Notice2022-05145
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX Emerald Fee Schedule To Amend the Excessive Quoting Fee
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Published
March 11, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 48 (Friday, March 11, 2022)</title>
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[Federal Register Volume 87, Number 48 (Friday, March 11, 2022)]
[Notices]
[Pages 14051-14053]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-05145]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94368; File No. SR-EMERALD-2022-09]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the MIAX Emerald Fee Schedule To Amend the Excessive Quoting Fee
March 7, 2022.
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 February 24, 2022, 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'') to amend Section 1)c), Excessive
Quoting Fee, to increase in the inbound quote limit.
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 proposes to amend Section 1)c), Excessive Quoting Fee,
to increase the inbound quote limit for the Excessive Quoting Fee. The
Exchange does not propose to amend the fee amount or how the quotes are
counted. The proposed rule change is immediately effective as of
February 24, 2022.
Background
On February 22, 2021, the Exchange filed its proposal to amend the
Fee Schedule to adopt the Excessive Quoting Fee.\3\ The Exchange
adopted the Excessive Quoting Fee as a result of a significant upgrade
to the MIAX Emerald System's \4\ network architecture, based on
customer demand, which resulted in the Exchange's network environment
becoming more transparent and deterministic. Pursuant to the Excessive
Quoting Fee, the Exchange will assess a fee of $10,000 per day to any
Market Maker \5\ that exceeds 2.5 billion inbound quotes \6\ sent to
the Exchange on that particular day. In counting the total number of
quotes for the purposes of the Excessive Quoting Fee, the Exchange
excludes messages that are generated as a result of sending a mass
purge message to the Exchange. The 2.5 billion inbound quote limit for
the Excessive Quoting Fee resets each trading day.
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\3\ See Securities Exchange Act Release No. 91406 (March 24,
2021), 86 FR 16795 (March 31, 2021) (SR-EMERALD-2021-10) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the MIAX Emerald Fee Schedule To Adopt an Excessive Quoting
Fee).
\4\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\5\ The term ``Market Maker'' refers to ``Lead Market Maker''
(``LMM''), ``Primary Lead Market Maker'' (``PLMM'') and ``Registered
Market Maker'' (``RMM''), collectively. See the Definitions Section
of the Fee Schedule and Exchange Rule 100.
\6\ The term ``quote'' or ``quotation'' means a bid or offer
entered by a Market Maker that is firm and may update the Market
Maker's previous quote, if any. The Rules of the Exchange provide
for the use of different types of quotes, including Standard quotes
and eQuotes, as more fully described in Rule 517. A Market Maker
may, at times, choose to have multiple types of quotes active in an
individual option. See the Definitions Section of the Fee Schedule.
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Proposal
The Exchange now proposes to amend the Excessive Quoting Fee to
increase the inbound quote limit before the Exchange will assess the
Excessive Quoting Fee. In particular, the Exchange proposes to increase
the inbound quote limit from 2.5 billion to 3.5 billion for inbound
quotes sent to the Exchange on a particular trading day. In counting
the total number of quotes for the purposes of the Excessive Quoting
Fee, the Exchange will continue to exclude messages that are generated
as a result of sending a mass purge message to the Exchange and the
proposed 3.5 billion inbound quote limit will continue to reset each
trading day.
The purpose of the proposed change is to continue to ensure that
Market Makers do not over utilize the Exchange's System by sending
excessive quotes to the Exchange, to the detriment of all other Members
of the Exchange, while balancing the interests of Market Makers sending
quotes to the System in light of the recent significant increase in
market volatility. Market Makers that send an excessive number of
quotes to the Exchange on any particular day have the potential
residual effect of exhausting System resources, bandwidth, and
capacity. In turn, this may create latency and impact other Members'
and non-Members' ability to send messages to the Exchange and receive
timely executions. The Exchange believes that due to significant
increases in market volatility, it is appropriate to increase the
inbound quote limit for Market Markers.
The Exchange's high performance network provides unparalleled
system throughput and the capacity to handle approximately 38 million
messages per second. On an average day, the Exchange handles over
approximately 11 billion total messages. These billions of messages per
day consume the Exchange's resources, particularly storage
capabilities. The combination of (i) Member quoting behavior, (ii)
increased volatility in the marketplace, and (iii) increased number of
options products quoted on the Exchange has a significant impact on the
total number of quotes sent each trading day, resulting in additional
storage capacity. The Exchange believes this proposal will continue to
reduce the potential for market participants to engage in excessive
quoting behavior that would require the Exchange to increase its
storage capacity and will encourage quotes to be made in good faith,
while balancing the interests of Market Makers facing increased market
volatility in recent days.
Recognizing that orders and executions often occur in large
numbers, the purpose of this proposal is to continue to focus on
activity that is truly disproportionate while fairly allocating costs.
The proposal
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contemplates that a Market Maker would have to exceed the high
threshold of 3.5 billion inbound quotes before that Market Maker would
be charged the proposed fee on that particular trading day. The
Exchange believes that it is in the interests of all Members and market
participants who access the Exchange to not allow other market
participants to exhaust System resources, but to encourage efficient
usage of network capacity.
The Exchange notes that this concept is not new or novel.\7\ The
Exchange's proposal is not intended to raise revenue; rather, it is
intended to encourage efficient quoting behavior so that market
participants do not exhaust System resources while balancing the
increase in quotes as a result of current market volatility.
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\7\ See Securities Exchange Act Release No. 60117 (June 16,
2009), 74 FR 30190 (June 24, 2009) (SR-AMEX-2009-25) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Amending
the Schedule of Fees and Charges for Exchange Services by Adding a
Ratio Threshold Fee); 64655 (June 13, 2011), 76 FR 35495 (June 17,
2011) (SR-AMEX-2011-37) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change Amending the NYSE Amex Options
Fee Schedule To Establish a New Fee Designed To Encourage Efficient
Use of Bandwidth by ATP Firms and To Rename a Related Existing Fee);
53522 (March 20, 2006), 71 FR 14975 (March 24, 2006) (SR-ISE-2006-
09) (Notice of Filing and Immediate Effectiveness of Proposed Rule
Change and Amendment No. 1 Thereto Relating to Session/API Fees);
55941 (June 21, 2007), 72 FR 35535 (June 28, 2007) (SR-ISE-2007-36)
(Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change as Modified by Amendment No. 1 Thereto Relating to API Fees);
84963 (December 26, 2018), 84 FR 830 (January 31, 2019) (SR-CboeBZX-
2018-095) (Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend the BZX Equities Fee Schedule).
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The Exchange believes the proposal will continue to protect the
integrity of the MIAX Emerald market and benefit all market
participants of MIAX Emerald by ensuring that the Exchange's System is
not overloaded from excessive quotes being sent to it each day. The
Exchange notes that it provides Market Makers with daily reports, free
of charge, which detail their quoting activity in order for those firms
to be fully aware of the number of quotes they are sending to the
Exchange. This allows firms to monitor if their quoting behavior is
approaching the proposed 3.5 billion inbound quote limit.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \8\ in general, and furthers
the objectives of Section 6(b)(4) of the Act \9\ in particular, in that
it is an equitable allocation of reasonable dues, fees, and other
charges among its Members and issuers and other persons using its
facilities. The Exchange also believes the proposal furthers the
objectives of Section 6(b)(5) of the Act \10\ in that it is designed to
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general protects investors and the public
interest and is not designed to permit unfair discrimination between
customers, issuers, brokers and dealers.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(4).
\10\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that its proposal is designed to promote just
and equitable principles of trade, 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 because it will continue to encourage efficient
utilization of the Exchange's highly deterministic and transparent
network architecture. The Exchange also believes the proposal will
balance the interests of Market Makers sending quotes to the Exchange
in light of extreme market volatility. The Exchange believes that
unfettered usage of System capacity and network resource consumption
can have a detrimental effect on all market participants who are
potentially compelled to send quote messages to the Exchange on an
unlimited basis, to the detriment of all other market participants who
access and use the Exchange. Further, the proposed increase to the
inbound quote limit will apply equally to all Market Makers who send
quotes to the Exchange in excess of 3.5 billion inbound quotes on any
particular trading day.
The Exchange believes that the proposal is not unfairly
discriminatory due to the substantial quote limit that the proposal
contemplates before the Excessive Quoting Fee is applied, as well as
the normal Market Maker quote traffic that the Exchange has experienced
since it began operations in March of 2019 and in light of recent
extreme market volatility that has resulted in above average number of
quotes being sent to the Exchange. The Exchange does not anticipate
that any Market Maker will exceed the proposed 3.5 billion inbound
quote limit and become subject to the proposed fee.
The Exchange further believes that its proposal is reasonable,
equitably allocated and not unfairly discriminatory because it is not
intended to raise revenue for the Exchange; rather, it is intended to
ensure that Market Makers are using their quoting methodologies in the
most efficient manner possible in light of the Exchange's highly
deterministic and transparent infrastructure and in light of the recent
increase in market volatility, resulting in more quotes being sent to
the Exchange. The Exchange believes that the proposed increased quote
limit is reasonable, equitably allocated and not unfairly
discriminatory because this proposal will continue to reduce the
potential for market participants to engage in excessive quoting
behavior that would require the Exchange to increase its storage
capacity and will continue to encourage quotes to be made in good
faith. The Exchange notes that other exchanges have implemented similar
fees and capacity type-limits in order to deter their firms from over-
utilizing their trading systems and exhausting system resources, while
encouraging the efficient usage of system resources.\11\
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\11\ See supra note 7.
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The Exchange therefore believes that the proposed increased inbound
quote limit for the Excessive Quoting Fee appropriately reflects the
benefits to different firms of being able to send quotes into the
Exchange's System and facilitates the Commission's goal of ensuring
that critical market infrastructure has ``levels of capacity,
integrity, resiliency, availability, and security adequate to maintain
their operational capability and promote the maintenance of fair and
orderly markets.'' \12\
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\12\ See Securities Exchange Act Release No. 73639 (November 19,
2014), 79 FR 72251 (December 5, 2014) (File No. S7-01-13)
(Regulation SCI Adopting Release).
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The Exchange will continue to review the quoting behavior of all
firms on a regular basis to ensure that the inbound quote limit remains
significantly higher than the average firm quoting behavior, while
taking into account varying market conditions. The Exchange will
continue to regularly monitor prevailing market conditions to ensure
that the inbound quote limit is sufficiently flexible and could not
inadvertently result in higher than anticipated fees being charged to
firms that are providing liquidity in volatile, high volume markets.
The Exchange does not want to discourage such liquidity provision and
believes that it should be able to adjust the inbound quote limit on a
monthly basis if need be.
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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 not necessary or appropriate in
furtherance of the purposes of the Act.
Intra-Market Competition
The Exchange believes that the proposal does not put any market
participants at a relative disadvantage compared to other market
participants because the proposed increased quote limit will apply
equally to all Market Makers who send quotes to the Exchange in excess
of 3.5 billion inbound quotes on any particular trading day. The
Exchange also believes that the proposed change neither favors nor
penalizes one or more categories of market participants in a manner
that would impose an undue burden on competition. Rather, the proposal
seeks to benefit all market participants by encouraging the efficient
utilization of the Exchange's highly deterministic and transparent
network architecture while taking into account increased market
volatility that may impact the number of quotes being sent to the
Exchange by Market Makers. The Exchange does not anticipate that any
Market Maker will exceed the proposed 3.5 billion inbound quote limit
and become subject to the proposed fee. Accordingly, the Exchange
believes that the proposed Excessive Quoting Fee does not favor certain
categories of market participants in a manner that would impose a
burden on competition.
Inter-Market Competition
The Exchange believes the proposal does not place an undue burden
on competition on other self-regulatory organizations that is not
necessary or appropriate because of the availability of numerous
substitute options exchanges. There are 15 other options exchanges
where market participants can become members and send quotes if they
deem the 3.5 billion inbound quote limit to be too restrictive for
their quoting behavior. In addition, the Exchange does not believe the
proposal will impose any burden on inter-market competition as the
proposal does not address any competitive issues; rather, it is
intended to protect all market participants of MIAX Emerald by ensuring
that the Exchange's System is not overloaded from excessive quotes
being sent to it each day.
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,\13\ and Rule 19b-4(f)(2) \14\ 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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\13\ 15 U.S.C. 78s(b)(3)(A)(ii).
\14\ 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#4d3f382128602e2220202823393e0d3e282e632a223b"><span class="__cf_email__" data-cfemail="2351564f460e404c4e4e464d5750635046400d444c55">[email protected]</span></a>. Please include
File Number SR-EMERALD-2022-09 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-2022-09. 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-2022-09 and should be submitted
on or before April 1, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-05145 Filed 3-10-22; 8:45 am]
BILLING CODE 8011-01-P
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