Notice2021-25014
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Section 1(a)(ii) of the Fee Schedule To Revise the Application of the Tier Calculation
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Published
November 17, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 219 (Wednesday, November 17, 2021)</title>
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[Federal Register Volume 86, Number 219 (Wednesday, November 17, 2021)]
[Notices]
[Pages 64280-64283]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25014]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93549; File No. SR-EMERALD-2021-39]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Section 1(a)(ii) of the Fee Schedule To Revise the Application of the
Tier Calculation
November 10, 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 October 29, 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 MIAX Emerald 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/emerald">http://www.miaxoptions.com/rule-filings/emerald</a>, at MIAX's
principal office, and at the Commission's Public Reference Room.
[[Page 64281]]
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 Section 1(a)(ii) of the Fee Schedule
to revise the application of the Tier calculation (defined below).
Background
The Exchange currently assesses transaction rebates and fees to all
market participants which are based upon a threshold tier structure
(``Tier'') that is applicable to transaction fees. Tiers are determined
on a monthly basis and are based on three alternative calculation
methods, as defined in Section 1(a)(ii) of the Fee Schedule. The first
calculation (``Method 1'') is total Member sides, based on % of
Customer Total Consolidated Volume (``CTCV''); \3\ the second
calculation (``Method 2'') is total Emerald Market Maker sides volume,
based on % of CTCV; and the third calculation (``Method 3'') is total
Priority Customer,\4\ Maker (defined below) sides volume, based on % of
CTCV. The calculation method that results in the highest Tier achieved
by the Member \5\ shall apply to all Origin types by the Member. The
monthly volume thresholds for each method, associated with each Tier,
are calculated as the total monthly volume executed by the Member in
all options classes on MIAX Emerald in the relevant Origins and/or
applicable liquidity, not including Excluded Contracts,\6\ (as the
numerator) expressed as a percentage of (divided by) CTCV (as the
denominator). In addition, the per contract transaction rebates and
fees shall be applied retroactively to all eligible volume once the
Tier has been reached by the Member. Members that place resting
liquidity, i.e., orders on the MIAX Emerald System, will be assessed
the specified ``maker'' rebate or fee (each a ``Maker'') and Members
that execute against resting liquidity will be assessed the specified
``taker'' fee or rebate (each a ``Taker'').\7\ Members are also
assessed lower transaction fees and smaller rebates for order
executions in standard option classes in the Penny Interval Program \8\
(``Penny classes'') than for order executions in standard option
classes which are not in the Penny Program (``non-Penny classes''), for
which Members will be assessed higher transaction fees and larger
rebates.
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\3\ ``CTCV'' means Customer Total Consolidated Volume calculated
as the total national volume cleared at The Options Clearing
Corporation in the Customer range in those classes listed on MIAX
Emerald for the month for which fees apply, excluding volume cleared
at the Options Clearing Corporation in the Customer range executed
during the period of time in which the Exchange experiences an
Exchange System Disruption (solely in the option classes of the
affected Matching Engine). See the Definitions Section of the MIAX
Emerald Fee Schedule. The term ``Exchange System Disruption'' means
an outage of a Matching Engine or collective Matching Engines for a
period of two consecutive hour or more, during trading hours. See
id. A ``Matching Engine'' is 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 (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. Id.
\4\ ``Priority Customer'' means a person or entity that (i) is
not a broker or dealer in securities, and (ii) does not place more
than 390 orders in listed options per day on average during a
calendar month for its own beneficial account(s). See Exchange Rule
100, including Interpretation and Policy .01.
\5\ ``Member'' means an individual or organization approved to
exercise the trading rights associated with a Trading Permit.
Members are deemed ``members'' under the Exchange Act. See the
Definitions Section of the Fee Schedule and Exchange Rule 100.
\6\ ``Excluded Contracts'' means any contracts routed to an away
market for execution. See the Definitions Section of the Fee
Schedule.
\7\ For a Priority Customer complex order taking liquidity in
both a Penny class and non-Penny class against Origins other than
Priority Customer, the Priority Customer order will receive a rebate
based on the Tier achieved.
\8\ See Securities Exchange Act Release No. 88993 (June 2,
2020), 85 FR 35145 (June 8, 2020) (SR-EMERALD-2020-05) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Exchange Rule 510, Minimum Price Variations and Minimum
Trading Increments, To Conform the Rule to Section 3.1 of the Plan
for the Purpose of Developing and Implementing Procedures Designed
To Facilitate the Listing and Trading of Standardized Options) (the
``Penny Program'').
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Proposal
The Exchange proposes to amend the application of the calculation
methodology used to determine the applicable Tier for Origin types by
Member as follows. The Tier applied for a Member and its Affiliates'
\9\ Priority Customer Origin will solely be determined by Method 3,
Total Priority Customer, Maker sides volume, based on % of CTCV. The
Tier applied for a Member and its Affiliates' Market Maker and other
professional Origins will be the highest Tier achieved among the three
alternative calculation methods.
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\9\ ``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 Emerald
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
Emerald Market Maker) that has been appointed by a MIAX Emerald
Market Maker, pursuant to the following process. A MIAX Emerald
Market Maker appoints an EEM and an EEM appoints a MIAX Emerald
Market Maker, for the purposes of the Fee Schedule, by each
completing and sending an executed Volume Aggregation Request Form
by email to <a href="/cdn-cgi/l/email-protection#4c2129212e293e3f24253c0c21252d34233c382523223f622f2321"><span class="__cf_email__" data-cfemail="1a777f77787f686972736a5a77737b62756a6e7375746934797577">[email protected]</span></a> no later than 2 business days
prior to the first business day of the month in which the
designation is to become effective. Transmittal of a validly
completed and executed form to the Exchange along with the
Exchange's acknowledgement of the effective designation to each of
the Market Maker and EEM will be viewed as acceptance of the
appointment. The Exchange will only recognize one designation per
Member. A Member may make a designation not more than once every 12
months (from the date of its most recent designation), which
designation shall remain in effect unless or until the Exchange
receives written notice submitted 2 business days prior to the first
business day of the month from either Member indicating that the
appointment has been terminated. Designations will become operative
on the first business day of the effective month and may not be
terminated prior to the end of the month. Execution data and reports
will be provided to both parties. See the Definitions Section of the
MIAX Emerald Fee Schedule.
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The Exchange proposes to amend the current text in Section
1(a)(ii), Tiers and their Application, to read, ``Tiers are determined
on a monthly basis. Tiers are determined based on three (3) alternative
calculation methods. The Tier applied for a Member and its Affiliates'
Priority Customer Origin will solely be determined by Method 3 below.
The Tier applied for a Member and its Affiliates' Market Maker and
other professional Origins will be the highest Tier achieved among the
three alternative calculation methods. Following are the three (3)
alternative calculation methods:''
For example, under this proposal, if Member A reaches Tier 2 via
Total Volume (Method 1); Tier 2 via Market Maker Volume (Method 2); and
Tier 4 via Priority Customer Maker (Method 3); the effective Tier for
Member A would be Tier 4 across all Origins. If Member B reaches Tier 3
via Total Volume
[[Page 64282]]
(Method 1); Tier 4 via Market Maker Volume (Method 2); and Tier 2 via
Priority Customer Maker (Method 3); their effective Tier will be Tier 4
for Market Maker and other professional Origins, and Priority Customer
Origin will remain Tier 2.
The purpose of adjusting the application of the calculation
methodology used to determine the applicable Tier for Origin types by
Member is for business and competitive reasons. The Exchange designed
the current calculation methodology to encourage Market Maker and
Priority Customer order flow to the Exchange from its inception. The
Exchange believes that this proposal continues to incentive all types
of volume to the Exchange including Market Maker, professional, and
Priority Customer.
Implementation
The proposed changes will become effective on November 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 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,\12\ 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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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4).
\12\ 15 U.S.C. 78f(b)(1) and (b)(5).
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The Exchange believes that its proposal 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.'' \13\ 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 13% of the market share of
executed volume of multiply-listed equity and exchange-traded fund
(``ETF'') options trades as of October 26, 2021, for the month of
October 2021.\14\ Therefore, no exchange possesses significant pricing
power in the execution of multiply-listed equity and ETF options order
flow. More specifically, as of October 26, 2021, the Exchange had an
approximately 4.66% market share of executed volume of multiply-listed
equity and ETF options for the month of October 2021.\15\ The Exchange
cannot predict with certainty how the proposed change regarding the
application of the Tier calculation will affect market participants as
Members may continually shift among the different Tiers from month to
month.
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\13\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
\14\ See MIAX's ``The Market at a Glance'', available at <a href="https://www.miaxoptions.com/">https://www.miaxoptions.com/</a> (last visited October 26, 2021).
\15\ 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's affiliate, MIAX PEARL, LLC (``MIAX Pearl''), 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).\16\ MIAX Pearl experienced a decrease in total market
share for the month of March 2019, after the proposal went into effect.
Accordingly, the Exchange believes that the MIAX Pearl March 1, 2019
fee change, to increase certain transaction fees and decrease certain
transaction rebates, may have contributed to the decrease in MIAX
Pearl's market share and, as such, the Exchange believes competitive
forces constrain the Exchange's, and other options exchanges, ability
to set transaction fees and market participants can shift order flow
based on fee changes instituted by the exchanges.
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\16\ 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 revise the application of the
Tier calculation to determine the Origin type Tier provides for the
equitable allocation of reasonable dues and fees and is not unfairly
discriminatory for the following reasons. The Exchange is only changing
the application of the Tier calculation for the Tier for Members and
its Affiliates' Priority Customer Origin, which will solely be
determined by Priority Customer, Maker sides volume, based on % of CTCV
(Method 3). The Exchange believes that it is equitable and not unfairly
discriminatory to calculate the Priority Customer Tier independently
and to only use the Priority Customer Tier for all Origin types when it
is the highest of all the Tier calculations as this may incentivize
Members to increase their Priority Customer volume on the Exchange. An
increase in Priority Customer order flow to the Exchange would create
additional liquidity which would benefit all market participants who
trade on the Exchange.
The Exchange believes its proposal is consistent with Section
6(b)(4) of the Act \17\ because it applies equally to all Members of
the Exchange and similarly situated participants are subject to the
same Tier calculations and access to the Exchange is offered on terms
that are not unfairly discriminatory. The Exchange believes its
proposal may result in increased Priority Customer order flow which
liquidity benefits all Exchange participants by providing more trading
opportunities and tighter spreads.
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\17\ 15 U.S.C. 78f(b)(4).
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In addition, The Exchange believes that its proposal is consistent
with Section 6(b) (5) of the Act \18\ because it perfects the
mechanisms of a free and open market and a national market system and
protects investors and the public interest because an increase in
Priority Customer order flow will bring greater volume and liquidity to
the Exchange, which benefits all market participants by providing more
trading opportunities and tighter spreads.
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\18\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange believes that the
proposed changes in the application of the Tier
[[Page 64283]]
calculation should continue to encourage liquidity that enhances the
quality of the Exchange's market and increases the number of trading
opportunities on the Exchange for all participants who will be able to
compete for such opportunities.
Intra-Market Competition
The Exchange does not believe that other market participants at the
Exchange would be placed at a relative disadvantaged by the proposed
change to amend the application of the calculation methodology used to
determine the applicable Tier for Origin types by Member. The proposed
change is designed to attract additional Priority Customer order flow
to the Exchange. Accordingly, the Exchange believes that the proposal
will not impose any burden on competition not necessary or appropriate
in furtherance of the purposes of the Act because it will continue to
encourage Priority Customer order flow to the Exchange and an increase
in Priority Customer order flow will bring greater volume and
liquidity, which benefits all market participants by providing more
trading opportunities and tighter spreads.
Inter-Market Competition
The Exchange 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. 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 exceeded approximately 13% of the market share of
executed volume of multiply-listed equity and ETF options trades as of
October 26, 2021, for the month of October 2021.\19\ Therefore, no
exchange possesses significant pricing power in the execution of
multiply-listed equity and ETF options order flow. More specifically,
as of October 26, 2021, the Exchange had a market share of
approximately 4.66% of executed volume of multiply-listed equity and
ETF options for the month of October 2021.\20\ In such an environment,
the Exchange must continually adjust its transaction and non-
transaction fees to remain competitive with other exchanges and to
attract order flow. 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
provide Priority Customer liquidity and to send order flow to the
Exchange. To the extent this is achieved, all the Exchange's market
participants should benefit from the improved market quality.
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\19\ Supra note 14.
\20\ See id.
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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,\21\ and Rule 19b-4(f)(2) \22\ 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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\21\ 15 U.S.C. 78s(b)(3)(A)(ii).
\22\ 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#6614130a034b05090b0b030812152615030548010910"><span class="__cf_email__" data-cfemail="f88a8d949dd59b9795959d968c8bb88b9d9bd69f978e">[email protected]</span></a>. Please include
File Number SR-EMERALD-2021-39 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-2021-39. 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-2021-39 and should be submitted
on or before December 8, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25014 Filed 11-16-21; 8:45 am]
BILLING CODE 8011-01-P
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