Notice2022-08172
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX PEARL Options Fee Schedule To Remove Certain Credits and Increase Trading Permit Fees
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 18, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 74 (Monday, April 18, 2022)</title>
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[Federal Register Volume 87, Number 74 (Monday, April 18, 2022)]
[Notices]
[Pages 22987-22993]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-08172]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94696; File No. SR-PEARL-2022-09]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
PEARL Options Fee Schedule To Remove Certain Credits and Increase
Trading Permit Fees
April 12, 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 March 30, 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 MIAX PEARL Fee
Schedule (the ``Fee Schedule'') to remove certain credits and amend the
monthly Trading Permit \3\ fees for Members.\4\
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\3\ The term ``Trading Permit'' means a permit issued by the
Exchange that confers the ability to transact on the Exchange. See
Exchange Rule 100.
\4\ The term ``Member'' means an individual or organization that
is registered with the Exchange pursuant to Chapter II of Exchange
Rules for purposes of trading on the Exchange as an ``Electronic
Exchange Member'' or ``Market Maker.'' Members are deemed
``members'' under the Exchange Act. See Exchange Rule 100 and the
Definitions Section of the Fee Schedule.
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The text of the proposed rule change is available on the Exchange's
website at <a href="https://www.miaxoptions.com/rule-filings/pearl">https://www.miaxoptions.com/rule-filings/pearl</a>, at MIAX
PEARL's principal office, and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to remove certain
credits and amend the monthly Trading Permit fees for Members. The
Exchange notes that its Trading Permit fees are comparable to
membership or other access type fees charged by other exchanges.
The Exchange initially filed this proposal on July 1, 2021 with the
proposed fee changes being immediately effective (``First Proposed Rule
Change'').\5\ The First Proposed Rule Change was published for comment
in the Federal Register on July 15, 2021.\6\ The Commission received
one comment letter on the First Proposed Rule Change \7\ and
subsequently suspended the First Proposed Rule Change on August 27,
2021.\8\ The Exchange withdrew the First Proposed Rule Change on
October 12, 2021 and re-submitted the proposal on October 29, 2021,
with the proposed fee changes being effective beginning November 1,
2021 (``Second Proposed Rule Change'').\9\ The Second Proposed Rule
Change addressed points raised in the SIG Letter and was published for
comment in the Federal Register on November 17, 2021.\10\ The
Commission received no comment letters on the Second Proposed Rule
Change. The
[[Page 22988]]
Exchange withdrew the Second Proposed Rule Change on December 20, 2021
and submitted a revised proposal for immediate effectiveness (``Third
Proposed Rule Change'').\11\ The Third Proposed Rule Change was
published for comment in the Federal Register on January 10, 2022.\12\
The Commission received no comment letters on the Third Proposed Rule
Change. The Exchange withdrew the Third Proposed Rule Change on
February 15, 2022 and submitted a revised proposal for immediate
effectiveness, which was suspended on February 18, 2022 (``Fourth
Proposed Rule Change'').\13\ The Commission received one comment letter
on the Fourth Proposed Rule Change.\14\ The Exchange withdrew the
Fourth Proposed Rule Change on March 30, 2022 and submits this revised
proposal for immediate effectiveness (``Fifth Proposed Rule Change'').
This Fifth Proposed Rule Change provides a revised justification for
the proposed fees, which is in line with the justification provided by
another exchange in a similar filing to adopt fees for Members to be
active on that exchange.\15\
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\5\ See Securities Exchange Act Release No. 92366 (July 9,
2021), 86 FR 37379 (SR-PEARL-2021-32).
\6\ See id.
\7\ See Letter from Richard J. McDonald, Susquehanna
International Group, LLC (``SIG''), to Vanessa Countryman,
Secretary, Commission, dated September 28, 2021 (``SIG Letter'').
\8\ See Securities Exchange Act Release No. 92797 (August 27,
2021), 86 FR 49399 (September 2, 2021).
\9\ See Securities Exchange Act Release No. 93555 (November 10,
2021), 86 FR 64254 (November 17, 2021) (SR-PEARL-2021-54).
\10\ See id.
\11\ Securities Exchange Act Release No. 93895 (January 4,
2022), 87 FR 1217 (January 10, 2022) (SR-PEARL-2021-59).
\12\ Id.
\13\ Securities Exchange Act Release No. 94287 (February 18,
2022), 87 FR 10837 (February 25, 2022) (SR-PEARL-2022-05).
\14\ See Letter from Richard J. McDonald, SIG, to Vanessa
Countryman, Secretary, Commission, dated March 15, 2022 (``SIG
Letter 2'').
\15\ See Securities Exchange Act Release No. 93927 (January 7,
2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19) (proposal to
adopt monthly membership fees).
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Removal of the ``Monthly Volume Credit''
The Exchange proposes to amend the Definitions section of the Fee
Schedule to delete the definition and remove the credits applicable to
the Monthly Volume Credit for Members. The Exchange established the
Monthly Volume Credit in 2018 \16\ to encourage Members to send
increased Priority Customer \17\ order flow to the Exchange, which the
Exchange applied to the assessment of certain non-transaction fees for
that Member. The Exchange applies a different Monthly Volume Credit
depending on whether the Member connects to the Exchange via the FIX
Interface \18\ or MEO Interface.\19\ Currently, the Exchange assesses
the Monthly Volume Credit to each Member that has executed Priority
Customer volume along with that of its affiliates,\20\ not including
Excluded Contracts,\21\ of at least 0.30% of MIAX Pearl-listed Total
Consolidated Volume (``TCV''),\22\ as set forth in the following table:
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\16\ See Securities Exchange Act Release No. 82867 (March 13,
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
\17\ The term ``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 accounts(s). The
number of orders shall be counted in accordance with Interpretation
and Policy .01 of Exchange Rule 100. See the Definitions Section of
the Fee Schedule and Exchange Rule 100, including Interpretation and
Policy .01.
\18\ The term ``FIX Interface'' means the Financial Information
Exchange interface for certain order types as set forth in Exchange
Rule 516. See the Definitions Section of the Fee Schedule and
Exchange Rule 100.
\19\ The term ``MEO Interface'' or ``MEO'' means a binary order
interface for certain order types as set forth in Rule 516 into the
MIAX Pearl System. See the Definitions Section of the Fee Schedule
and Exchange Rule 100.
\20\ ``Affiliate'' means (i) an affiliate of a Member of at
least 75% common ownership between the firms as reflected on each
firm's Form BD, Schedule A, or (ii) the Appointed Market Maker of an
Appointed EEM (or, conversely, the Appointed EEM of an Appointed
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market
Maker (who does not otherwise have a corporate affiliation based
upon common ownership with an EEM) that has been appointed by an EEM
and an ``Appointed EEM'' is an EEM (who does not otherwise have a
corporate affiliation based upon common ownership with a MIAX Pearl
Market Maker) that has been appointed by a MIAX Pearl Market Maker,
pursuant to the following process. A MIAX Pearl Market Maker
appoints an EEM and an EEM appoints a MIAX Pearl 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#a8c5cdc5cacddadbc0c1d8e8c5c1c9d0c7d8dcc1c7c6db86cbc7c5"><span class="__cf_email__" data-cfemail="8ee3ebe3ecebfcfde6e7fecee3e7eff6e1fefae7e1e0fda0ede1e3">[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 Fee Schedule.
\21\ ``Excluded Contracts'' means any contracts routed to an
away market for execution. See the Definitions Section of the Fee
Schedule.
\22\ ``TCV'' means total consolidated volume calculated as the
total national volume in those classes listed on MIAX Pearl for the
month for which the fees apply, excluding consolidated volume
executed during the period 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 Fee
Schedule.
------------------------------------------------------------------------
Monthly
Type of member connection volume
credit
------------------------------------------------------------------------
Member that connects via the FIX Interface................... $250
Member that connects via the MEO Interface................... 1,000
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If a Member connects via both the MEO Interface and FIX Interface
and qualifies for the Monthly Volume Credit based upon its Priority
Customer volume, the greater Monthly Volume Credit shall apply to such
Member. Prior to the First Proposed Rule Change, the Monthly Volume
Credit was a single, once-per-month credit towards the aggregate
monthly total of non-transaction fees assessable to a Member.
Beginning with the First Proposed Rule Change, the Exchange's
proposals included an amendment to the Definitions section of the Fee
Schedule to delete the definition and remove the Monthly Volume Credit.
The Exchange established the Monthly Volume Credit when it first
launched operations to attract order flow by lowering the initial fixed
cost for Members. The Monthly Volume Credit has achieved its purpose
and the Exchange believes it is appropriate to remove this credit. The
Exchange believes that the Exchange's existing Priority Customer
rebates and fees will continue to allow the Exchange to remain highly
competitive and continue to attract order flow and maintain market
share.
Removal of the Trading Permit Fee Credit
The Exchange proposes to amend Section 3)b) of the Fee Schedule to
remove the Trading Permit fee credit that is denoted in footnote ``*''
below the Trading Permit fee table. Prior to the First Proposed Rule
Change, the Trading Permit fee credit was applicable to Members that
connect via both the MEO and FIX Interfaces. Members who connect via
both the MEO and FIX Interfaces are assessed the rates for both types
of Trading Permits, but these Members received a $100 monthly credit
towards the Trading Permit fees applicable to the MEO Interface prior
to the First Proposed Rule Change. The Exchange proposes to remove the
Trading Permit fee credit and delete footnote ``*'' from Section 3)b)
of the Fee Schedule.
The Exchange established the Trading Permit fee credit when it
first launched operations to attract order flow and increase membership
by lowering the costs for Members that connect via both the MEO
Interface and FIX Interface. The Trading Permit fee credit has achieved
its purpose and the Exchange
[[Page 22989]]
now believes that it is appropriate to remove this credit in light of
the current operating conditions and membership population on the
Exchange.
Amendment of Trading Permit Fees
The Exchange proposes to amend the Fee Schedule to amend the fees
for Trading Permits. The Exchange issues Trading Permits to Members who
are either Electronic Exchange Members \23\ (``EEMs'') or Market
Makers.\24\ The Exchange assesses Trading Permit fees based upon the
monthly total volume executed by the Member and its Affiliates on the
Exchange across all origin types, not including Excluded Contracts, as
compared to the total TCV in all MIAX Pearl-listed options. The
Exchange adopted a tier-based fee structure based upon the volume-based
tiers detailed in the definition of ``Non-Transaction Fees Volume-Based
Tiers'' \25\ in the Definitions section of the Fee Schedule. The
Exchange also assesses Trading Permit fees based upon the type of
interface used by the Member to connect to the Exchange--the FIX
Interface and/or the MEO Interface.
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\23\ The term ``Electronic Exchange Member'' or ``EEM'' means
the holder of a Trading Permit who is a Member representing as agent
Public Customer Orders or Non-Customer Orders on the Exchange and
those non-Market Maker Members conducting proprietary trading.
Electronic Exchange Members are deemed ``members'' under the
Exchange Act. See the Definitions Section of the Fee Schedule.
\24\ The term ``Market Maker'' or ``MM'' means a Member
registered with the Exchange for the purpose of making markets in
options contracts traded on the Exchange and that is vested with the
rights and responsibilities specified in Chapter VI of these Rules.
See the Definitions Section of the Fee Schedule.
\25\ See the Definitions Section of the Fee Schedule for the
monthly volume thresholds associated with each Tier.
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Current Trading Permit Fees. Currently, each Member who connects to
the System \26\ via the FIX Interface is assessed the following monthly
Trading Permit fees:
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\26\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
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(i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $250;
(ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to
0.60%, $350; and
(iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $450.
Each Member who connects to the System via the MEO Interface is
assessed the following monthly Trading Permit fees:
(i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $300;
(ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to
0.60%, $400; and
(iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $500.
Proposed Trading Permit Fees. The Exchange proposes to amend its
Trading Permit fees as follows. Each Member who connects to the System
via the FIX Interface will be assessed the following monthly Trading
Permit fees:
(i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $500;
(ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, $1,000; and
(iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, $1,500.
Each Member who connects to the System via the MEO Interface will
be assessed the following monthly Trading Permit fees:
(i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $2,500;
(ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, $4,000; and
(iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, $6,000.
Members who use the MEO Interface may also connect to the System
through the FIX Interface as well, and vice versa. The Exchange notes
that the Trading Permit fees for Members who connect through the MEO
Interface are higher than the Trading Permit fees for Members who
connect through the FIX Interface, since the FIX Interface utilizes
less capacity and resources of the Exchange. The MEO Interface offers
lower latency and higher throughput, which utilizes greater capacity
and resources of the Exchange. The FIX Interface offers lower bandwidth
requirements and an industry-wide uniform message format. Both EEMs and
Market Makers may connect to the Exchange using either interface.
Trading Permits, like membership fees, grant access and allow
Members to be active on the Exchange, thus providing the ability to
submit orders and trade on the Exchange, in the manner defined in the
relevant Trading Permit. Without a Trading Permit, or ``membership'' on
other exchanges, a Member cannot directly trade on the Exchange.
Therefore, a Trading Permit is a means to directly access the Exchange
(which offers meaningful value), and the Exchange proposes to increase
its monthly fees since it had not done so since the fees were first
adopted in 2018.\27\ The Exchange notes that the its affiliates, Miami
International Securities Exchange, LLC (``MIAX'') and MIAX Emerald, LLC
(``MIAX Emerald''), charge a similar, fixed trading permit fee in a
similar range of trading permit fees to certain users, and a similar,
varying trading permit fee in a similar range of trading permit fees to
other users, based upon the number of assignments of option classes or
the percentage of volume in option classes.\28\
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\27\ See supra note 16.
\28\ See the MIAX Fee Schedule, Section 3)b) and MIAX Emerald
Fee Schedule, Section 3)b), available at <a href="https://www.miaxoptions.com/fees">https://www.miaxoptions.com/fees</a> (last visited March 9, 2022).
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As illustrated by the table below, the Exchange notes that the
proposed fees for the Exchange's Trading Permits are in line with, or
cheaper than, the similar trading permit and membership fees charged by
other options exchanges. The below table also illustrates how the
Exchange has historically undercharged for access via Trading Permits
as compared to other options exchanges. The Exchange believes other
exchanges' membership and trading permit fees are useful examples of
alternative approaches to providing and charging for access and
provides the below table for comparison purposes only to show how the
Exchange's proposed fees compare to fees currently charged by other
options exchanges for similar access.
[[Page 22990]]
------------------------------------------------------------------------
Monthly membership/trading permit
Exchange fee
------------------------------------------------------------------------
MIAX Pearl Options (as proposed).. Trading Permit access via FIX
Interface:
Tier 1: $500.
Tier 2: $1,000.
Tier 3: $1,500.
Trading Permit access via MEO
Interface:
Tier 1: $2,500.
Tier 2: $4,000.
Tier 3: $6,000.
New York Stock Exchange LLC Annual trading license fee for
(``NYSE'') \29\. member organizations ranges from
approximately $25,000 to $50,000
based on the type of member
organization and number of trading
licenses.
NYSE Arca, Inc. (``NYSE Arca'') Options Trading Permits:
\30\.
$6,000 for up to 175 option
issues.
Additional $5,000 for up to 350
option issues.
Additional $4,000 for up to 1,000
option issues.
Additional $3,000 for all option
issues.
Additional $1,000 for the 5th OTP
and each OTP thereafter.
NYSE American, LLC (``NYSE ATP Trading Permits:
American'') \31\.
$8,000 for up to 60 plus the
bottom 45% of option issues.
Additional $6,000 for up to 150
plus the bottom 45% of option
issues.
Additional $5,000 for up to 500
plus the bottom 45% of option
issues.
Additional $4,000 for up to 1,100
plus the bottom 45% of option
issues.
Additional $3,000 for all option
issues.
Additional $2,000 for 6th to 9th
ATPs (plus additional fee for
premium products).
Nasdaq PHLX LLC (``Nasdaq PHLX'') Streaming Quote Trader permit fees:
\32\.
Tier 1 (up to 200 option
classes): $0.00.
Tier 2 (up to 400 option
classes): $2,200.
Tier 3 (up to 600 option
classes): $3,200.
Tier 4 (up to 800 option
classes): $4,200.
Tier 5 (up to 1,000 option
classes): $5,200
Tier 6 (up to 1,200 option
classes): $6,200.
Tier 7 (all option classes):
$7,200.
Remote Market Maker Organization
permit fees:
Tier 1 (less than 100 option
classes): $5,500.
Tier 2 (more than 100 and less
than 999 option classes):
$8,000.
Tier 3 (1,000 or more option
classes): $11,000.
Nasdaq ISE LLC (``Nasdaq ISE'') Access Fees:
\33\.
Primary Market Maker: $5,000 per
membership.
Competitive Market Maker: $2,500
per membership.
Nasdaq Stock Market LLC Annual membership fee is $3,000 plus
(``Nasdaq'') \34\. a monthly $1,250 trading rights fee
(together with the annual
membership fee, totaling $18,000
per year).
Cboe Exchange, Inc. (``Cboe'') Electronic Trading Permit Fees:
\35\.
Market Maker: $5,000.
Electronic Access Permit: $3,000.
Clearing TPH Permit: $2,000.
Cboe C2 Exchange, Inc. (``Cboe Access Permit Fees for Market
C2'') \36\. Makers: $5,000.
Electronic Access Permits: $1,000.
Cboe BZX Exchange, Inc. (``Cboe Annual membership fee of $2,500 plus
BZX'') \37\. an additional fee of $350 per month
for each additional MPID a member
maintains other than their first
(i.e., an annual fee of $4,200 per
additional MPID).
------------------------------------------------------------------------
Implementation
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\29\ See ``Trading Licenses,'' NYSE Price List 2021 (last
updated December 1, 2021), available at: <a href="https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf">https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf</a>.
\30\ See NYSE Arca Options Fees and Charges, OTP Trading
Participant Rights, p.1, available at <a href="https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf">https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf</a> (last visited March 9, 2022).
\31\ See NYSE American Options Fee Schedule, Section III,
Monthly Trading Permit, Rights, Floor Access and Premium Product
Fees, p. 23-24, available at <a href="https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf">https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf</a>
(last visited March 9, 2022).
\32\ See Nasdaq PHLX Options 7 Pricing Schedule, Section 8.
Membership Fees, available at <a href="https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207">https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207</a> (last visited March 9, 2022).
\33\ See Nasdaq ISE Options 7 Pricing Schedule, Section 8.A.
Access Services, available at <a href="https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207">https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207</a> (last visited March 9, 2022).
\34\ See ``NASDAQ Membership Fees,'' Nasdaq Price List,
available at: <a href="http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2#membership">http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2#membership</a>. See also Securities
Exchange Act Release No. 34-81133 (July 12, 2017), 82 FR 32904 (July
18, 2017) (SR-NASDAQ-2017-065) (discussing the reasonableness of
Nasdaq's fees).
\35\ See Cboe Fee Schedule, Electronic Trading Permit Fees,
available at <a href="https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf">https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf</a> (last visited March 9, 2022).
\36\ See Cboe C2 Fee Schedule, Access Fees, available at <a href="https://www.cboe.com/us/options/membership/fee_schedule/ctwo/">https://www.cboe.com/us/options/membership/fee_schedule/ctwo/</a> (last visited
March 9, 2022).
\37\ See ``Membership Fees'' and ``Market Participant Identifier
(`MPID') Fees'' sections of the Cboe BZX Fee Schedule, 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>.
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The proposed fee changes are effective 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 \38\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \39\ 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 in that it is designed to
promote just and equitable
[[Page 22991]]
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in general
to protect investors and the public interest and is not designed to
permit unfair discrimination between customers, issuers, brokers and
dealers.
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\38\ 15 U.S.C. 78f(b).
\39\ 15 U.S.C. 78f(b)(4) and (5).
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Removal of Monthly Volume Credit and Trading Permit Fee Credit
The Exchange believes its proposal to remove the Monthly Volume
Credit is reasonable, equitable and not unfairly discriminatory because
all market participants will no longer be offered the ability to
achieve the extra credits associated with the Monthly Volume Credit for
submitting Priority Customer volume to the Exchange and access to the
Exchange is offered on terms that are not unfairly discriminatory. The
Exchange believes it is equitable and not unfairly discriminatory to
remove the Monthly Volume Credit from the Fee Schedule for business and
competitive reasons because, in order to attract order flow when the
Exchange first launched operations, the Exchange established the
Monthly Volume Credit to lower the initial fixed cost for Members. The
Exchange now believes that it is appropriate to remove this credit in
light of the current operating conditions and the current type and
amount of Priority Customer volume executed on the Exchange. The
Exchange believes that the Exchange's Priority Customer rebates and
fees will still allow the Exchange to remain highly competitive such
that the Exchange should continue to attract order flow and maintain
market share.
The Exchange believes its proposal to remove the Trading Permit fee
credit for Members that connect via both the MEO Interface and FIX
Interface is reasonable, equitable and not unfairly discriminatory
because all market participants will no longer be offered the ability
to receive the credit and access to the Exchange is offered on terms
that are not unfairly discriminatory. The Exchange believes it is
equitable and not unfairly discriminatory to remove the Trading Permit
fee credit for business and competitive reasons because, in order to
attract order flow and membership after the Exchange first launched
operations, the Exchange established the Trading Permit fee credit to
lower the costs for Members that connect via both the MEO Interface and
FIX Interface. The Exchange now believes that it is appropriate to
remove this credit in light of the current operating conditions and
membership on the Exchange.
Trading Permit Fee Increase
The Exchange believes that there is value in being a Member of the
Exchange, retaining that Membership as the Exchange's market share has
grown, and that the proposed Trading Permit fees are reasonable because
they are in the range of similar types of membership fees charged by
other exchanges with similar market share. The proposed monthly Trading
Permit fees are lower than or comparable to the membership and trading
permit fees imposed by several other national securities exchanges that
charge such fees.\40\
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\40\ See supra notes 29-37.
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The Exchange believes that the proposed monthly Trading Permit fees
are not unfairly discriminatory because they would be assessed equally
across all Members or firms that seek to become Members. The Exchange
believes that the proposed monthly Trading Permit fees are not unfairly
discriminatory because no broker-dealer is required to become a member
of the Exchange. Instead, many market participants awaited the Exchange
growing to a certain percentage of market share before they would join
as a Member of the Exchange. In addition, many market participants
still have not joined the Exchange despite the Exchange's growth in
recent years to consistently be approximately 4-5% of the overall
equity options market share. To illustrate, the Exchange currently has
41 Members.\41\ However, based on publicly available information
regarding a sample of the Exchange's competitors, NYSE American Options
has 75 members, NYSE Arca Options has 71 members, and Cboe has 233
members.\42\ Accordingly, the vigorous competition among national
securities exchanges provides many alternatives for firms to
voluntarily decide whether membership to the Exchange is appropriate
and worthwhile, and no broker-dealer is required to become a member of
the Exchange. Specifically, neither the trade-through requirements
under Regulation NMS nor broker-dealers' best execution obligations
require a broker-dealer to become a member of every exchange.
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\41\ See MIAX Pearl Options Exchange Member Directory, available
at <a href="https://www.miaxoptions.com/exchange-members/pearl">https://www.miaxoptions.com/exchange-members/pearl</a>.
\42\ See NYSE American Options Membership Directory, available
at <a href="https://www.nyse.com/markets/american-options/membership">https://www.nyse.com/markets/american-options/membership</a> (last
visited March 9, 2022); NYSE Arca Options Membership Directory,
available at <a href="https://www.nyse.com/markets/arca-options/membership">https://www.nyse.com/markets/arca-options/membership</a>
(last visited March 9, 2022); Cboe Members and Sponsored
Participants, Form 1 Amendment dated February 17, 2022, Exhibit M,
available at <a href="https://www.sec.gov/Archives/edgar/vprr/2200/22000797.pdf">https://www.sec.gov/Archives/edgar/vprr/2200/22000797.pdf</a> (last visited March 9, 2022).
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The Exchange acknowledges that competitive forces may require
certain broker-dealers to be members of all equity options exchanges.
However, the Exchange believes that the proposed fees are reasonable,
equitably allocated and not unfairly discriminatory, even for a broker-
dealer that deems it necessary to join the Exchange for business
purposes, as those business reasons should presumably result in revenue
capable of covering the proposed fees.
The Exchange further believes that the proposed fees would be an
equitable allocation of reasonable dues, fees, and other charges among
its members and issuers and other persons using its facilities, and are
not unfairly discriminatory. As the Commission noted in its Concept
Release Concerning Self-Regulation, the Commission to date has not
issued detailed rules specifying proper funding levels of self-
regulatory organization (``SRO'') regulatory programs, or how costs
should be allocated among the various SRO constituencies. Rather, the
Commission has examined the SROs to determine whether they are
complying with their statutory responsibilities. This approach was
developed in response to the diverse characteristics and roles of the
various SROs and the markets they operate. The mechanics of SRO
funding, including the amount of revenue that is spent on regulation
and how that amount is allocated among various regulatory operations,
is related to the type of market that an SRO is operating. Thus, each
SRO and its financial structure is, to a certain extent, unique. While
this uniqueness can result in different levels of SRO funding across
markets, it also is a reflection of one of the primary underpinnings of
the National Market System. Specifically, by fostering an environment
in which diverse markets with diverse business models compete within a
unified National Market System, investors and market participants
benefit.\43\
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\43\ See Securities Exchange Act Release No. 34-50700 (November
22, 2004), 69 FR 71255, 71267-68 (December 8, 2004) (File No. S7-40-
04).
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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 \44\ 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
[[Page 22992]]
dealers. Effective regulation is central to the proper functioning of
the securities markets. Recognizing the importance of such efforts,
Congress decided to require national securities exchanges to register
with the Commission as self-regulatory organizations to carry out the
purposes of the Act. The Exchange therefore believes that it is
critical to ensure that regulation is appropriately funded. The monthly
Trading Permit fees are expected to provide a source of funding towards
the Exchange's costs related to onboarding Members and providing
ongoing support.
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\44\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\45\ the Exchange
believes that the proposed rule change would not impose any burden on
intermarket or intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
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\45\ 15 U.S.C. 78f(8).
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Intra-Market Competition
The Exchange believes the removal of the Monthly Volume Credit and
Trading Permit fee credit will not place certain market participants at
a relative disadvantage to other market participants because, in order
to attract order flow when the Exchange first launched operations, the
Exchange established these credits to lower the initial fixed cost for
Members. The Exchange now believes that it is appropriate to remove
this credit in light of the current operating conditions, including the
Exchange's overall membership and the current type and amount of volume
executed on the Exchange. The Exchange believes that the Exchange's
rebates and fees will still allow the Exchange to remain highly
competitive such that the Exchange should continue to attract order
flow and maintain market share. The Exchange's proposed Trading Permit
fees will be lower than or similar to the cost of membership and
trading permits on other exchanges,\46\ and therefore, may stimulate
intramarket competition by attracting additional firms to become
Members on the Exchange or at least should not deter interested
participants from joining the Exchange. In addition, membership and
trading permit fees are subject to competition from other exchanges.
Accordingly, if the changes proposed herein are unattractive to market
participants, it is likely the Exchange will see a decline in
membership as a result.
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\46\ See supra note 40.
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Inter-Market Competition
The Exchange operates in a highly competitive market in which
market participants can readily favor one of the 15 competing options
venues if they deem fee levels at a particular venue to be excessive.
Based on publicly-available information, and excluding index-based
options, no single exchange has more than approximately 16% market
share. Therefore, no exchange possesses significant pricing power in
the execution of multiply-listed equity and ETF options order flow.
Over the course of 2021, the Exchange's market share has fluctuated
between approximately 3-6% of the U.S. equity options industry.\47\ The
Exchange is not aware of any evidence that a market share of
approximately 3-6% provides the Exchange with anti-competitive pricing
power. The Exchange believes that the ever-shifting market share among
exchanges from month to month demonstrates that market participants can
discontinue or reduce use of certain categories of products, or shift
order flow, in response to fee changes. In such an environment, the
Exchange must continually adjust its fees to remain competitive with
other exchanges and to attract order flow to the Exchange.
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\47\ See ``The market at a glance,'' available at <a href="https://www.miaxoptions.com/">https://www.miaxoptions.com/</a> (last visited December 20, 2021).
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The proposed fee change will not impact intermarket competition
because it will apply to all Members equally. The Exchange operates in
a highly competitive market in which market participants can determine
whether or not to join the Exchange based on the value received
compared to the cost of joining and maintaining membership on the
Exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
As described above, the Exchange received one comment letter on the
First Proposed Rule Change.\48\ The Exchange responded to the comment
letter in the Second Proposed Rule Change. No comment letters were
received in response to the Second or Third Proposed Rule Changes. The
Exchange received one comment letter on the Fourth Proposed Rule
Change,\49\ which the Exchange responds to in this filing.
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\48\ See supra note 7.
\49\ See supra note 14.
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The First, Second, Third and Fourth Proposed Rule Changes all
provided cost-based justifications to support the proposed fee changes.
In this Fifth Proposed Rule Change, the Exchange determined to utilize
a competition based approach to support the proposed fee changes.
Because the SIG Letters are primarily focused on the Exchange's prior
cost justifications in the First, Second, Third and Fourth Proposed
Rule Changes, the Exchange believes the SIG's assertions are no longer
germane to the current filing as the Exchange no longer utilizes a cost
justification to support the proposed fees.
Pursuant to the Guidance, Staff may consider whether a proposed fee
is constrained by significant competitive forces in assessing the
reasonableness of the proposed fee.\50\ This is in line with a recent
filing by MEMX LLC (``MEMX''), in which MEMX argued its proposed
monthly membership fee was reasonable because it was constrained by
competitive forces.\51\ MEMX's monthly membership fee filing received
no comment letters and remains in effect today, past the Commission's
60-day suspension deadline. The Exchange's trading permit fees are the
equivalent of MEMX's ``membership fee,'' BOX's ``participant fee'' and
``market maker trading permit fee,'' and other exchanges' ``access''
fees: They are all fees to solely provide access and allow activity to
the specific marketplace. These are all monthly fees assessed to
members for trading on each particular exchange. The Exchange now
argues that its proposed fees are constrained by competition in the
same way MEMX's membership fees are constrained by competition.
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\50\ See Staff Guidance on SRO Rule Filings Relating to Fees
(May 21, 2019), at <a href="https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees">https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees</a> (the ``Guidance'').
\51\ See supra note 15.
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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,\52\ and Rule 19b-4(f)(2) \53\ 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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\52\ 15 U.S.C. 78s(b)(3)(A)(ii).
\53\ 17 CFR 240.19b-4(f)(2).
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[[Page 22993]]
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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#4230372e276f212d2f2f272c3631023127216c252d34"><span class="__cf_email__" data-cfemail="2654534a430b45494b4b434852556655434508414950">[email protected]</span></a>. Please include
File Number SR-PEARL-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-PEARL-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="https://www.sec.gov/rules/sro.shtml">https://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-2022-09 and should be
submitted on or before May 9, 2022.
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\54\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\54\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08172 Filed 4-15-22; 8:45 am]
BILLING CODE 8011-01-P
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