Notice2022-07952
Self-Regulatory Organizations: MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX Pearl Equities Fee Schedule
Primary source
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Published
April 14, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 72 (Thursday, April 14, 2022)</title>
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[Federal Register Volume 87, Number 72 (Thursday, April 14, 2022)]
[Notices]
[Pages 22240-22245]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-07952]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94652; File No. SR-PEARL-2022-10]
Self-Regulatory Organizations: MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
Pearl Equities Fee Schedule
April 8, 2022.
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 March 31, 2022, 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 fee schedule (the
``Fee Schedule'') applicable to MIAX Pearl Equities, an equities
trading facility of the Exchange.
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 purpose of the proposed rule change is to amend the Exchange's
Fee Schedule to (i) adopt a new Liquidity Code and associated rebate to
the Liquidity Indicator Codes and Associated Fees table; (ii) adopt new
Midpoint Peg Order Adding Liquidity at Midpoint Volume Tiers to improve
market quality on the Exchange by offering an enhanced rebate for
executions that Add Liquidity at the Midpoint of the PBBO \3\ using a
Midpoint Peg Order \4\ in securities priced at or above $1.00 per share
that add liquidity and are pegged to the midpoint of the bid and ask;
and (iii) amend section 1(d) Remove Volume Tiers table to increase the
fee.
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\3\ The term ``PBBO'' means the best bid or offer on MIAX Pearl.
See Exchange Rule 100.
\4\ A Midpoint Peg Order is a non-displayed Limit Order that is
assigned a working price pegged to the midpoint of the PBBO. A
Midpoint Peg Order receives a new timestamp each time its working
price changes in response to changes in the midpoint of the PBBO.
See Exchange Rule 2614(a)(3).
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The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues, to
which market participants may direct their order flow. Based on
publicly available information, no single registered equities exchange
currently has more than approximately 17% of the total market share of
executed volume of equities trading, and the Exchange currently
represents approximately 1% of the overall market share.\5\
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\5\ See MIAX's ``The Market at a Glance'', available at <a href="https://www.miaxoptions.com/">https://www.miaxoptions.com/</a> (last visited March 24, 2022).
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Additionally, in response to the competitive environment, the
Exchange also offers tiered pricing, which provides Equity Members \6\
(``Members'') with opportunities to qualify for higher rebates or lower
fees when certain volume criteria and thresholds are met. Tiered
pricing provides an incremental incentive for Members to strive for
higher tier levels, which provides increasingly higher benefits or
discounts for satisfying increasingly more stringent criteria.
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\6\ The term ``Equity Member'' is a Member authorized by the
Exchange to transact business on MIAX Pearl Equities. See Exchange
Rule 1901.
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Adoption of Midpoint Peg Order Adding Liquidity at Midpoint Volume
Tiers
The Exchange is now proposing to introduce a new tiered pricing
structure applicable to rebates provided for executions that add
liquidity to the Exchange at the Midpoint of the PBBO using a Midpoint
Peg Order (such orders, ``Midpoint Peg Add Orders executed at the
Midpoint''). Specifically, the Exchange proposes to adopt new volume-
based tiers, referred to by the Exchange as, ``Midpoint Peg Order
Adding Liquidity at Midpoint Volume Tiers,'' in which the Exchange will
provide an enhanced rebate for executions of Midpoint Peg Add Orders
executed at the Midpoint for Members that meet certain volume
thresholds on the Exchange.
The Exchange currently provides a standard rebate of $0.0021 per
share for executions of Added Non-Displayed Liquidity.\7\ The Exchange
now proposes to introduce a tiered pricing structure in which it will
provide an enhanced, incremental rebate of $0.0004 per share for an
effective total rebate of $0.0025
[[Page 22241]]
for executions of Midpoint Peg Add Orders executed at the Midpoint for
Members that qualify for Tier 1 of the Midpoint Peg Order Adding
Liquidity at Midpoint Volume Tiers by achieving a Midpoint ADAV \8\
equal to or greater than 500,000 shares. The Exchange also proposes to
provide an enhanced, incremental rebate of $0.0006 per share for an
effective total rebate of $0.0027 for executions of Midpoint Peg Add
Orders executed at the Midpoint for Members that qualify for Tier 2 of
the Midpoint Peg Order Adding Liquidity at Midpoint Volume Tiers by
achieving a Midpoint ADAV equal to or greater than 1,000,000 shares.
The rebates provided for by the Midpoint Peg Order Adding Liquidity at
Midpoint Volume Tiers will be applicable to executions of orders that
yield fee code ``Ap'' as described below and will be provided in place
of the standard rebate of $0.0021 per share for executions of Added
Non-Displayed Volume. The Exchange notes that the rebates described
above will not apply to executions of orders in securities priced below
$1.00 per share.
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\7\ The Exchange notes that the standard rebate of $0.0021 per
share for executions of Added Non-Displayed Liquidity in securities
priced at or above $1.00 is not changing under this proposal.
\8\ For this program, Midpoint ADAV will refer to the average
daily added volume consisting of Midpoint Peg Add Orders executed at
the Midpoint (as described herein) for the current month calculated
similarly to ADAV. ``ADAV'' means average daily added volume
calculated as the number of shares added per day and ``ADV'' means
average daily volume calculated as the number of shares added or
removed, combined, per day. ADAV and ADV are calculated on a monthly
basis. The Exchange excludes from its calculation of ADAV and ADV
shares added or removed on any day that the Exchange's system
experiences a disruption that lasts for more than 60 minutes during
regular trading hours (``Exchange System Disruption''), on any day
with a scheduled early market close, and on the ``Russell
Reconstitution Day'' (typically the last Friday in June). Routed
shares are not included in the ADAV or ADV calculation. With prior
notice to the Exchange, an Equity Member may aggregate ADAV or ADV
with other Equity Members that control, are controlled by, or are
under common control with such Equity Member (as evidenced on such
Equity Member's Form BD). See MIAX Pearl Equities Fee Schedule,
``Definitions,'' available at (<a href="https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_01032022.pdf">https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_01032022.pdf</a>).
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The purpose of the proposed enhanced rebate for executions of
Midpoint Peg Add Orders executed at the Midpoint is to encourage
Members that provide liquidity through non-displayed orders to strive
for a higher Midpoint ADAV on the Exchange in order to qualify for the
enhanced rebates for executions of Midpoint Peg Add Orders executed at
the Midpoint, and as such, encourages Members to maintain or increase
their order flow (particularly in the form of liquidity adding non-
displayed Midpoint Peg Orders that execute at the Midpoint) to the
Exchange, thereby contributing to a deeper and more liquid market to
the benefit of all market participants.
The Exchange's pricing structure is generally designed to encourage
the provision of liquidity, thus the proposed enhanced rebates for
executions of Midpoint Peg Add Orders executed at the Midpoint is
designed to encourage Members that use non-displayed orders to provide
additional non-displayed liquidity through the use of orders that are
designed to execute at the midpoint of the PBBO. The Exchange believes
that providing enhanced rebates for executions of Midpoint Peg Add
Orders executed at the Midpoint is a reasonable means to incentivize
Members to provide additional liquidity at the midpoint of the PBBO,
which in turn would increase the attractiveness of the Exchange as a
destination venue, as Members seeking price improvement would be more
motivated to direct their orders to the Exchange because they would
have a heightened expectation of the availability of liquidity at the
midpoint of the PBBO. The Exchange notes that the proposed enhanced
rebate is comparable to, and competitive with, the rebate provided by
at least one other exchange for executions of non-displayed orders in
securities priced at or above $1.00 per share that are pegged to the
midpoint.\9\
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\9\ See MEMX trading fee schedule on its public website
(available at <a href="https://info.memxtrading.com/fee-schedule/">https://info.memxtrading.com/fee-schedule/</a>) which
reflects a rebate of $0.0028 per share for added non-displayed
liquidity under Tier 1 of its Non-Display Add Tiers; and a rebate of
$0.0024 per share for added non-displayed liquidity under Tier 2 of
its Non-Display Add Tiers.
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New Liquidity Indicator Code
In conjunction with the Exchange's proposal to (i) provide an
enhanced, incremental rebate of $0.0004 per share for Midpoint Peg
Orders that Add Liquidity and meet the Tier 1 requirements of the
Midpoint Peg Order Adding Liquidity at Midpoint Volume Tiers; and (ii)
provide an enhanced, incremental rebate of $0.0006 per share for
Midpoint Peg Orders that Add Liquidity and meet the Tier 2 requirements
of the Midpoint Peg Order Adding Liquidity at Midpoint Volume Tiers,
the Exchange proposes to update the Liquidity Indicator Code and
Associated Fees Table as follows:
<bullet> Add new liquidity indicator code Ap, Adds Liquidity and
Executes at the Midpoint, Non-Displayed Midpoint Peg Order (All Tapes).
The Liquidity Indicator Code and Associated Fees table would specify
that orders that yield liquidity indicator code Ap would receive a
rebate of $0.0021 per share in securities priced at or above $1.00 and
0.05% of the transaction's dollar value in securities priced below
$1.00.
The Exchange also proposes to add the above liquidity indicator
code to the Standard Rates table. Specifically, liquidity indicator
code Ap would be added to the ``Added Liquidity Non-Displayed Order''
column.
Increase Fee for Remove Volume Tiers
Currently, the Exchange charges a standard fee of $0.0029 for all
executions of Removed Volume.\10\ The Exchange also offers a two-tiered
pricing structure for fees charged for executions of Removed Volume on
the Exchange for Members that meet certain thresholds. Members that
qualify for Tier 1 by achieving an ADV \11\ that is equal to or greater
than 0.10% of TCV \12\ are charged $0.0027 per share for executions of
Removed Volume. Members that qualify for Tier 2 by achieving an ADV
that is equal to or greater than 0.15% of TCV are charged a fee of
$0.00265 per share for Executions of Removed Volume.
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\10\ The Exchange notes that the standard fee of $0.0029 for
orders removing liquidity in securities priced at or above $1.00 is
not changing under this proposal.
\11\ See supra note 8.
\12\ ``TCV'' means total consolidated volume calculated as the
volume in shares reported by all exchanges and reporting facilities
to a consolidated transaction reporting plan for the month for which
the fees apply. The Exchange excludes from this calculation of TCV
volume on any given day that the Exchange's system experiences a
disruption that lasts for more than 60 minutes during Regular
Trading Hours, on any day with a scheduled early market close, and
on the ``Russell Reconstitution Day'' (typically the last Friday in
June). See MIAX Pearl Equities Fee Schedule, ``Definitions,''
available at <a href="https://www.miaxoptions.com/fees/pearl-equities">https://www.miaxoptions.com/fees/pearl-equities</a>).
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The Exchange now proposes to increase the fees charged for Removed
Volume in Tier 1 and Tier 2 to $0.0028 and $0.0027 respectively, an
increase of $0.0001 and $0.00005 respectively. The purpose of
increasing the fee for executions of Removed Volume is for business and
competitive reasons. The requirements necessary to qualify for Tier 1
and Tier 2 will remain unchanged under this proposal. The Exchange
notes that despite the proposed increase the proposed fee changes for
Removed Volume Tiers remain comparable to, and competitive with, the
fees charged for executions of liquidity-removing orders charged by
other exchanges under similar volume-based tiers.\13\
[[Page 22242]]
Additionally, the Exchange notes that the Remove Volume Tiers, as
modified, would continue to be available to all Members.
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\13\ See the Cboe EDGX equities trading fee schedule on its
public website (available at <a href="https://www.cboe.com/us/equities/membership/fee_schedule/edgx/">https://www.cboe.com/us/equities/membership/fee_schedule/edgx/</a>) which reflects fees charged under
``Remove Volume Tiers''--tiers based on a member achieving certain
step-up ADAV and ADV volume thresholds of $0.00275 per share for
removing volume from the Cboe EDGX exchange; See also MEMX fee
schedule on its public website (available at <a href="https://info.memxtrading.com/fee-schedule/">https://info.memxtrading.com/fee-schedule/</a>) which reflects a fee per share
charge of $0.00285 under ``Liquidity Removal Tier'' for a Member
that has (1) an ADAV [gteqt]0.30% of the TCV; or (2) an ADV
[gteqt]0.60% of the TCV.
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Implementation
The Exchange proposes to implement the changes to the Fee Schedule
pursuant to this proposal on April 1, 2022.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \14\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \15\ in
particular, in that it is an equitable allocation of reasonable fees
and other charges among its Equity Members and issuers and other
persons using its facilities. The Exchange also believes that the
proposed rule change is consistent with the objectives of Section
6(b)(5) \16\ requirements that the rules of an exchange be designed to
prevent fraudulent and manipulative acts and practices, and to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, 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, particularly, is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(4).
\16\ 15 U.S.C 78f(b)(5).
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The Exchange operates in a highly fragmented and competitive market
in which market participants can readily direct their order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of sixteen registered equities exchanges, and
there are a number of alternative trading systems and other off-
exchange venues, to which market participants may direct their order
flow. Based on publicly available information, no single registered
equities exchange currently has more than approximately 17% of the
total market share of executed volume of equities trading.\17\ Thus, in
such a low-concentrated and highly competitive market, no single
equities exchange possesses significant pricing power in the execution
of order flow, and the Exchange currently represents less than 1% of
the overall market share. The Commission and the courts have repeatedly
expressed their 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.'' \18\
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\17\ See supra note 5.
\18\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37499 (June 29, 2005).
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to new or different pricing structures being
introduced into the market. Accordingly, competitive forces constrain
the Exchange's transaction fees and rebates, and market participants
can readily trade on competing venues if they deem pricing levels at
those other venues to be more favorable. The Exchange believes the
proposal reflects a reasonable and competitive pricing structure
designed to incentivize market participants to direct their order flow
to the Exchange, which the Exchange believes would enhance liquidity
and market quality to the benefit of all Members and market
participants.
Midpoint Peg Order Adding Liquidity at Midpoint Volume Tiers
The Exchange believes that the proposed Midpoint Peg Order Adding
Liquidity at Midpoint Volume Tiers are reasonable because they would
provide Members with an additional incentive to achieve certain volume
thresholds on the Exchange. The Exchange notes that volume-based
incentives and discounts have been widely adopted by exchanges,\19\ and
are reasonable, equitable, and not unfairly discriminatory because they
are open to all Members on an equal basis and provide additional
benefits or discounts that are reasonably related to the value to an
exchange's market quality associated with higher levels of market
activity, such as higher levels of liquidity provision and the
introduction of higher volumes of orders into the price and volume
discovery processes. The Exchange believes that the proposal reflects a
reasonable and competitive pricing structure designed to incentivize
market participants to direct their order flow to the Exchange, to
enhance market quality and to provide price improvement through the use
of orders that are designed to execute at the midpoint of the PBBO
through the provision of enhanced rebates for executions of Midpoint
Peg Add Orders executed at the Midpoint for Members that qualify for
one of the Midpoint Peg Order Adding Liquidity at Midpoint Volume
Tiers.\20\ The Exchange believes its proposal will promote price
improvement and increased liquidity on the Exchange which will benefit
all market participants.
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\19\ See Cboe EDGX equities trading fee schedule on its public
website (available at <a href="https://www.cboe.com/us/equities/membership/fee_schedule/edgx/">https://www.cboe.com/us/equities/membership/fee_schedule/edgx/</a>); Cboe BZX equities trading fee schedule on its
public website (available at <a href="https://www.cboe.com/us/equities/membership/fee_schedule/bzx/">https://www.cboe.com/us/equities/membership/fee_schedule/bzx/</a>); and MEMX equities trading fee
schedule on its public website (available at <a href="https://info.memxtrading.com/fee-schedule/">https://info.memxtrading.com/fee-schedule/</a>).
\20\ The Exchange notes that Members that do not qualify for one
of the Midpoint Peg Order Adding Liquidity at Midpoint Volume Tier
will receive the standard rebate of $0.0021 for Non-Displayed
Midpoint Peg Orders that Add Liquidity in securities priced at or
above $1.00.
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Additionally, the Exchange believes that the proposed enhanced,
incremental rebate for executions of Midpoint Peg Add Orders executed
at the Midpoint under Midpoint Peg Order Adding Liquidity at Midpoint
Volume Tier 1 (i.e., $0.0004 per share) is reasonable, in that it does
not reflect a disproportionate increase above the standard rebate of
$0.0021 per share provided to all Members with respect to Added Non-
Displayed Liquidity. Additionally, the Exchange believes that the
proposed enhanced, incremental rebate for executions of Midpoint Peg
Add Orders executed at the Midpoint under Midpoint Peg Order Adding
Liquidity at Midpoint Volume Tier 2 (i.e., $0.0006 per share) is
reasonable, in that it does not reflect a disproportionate increase
above the enhanced rebate of $0.0004 per share provided to Members that
satisfy the requirements of Midpoint Peg Order Adding Liquidity at
Midpoint Volume Tier 1.
The Exchange believes the proposed new criteria is equitable and
non-discriminatory because all Members will continue to be eligible to
qualify for Midpoint Peg Order Adding Liquidity at Midpoint Volume
Tiers 1 and 2 and have the opportunity to receive the corresponding
enhanced rebate if such criteria is achieved.
[[Page 22243]]
The Exchange further believes that the proposed new criteria for
Midpoint Peg Order Adding Liquidity at Midpoint Volume Tier 1, and
Midpoint Peg Order Adding Liquidity at Midpoint Volume Tier 2, are
reasonable, in that the proposed new criteria for Midpoint Peg Order
Adding Liquidity at Midpoint Volume Tier 2 is incrementally more
difficult to achieve than that of Midpoint Peg Order Adding Liquidity
at Midpoint Volume Tier 1, thus, Midpoint Peg Order Adding Liquidity at
Midpoint Volume Tier 2 appropriately offers a higher rebate
commensurate with the corresponding higher Midpoint ADAV requirement.
Therefore, the Exchange believes the Midpoint Peg Order Adding
Liquidity at Midpoint Volume Tiers, as proposed, are consistent with an
equitable allocation of fees and rebates, as the more stringent
criteria correlates with the corresponding tier's higher rebate.
The Exchange further believes that the enhanced rebates provided
under the Midpoint Peg Order Adding Liquidity at Midpoint Volume Tiers,
as proposed, (i.e., $0.0004 per share for Tier 1; and $0.0006 per share
for Tier 2) are reasonable, consistent with an equitable allocation of
fees, and that it is not unfairly discriminatory to pay such higher
rebates for executions of Midpoint Peg Add Orders executed at the
Midpoint to Members that qualify for either Tier 1 or Tier 2 under the
Midpoint Peg Order Adding Liquidity at Midpoint Volume Tiers in
comparison with the standard rebate in recognition of the benefits to
the Exchange and market participants as described above, particularly
as the magnitude of the enhanced rebate is not unreasonably high and is
reasonably related to the enhanced market quality it is designed to
achieve. Additionally, the Exchange believes that the proposed rebates
are reasonable as such rebates are comparable to, and competitive with,
the rebates for executions of liquidity-adding non-displayed orders
provided by at least one other exchange under similar volume-based
tiers.\21\
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\21\ See supra note 9.
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The Exchange believes that providing an enhanced rebate for
Midpoint Peg Add Orders executed at the Midpoint that is higher than
the standard rebate for executions of other non-displayed orders in
securities priced at or above $1.00 per share that add liquidity to the
Exchange is reasonable, as the Exchange believes this would encourage
Members that provide liquidity through non-displayed orders to do so,
to a greater extent, through orders designed to execute at the midpoint
of the PBBO. Because such orders provide price improvement to the
benefit of other market participants, the Exchange believes it is
reasonable and consistent with an equitable allocation of fees to
provide an enhanced rebate to encourage their use, while still
maintaining an overall pricing structure that places greater emphasis
on the value of liquidity in advancing transparency and price
discovery.
New Liquidity Indicator Code
The Exchange believes its proposal to add new liquidity indicator
code ``Ap'' to the Liquidity Indicator Codes and Associated Fees table
and to add liquidity indicator code ``Ap'' to the ``Adding Liquidity
Non-Displayed Order'' column, is reasonable and equitable because it
will apply equally to all Members of the Exchange that submit Midpoint
Peg Orders. This liquidity indicator code would be returned on the
real-time trade reports sent to the Member that submitted the order.
The use of liquidity indicator codes is not unique to the Exchange as
liquidity indicator codes are currently utilized and described in the
fee schedules of other equity exchanges.\22\
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\22\ See the fee schedule of MEMX LLC (``MEMX'') available on
their public website at <a href="https://info.memxtrading.com/fee-schedule/">https://info.memxtrading.com/fee-schedule/</a>;
and the fee schedule of the Investors Exchange LLC (``IEX'')
available on their public website at <a href="https://exchange.iex.io/resources/trading/fee-schedule/">https://exchange.iex.io/resources/trading/fee-schedule/</a>.
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Remove Volume Tier
The Exchange believes that the proposed fee change to the Remove
Volume Tiers is reasonable, consistent with an equitable allocation of
fees, and not unfairly discriminatory to provide a discounted fee for
executions of Remove Volume for Members that satisfy the requirements
associated with Tier 1 and Tier 2. The Exchange believes the proposed
fee changes are reasonable because the magnitude of the increase is not
unreasonably high and is also reasonably related to the enhanced market
quality it is designed to achieve.
The Exchange believes the proposed increased fee for executions of
Removed Volume for a qualifying Member (i.e., $0.0028 and $0.0027 for
Tier 1 and Tier 2 respectively) is reasonable, as competing exchanges
offer tiered pricing structures similar to the proposed Remove Volume
Tier, including schedules of rebates and fees that apply based upon
Members achieving certain volume thresholds, and the Exchange believes
the proposed Remove Volume Tier's criteria are reasonable when compared
to such tiers provided for by other exchanges. For example, Cboe EDGX
charges lower fees for removing volume from Cboe EDGX under its
``Remove Volume Tiers'' at $0.00275 per share, compared to its standard
fee of $0.0030 per share, but requires different, but similar, criteria
than the Exchange's proposed Remove Volume Tier, which are also based
upon a Member's volume.\23\ MEMX also charges a lower fee for removing
volume from MEMX under its ``Liquidity Removal Tier'' at $0.00285 per
share, compared to its standard fee of $0.0030 per share, but requires
different, but similar, criteria than the Exchange's Remove Volume
Tier, which are also based upon a Member's volume.\24\
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\23\ See Cboe EDGX equities trading fee schedule on its public
website (available at <a href="https://www.cboe.com/us/equities/membership/fee_schedule/edgx/">https://www.cboe.com/us/equities/membership/fee_schedule/edgx/</a>).
\24\ See MEMX trading fee schedule on its public website
(available at <a href="https://info.memxtrading.com/fee-schedule/">https://info.memxtrading.com/fee-schedule/</a>).
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The Exchange further believes the proposed Remove Volume Tier fees
are fair, equitable and not unfairly discriminatory because they are
available to all Members. Further, the proposed Remove Volume Tier fee
changes are comparable to the fees charged for executions of liquidity-
removing orders charged by Cboe EDGX and MEMX under similar volume
based tiers.\25\
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\25\ See supra notes 23 and 24.
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For the reasons discussed above, the Exchange submits that the
proposal satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of
the Act in that it provides for the equitable allocation of reasonable
dues, fees and other charges among its Members and other persons using
its facilities and is not designed to unfairly discriminate between
customers, issuers, brokers, or dealers. As described more fully below
in the Exchange's statement regarding the burden on competition, the
Exchange believes that its transaction pricing is subject to
significant competitive forces, and that the proposed fees and rebates
described herein are appropriate to address such forces.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed change will impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act. The Exchange believes the proposed change
would encourage Members to maintain or increase their order flow to the
Exchange, thereby contributing to a deeper and more liquid market to
the benefit of all market participants and enhancing the attractiveness
of the Exchange as a trading venue. As a
[[Page 22244]]
result, the Exchange believes the proposal would enhance its
competitiveness as a market that attracts actionable orders, thereby
making it a more desirable destination venue for its customers. For
these reasons, the Exchange believes that the proposal furthers the
Commission's goal in adopting Regulation NMS of fostering competition
among orders, which promotes ``more efficient pricing of individual
stocks for all types of orders, large and small.'' \26\
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\26\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 47396 (June 29, 2005).
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Intramarket Competition
The Exchange believes that the proposal would incentivize Members
to maintain or increase their order flow, thereby contributing to a
deeper and more liquid market to the benefit of all market participants
and enhance the attractiveness of the Exchange as a trading venue, and
to provide price improvement through the use of orders that are
designed to execute at the midpoint of the PBBO, which the Exchange
believes, in turn, would continue to encourage participants to direct
order flow to the Exchange. Greater liquidity benefits all Members by
providing more trading opportunities and encourages Members to send
orders to the Exchange, thereby contributing to robust levels of
liquidity, which benefits all market participants. The opportunity to
qualify for enhanced, incremental rebates under the Midpoint Peg Order
Adding Liquidity at Midpoint Volume Tiers would be available to all
Members that meet the associated requirements in any month. The
Exchange believes the requirements in the Midpoint Peg Order Adding
Liquidity at Midpoint Volume Tiers are reasonably related to the
enhanced market quality that the Midpoint Peg Order Adding Liquidity at
Midpoint Volume Tiers are designed to promote. Similarly, the proposed
enhanced rebate for executions of Midpoint Peg Orders would apply
equally to all Members. As such, the Exchange believes the proposed
changes would not impose any burden on intramarket competition that is
not necessary or appropriate in furtherance of the purposes of the Act.
The opportunity to qualify for the Remove Volume Tier, and thus
receive the proposed lower fee for executions of Removed Volume, would
be available to all Members that meet the associated volume requirement
in any month. The Exchange believes that meeting the volume requirement
of the Remove Volume Tier is attainable for market participants, as the
Exchange believes the thresholds are relatively low and reasonably
related to the enhanced liquidity and market quality that the Remove
Volume Tier is designed to promote. As such, the Exchange believes the
proposed changes would not impose any burden on intramarket competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
Intermarket Competition
The Exchange believes its proposal will benefit competition, and
the Exchange notes that it operates in a highly competitive market.
Members have numerous alternative venues they may participate on and
direct their order flow to, including fifteen other equities exchanges
and numerous alternative trading systems and other off-exchange venues.
As noted above, no single registered equities exchange currently has
more than 17% of the total market share of executed volume of equities
trading.\27\ Thus, in such a low-concentrated and highly competitive
market, no single equities exchange possesses significant pricing power
in the execution of order flow. Moreover, the Exchange believes that
the ever-shifting market share among the exchanges from month to month
demonstrates that market participants can shift order flow in response
to new or different pricing structures being introduced to the market.
Accordingly, competitive forces constrain the Exchange's transaction
fees and rebates generally, including with respect to executions of
Removed Volume, and market participants can readily choose to send
their orders to other exchanges and off-exchange venues if they deem
fee levels at those other venues to be more favorable.
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\27\ See supra note 5.
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As described above, the proposal is designed to enhance market
quality on the Exchange and to encourage more Members to maintain or
increase their order flow, thereby contributing to a deeper and more
liquid market to the benefit of all market participants and enhancing
the attractiveness of the Exchange as a trading venue, and to encourage
Members to provide price improvement through the use of orders that are
designed to execute at the midpoint of the PBBO. In turn, the Exchange
believes that the proposed enhanced rebates for executions of Midpoint
Peg Add Orders executed at the Midpoint that qualify for an enhanced
rebate under the Midpoint Peg Order Adding Liquidity at Midpoint Volume
Tiers would encourage the submission of additional order flow to the
Exchange, particularly in the form of Midpoint Peg Add Orders executed
at the Midpoint, thereby promoting market depth, enhanced execution
opportunities, price improvement, and price discovery to the benefit of
all Members and market participants. The opportunity to qualify for
discounted fees for Removed Volume under the Exchange's Remove Volume
Tiers continues to be available to all Members that meet the associated
volume criteria. The Exchange believes the discounted fees provided
under the Remove Volume Tiers are reasonably related to the enhanced
market quality that such tiers are designed to promote.
As described above the Exchange's proposal is a competitive
proposal designed to encourage additional order flow to the Exchange
through a combination of volume based incentives and discounts, which
have been widely adopted by exchanges, and standard pricing that is
comparable to, and/or competitive with, pricing for similar executions
in place at other exchanges.\28\
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\28\ See supra notes 9, 13, 19, 23 and 24.
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Accordingly, the Exchange believes its proposal would not burden,
but rather promote, intermarket competition by enabling it to better
compete with other exchanges that offer similar standard pricing for
Added Midpoint Volume and Removed Volume, as well as similar pricing
incentives and discounts to market participants that achieves certain
volume criteria and thresholds.
Additionally, the Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. Specifically,
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.'' \29\ The fact
that this market is competitive has also long been recognized by the
courts. In NetCoalition v. Securities and Exchange Commission, the D.C.
circuit stated: ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their routing agents, have a wide range of choices of where
[[Page 22245]]
to route orders for execution'; [and] `no exchange can afford to take
its market share percentages for granted' because `no exchange possess
a monopoly, regulatory or otherwise, in the execution of order flow
from broker dealers' . . .''.\30\ Accordingly, the Exchange does not
believe its proposed pricing changes impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
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\29\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\30\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
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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,\31\ and Rule 19b-4(f)(2) \32\ 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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\31\ 15 U.S.C. 78s(b)(3)(A)(ii).
\32\ 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#d6a4a3bab3fbb5b9bbbbb3b8a2a596a5b3b5f8b1b9a0"><span class="__cf_email__" data-cfemail="7d0f081118501e1210101813090e3d0e181e531a120b">[email protected]</span></a>. Please include
File Number SR-PEARL-2022-10 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Vanessa Countryman,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-PEARL-2022-10. 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-2022-10 and should be submitted on
or before May 5, 2022.
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\33\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-07952 Filed 4-13-22; 8:45 am]
BILLING CODE 8011-01-P
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