ (as the numerator)
expressed as a percentage of (divided by) TCV \6\ (as the denominator).
In addition, the per contract transaction rebates and fees are applied
retroactively to all eligible volume for that origin type once the
respective threshold tier (``Tier'') has been reached by the Member.
The Exchange aggregates the volume of Members and their Affiliates.\7\
Members that place resting liquidity, i.e., orders resting on the book
of the MIAX Pearl System,\8\ are paid the specified ``maker'' rebate
(each a ``Maker''), and Members that execute against resting liquidity
are assessed the specified ``taker'' fee (each a ``Taker''). For
opening transactions and ABBO \9\ uncrossing transactions, per contract
transaction rebates and fees are waived for all market participants.
Finally, Members are assessed lower transaction fees and receive lower
rebates for order executions in standard option classes in the Penny
Interval Program \10\ (``Penny Classes'') than for order executions in
standard option classes which are not in the Penny Interval Program
(``Non-Penny Classes''), where Members are assessed higher transaction
fees and receive higher rebates.
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\4\ ``Member'' means an individual or organization that is
registered with the Exchange pursuant to Chapter II of the 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.
\5\ ``Excluded Contracts'' means any contracts routed to an away
market for execution. See the Definitions Section of the Fee
Schedule.
\6\ ``TCV'' means total consolidated volume calculated as the
total national volume in those classes listed on MIAX Pearl for the
month for which the fees apply, excluding consolidated volume
executed during the period time in which the Exchange experiences an
``Exchange System Disruption'' (solely in the option classes of the
affected Matching Engine (as defined below)). The term Exchange
System Disruption, which is defined in the Definitions section of
the Fee Schedule, means an outage of a Matching Engine or collective
Matching Engines for a period of two consecutive hours or more,
during trading hours. The term Matching Engine, which is also
defined in the Definitions section of the Fee Schedule, is a part of
the MIAX Pearl 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
(for example, options on SPY may be processed by one single Matching
Engine that is dedicated only to SPY). 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. The Exchange believes that it is reasonable and appropriate
to select two consecutive hours as the amount of time necessary to
constitute an Exchange System Disruption, as two hours equates to
approximately 1.4% of available trading time per month. The Exchange
notes that the term ``Exchange System Disruption'' and its meaning
have no applicability outside of the Fee Schedule, as it is used
solely for purposes of calculating volume for the threshold tiers in
the Fee Schedule. See the Definitions Section of the Fee Schedule.
\7\ ``Affiliate'' means (i) an affiliate of a Member of at least
75% common ownership between the firms as reflected on each firm's
Form BD, Schedule A, or (ii) the Appointed Market Maker of an
Appointed EEM (or, conversely, the Appointed EEM of an Appointed
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market
Maker (who does not otherwise have a corporate affiliation based
upon common ownership with an EEM) that has been appointed by an EEM
and an ``Appointed EEM'' is an EEM (who does not otherwise have a
corporate affiliation based upon common ownership with a MIAX PEARL
Market Maker) that has been appointed by a MIAX Pearl Market Maker,
pursuant to the process described in the Fee Schedule. See the
Definitions Section of the Fee Schedule.
\8\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\9\ ``ABBO'' means the best bid(s) or offer(s) disseminated by
other Eligible Exchanges (defined in Exchange Rule 1400(g) and
calculated by the Exchange based on market information received by
the Exchange from OPRA. See the Definitions Section of the Fee
Schedule and Exchange Rule 100.
\10\ See Securities Exchange Act Release No. 88992 (June 2,
2020), 85 FR 35142 (June 8, 2020) (SR-PEARL-2020-06).
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Alternative Volume Criteria Threshold Change in Tier 3
The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees
set forth in Section 1)a) of the Fee Schedule that apply to the MIAX
Pearl Market Maker Origin, to modify the volume threshold for the
alternative Volume Criteria in Tier 3. The MIAX Pearl Market Maker
Origin currently provides an alternative Volume Criteria in Tier 3,
which is based upon the total monthly volume executed in SPY options on
MIAX Pearl by a Market Maker when adding liquidity. Pursuant to this
alternative Volume Criteria, Market Makers will qualify for: (i) Maker
rebates of ($0.44) in SPY, QQQ and IWM options for their Market Maker
Origin when trading against Origins not Priority Customer, and (ii)
Maker rebates of ($0.42) in SPY, QQQ and IWM options for their Market
Maker Origin when trading against Priority Customer Origins, if the
Market Maker executes at least 1.10% [sic] in SPY options when adding
liquidity as a percent of SPY TCV. The alternative Volume Criteria in
Tier 3 is denoted by footnote ``[lozf]'' following the Origin tables in
Section 1)a) of the Fee Schedule.
The Exchange proposes to modify the threshold for the alternative
Volume Criteria in Tier 3 of the Market Maker Origin from 1.20% to
1.10%. Accordingly, with the proposed change to the alternative Volume
Criteria in Tier 3, Maker Makers will qualify for: (i) Maker rebates of
($0.44) in SPY, QQQ and IWM options for their Market Maker Origin when
trading against Origins not Priority Customer, and (ii) Maker rebates
of ($0.42) in SPY, QQQ and IWM options for their Market Maker Origin
when trading against Priority Customer Origins, if the Market Maker
executes at least 1.10% in SPY options when adding liquidity as a
percent of SPY TCV. Other Penny classes and Non-Penny classes will
receive the Tier 3 rates in the Market Maker Origin table. The Exchange
will continue to calculate the alternative Volume Criteria in Tier 3
(above 1.10% in SPY when Adding Liquidity), based on the total monthly
volume that added liquidity that is executed by the Market Maker solely
in SPY options on MIAX Pearl, not including Excluded Contracts, (as the
numerator) expressed as a percentage of (divided by) SPY TCV \11\ (as
the denominator). The Exchange notes that Market Makers that achieve
the standard Tier 3 volume percentage but do not qualify for the
alternative Volume Criteria in that Tier, will continue to receive the
Tier 3 rates in the Market Maker Origin table in Penny Classes and Non-
Penny Classes. Members will continue to receive the highest tier based
on the thresholds achieved. The Exchange proposes to make the
corresponding change to the volume threshold percentage described in
the explanatory paragraph in footnote ``[lozf]'' for the alternative
Volume Criteria for Tier 3 that is below the tables in Section (1)(a)
of the Fee Schedule.
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\11\ ``SPY TCV'' means total consolidated volume in SPY
calculated as the total national volume in SPY for the month for
which the fees apply, excluding consolidated volume executed during
the period of time in which the Exchange experiences an Exchange
System Disruption (solely in SPY options). See the Definitions
Section of the Fee Schedule.
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The purpose of this proposed change is for business and competitive
reasons. With the proposed change, Members should more easily qualify
for the Alternative Volume criteria in Tier 3 in order to receive the
higher Maker rebates associated with SPY, QQQ and IWM options. The
Exchange believes the proposed change should incentivize Market Makers
to improve their posted liquidity to the benefit of the entire market,
which should increase order flow sent to the Exchange, benefiting all
market participants through increased liquidity, tighter markets and
order interaction. Additionally, as the amount and type of volume that
is executed on the Exchange has shifted since it first established the
alternative Volume Criteria in Tier 3, the Exchange has
[[Page 37390]]
determined to level-set this threshold amount so that it is more
reflective of the current type and amount of volume executed on the
Exchange.
The Exchange cannot predict with certainty how many Market Makers
would achieve the alternative Tier 3 Volume Criteria with the decreased
threshold percentage, but anticipates that each Market Maker that is
currently in Tier 3 with that alternative method will likely continue
to reach that Tier due to that change.
The Exchange has designated these changes to be operative 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 \12\ in general, and
furthers the objectives of Section 6(b)(4) of the Act,\13\ in that it
is an equitable allocation of reasonable dues, fees and other charges
among Exchange members and issuers and other persons using its
facilities, and 6(b)(5) of the Act,\14\ in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanisms of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4).
\14\ 15 U.S.C. 78f(b)(1) and (b)(5).
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The Exchange believes its proposal to modify the volume threshold
for the alternative Volume Criteria in Tier 3 provides for the
equitable allocation of reasonable dues and fees and is not unfairly
discriminatory for the following reasons. The Exchange operates in a
highly competitive market. The Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. 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.'' \15\ There are currently
16 registered options exchanges competing for order flow. Based on
publicly-available information, and excluding index-based options, no
single exchange has more than approximately 15% of the market share of
executed volume of multiply-listed equity and ETF options trades as of
June 29, 2021, for the month of June 2021.\16\ Therefore, no exchange
possesses significant pricing power in the execution of multiply-listed
equity and ETF options order flow. More specifically, as of June 29,
2021, the Exchange had an approximately 5.32% market share of executed
volume of multiply-listed equity and ETF options for the month of June
2021.\17\
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\15\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
\16\ See <a href="https://www.cboe.com/us/options/market_share/">https://www.cboe.com/us/options/market_share/</a>.
\17\ See id.
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The Exchange believes that the ever-shifting market shares among
the exchanges from month to month demonstrates that market participants
can shift order flow, or discontinue or reduce use of certain
categories of products, in response to transaction and/or non-
transaction fee changes. For example, on February 28, 2019, the
Exchange filed with the Commission a proposal to increase Taker fees in
certain Tiers for options transactions in certain Penny classes for
Priority Customers and decrease Maker rebates in certain Tiers for
options transactions in Penny classes for Priority Customers (which fee
was to be effective March 1, 2019).\18\ The Exchange experienced a
decrease in total market share between the months of February and March
of 2019, after the fees were in effect. Accordingly, the Exchange
believes that the March 1, 2019 fee change may have contributed to the
decrease in the Exchange's market share and, as such, the Exchange
believes competitive forces constrain options exchange transaction fees
and market participants can shift order flow based on fee changes
instituted by the exchanges.
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\18\ See Securities Exchange Act Release No. 85304 (March 13,
2019), 84 FR 10144 (March 19, 2019) (SR-PEARL-2019-07).
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The Exchange believes its proposal to modify the volume threshold
for the alternative Volume Criteria in Tier 3 is reasonable, equitable,
and not unfairly discriminatory because Members should more easily
qualify for the Alternative Volume criteria in Tier 3, receiving higher
Maker rebates associated with SPY, QQQ and IWM options. The Exchange
believes the proposed change is reasonable because it should
incentivize Market Makers to improve their posted liquidity to the
benefit of the entire market, which should increase order flow sent to
the Exchange, benefiting all market participants through increased
liquidity, tighter markets and order interaction. Additionally, as the
amount and type of volume that is executed on the Exchange has shifted
since it first established the alternative Volume Criteria in Tier 3,
the Exchange has determined to level-set this threshold amount so that
it is more reflective of the current type and amount of volume executed
on the Exchange.
The Exchange believes the alternative Volume Criteria in Tier 3 is
reasonable, equitable, and not unfairly discriminatory because it is a
form of pricing already adopted by the Exchange \19\ and a form of
pricing based upon trading activity in a select group of symbols, which
is a common practice on many U.S. options exchanges as a means to
incentivize order flow to be sent to an exchange for execution in
actively traded options classes. The Exchange's affiliate, Miami
International Securities Exchange, LLC (``MIAX''), offers
differentiated pricing for transactions in options underlying certain
select symbols.\20\ Other options exchanges' fee schedules distinguish
by symbol and specifically assess different fees and rebates for
transactions in select symbols for the same market participants.\21\
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\19\ See generally, Section (1)(a) of the Fee Schedule for
Market Maker Origin.
\20\ See MIAX Options Fee Schedule, Section (1)(a)(iii).
\21\ See Nasdaq ISE, LLC (``ISE'') Fee Schedule, Section 3,
Regular Order Fees and Rebates. The ISE Fee Schedule provides for a
``Market Maker Plus'' program for Select and Non-Select Symbols,
with tiered incentives for Market Makers. Further, the ISE Fee
Schedule provides for a linked maker rebate for SPY, QQQ and IWM, in
which the linked maker rebate applies to executions in SPY, QQQ, and
IWM if the ISE Market Maker does not achieve the applicable tier in
that symbol but achieves the tier (i.e., any of the Market Maker
Plus Tiers 2-4) for any badge/suffix combination in the other linked
symbol, in which case the higher tier achieved applies to both
symbols.
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The Exchange also believes that its proposal is not unfairly
discriminatory as all Market Makers can continue to qualify for the
alternative Volume Criteria in Tier 3 by meeting the lowered threshold
amount, which is designed to incentivize Market Makers to maintain
quality markets. In addition, the Exchange continues to believe that it
is not unfairly discriminatory to offer rebates pursuant to this
proposal to only Market Makers because Market Makers add value through
continuous quoting and are subject to additional requirements and
obligations (such as quoting obligations) that other market
participants are not.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose
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any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act.
The Exchange believes its proposal will not impose any burden on
intra-market competition because the Exchange believes that its
proposal will not place any category of Exchange market participant at
a competitive disadvantage. The proposal to modify the volume threshold
for the alternative Volume Criteria in Tier 3 is intended to improve
market quality. The Exchange believes that its proposal will encourage
Market Makers to improve market quality by providing the additional
incentive to Market Makers in SPY, QQQ and IWM options for Market
Makers that send additional SPY orders, which results in narrower bid-
ask spreads and increased depth of liquidity. This in turn will attract
additional order flow to the Exchange. Accordingly, the Exchange
believes that the proposed changes will continue to attract order flow
to the Exchange, thereby encouraging additional volume and liquidity to
the benefit of all market participants.
The Exchange believes its proposal will not impose any burden on
inter-market competition because the Exchange notes that it operates in
a highly competitive market in which market participants can readily
favor competing venues if they deem fee levels at a particular venue to
be excessive, or rebate opportunities available at other venues to be
more favorable. In such an environment, the Exchange must continually
adjust its fees to remain competitive with other options exchanges.
Because competitors are free to modify their own fees in response, and
because market participants may readily adjust their order routing
practices, the Exchange believes that the degree to which fee changes
in this market may impose any burden on competition is extremely
limited. The Exchange believes that the proposed rule changes reflect
this competitive environment because they modify the Exchange's fees in
a manner that encourages market participants to continue to provide
liquidity and to send order flow to the Exchange.
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 240.19-4(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#295b5c454c044a4644444c475d5a695a4c4a074e465f"><span class="__cf_email__" data-cfemail="f381869f96de909c9e9e969d8780b3809690dd949c85">[email protected]</span></a>. Please include
File Number SR-PEARL-2021-31 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-2021-31. 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-2021-31, and should be submitted
on or before August 5, 2021.
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\24\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15037 Filed 7-14-21; 8:45 am]
BILLING CODE 8011-01-P
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