Notice2022-10962
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
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
May 23, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 99 (Monday, May 23, 2022)</title>
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[Federal Register Volume 87, Number 99 (Monday, May 23, 2022)]
[Notices]
[Pages 31269-31275]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-10962]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94929; File No. SR-PEARL-2022-21]
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
May 17, 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 May 12, 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 adopt a new tiered pricing structure, ``Market Quality
Tiers'' or ``MQ Tiers,'' designed to improve market quality on the
Exchange in certain specific securities, the ``Market Quality
Securities'' or ``MQ Securities,'' and more generally in the form of an
enhanced rebate for executions of displayed orders in securities priced
at or above $1.00 per share that add liquidity to the Exchange (such
orders, ``Added Displayed Volume'') for Members that meet certain
minimum quoting requirements across a specified number of securities,
as further described below. The Exchange originally filed this proposal
on April 29, 2022 (SR-PEARL-2022-17). On May 12, 2022, the Exchange
withdrew SR-PEARL-2022-17 and resubmitted this proposal.
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.\3\
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\3\ See MIAX's ``The Market at a Glance'', available at <a href="https://www.miaxoptions.com/">https://www.miaxoptions.com/</a> (last visited April 27, 2022).
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Additionally, in response to the competitive environment, the
Exchange also offers tiered pricing, which provides Equity Members \4\
(``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
[[Page 31270]]
for satisfying increasingly more stringent criteria.
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\4\ 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 Market Quality Tiers
The Exchange proposes to adopt a new tiered pricing incentive,
referred to by the Exchange as the ``Market Quality Tiers'' (or ``MQ
Tiers''), in the form of an enhanced rebate for executions of Added
Displayed Volume for Members that qualify for the incentive by meeting
certain minimum quoting requirements across a specified number of
securities, as further described below. The proposed MQ Tiers are
designed to encourage Members to improve market quality by quoting at
the NBBO \5\ for a significant portion of the day (as defined below) on
the Exchange in certain specific securities, referred to by the
Exchange as MQ Securities and in all securities more generally.\6\ By
analyzing volume statistics and time at the NBBO the Exchange has
identified a number of securities for which it intends to improve these
metrics (the MQ Securities). The list of MQ Securities is published on
the Exchange's website. The Exchange believes the MQ Tiers will benefit
the Exchange and investors by providing improved trading conditions for
all market participants through narrower bid-ask spreads and increased
depth of liquidity available at the NBBO in a broad base of securities,
including the MQ Securities.
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\5\ With respect to the trading of equity securities, the term
``NBB'' shall mean the national best bid, the term ``NBO'' shall
mean the national best offer, and the term ``NBBO'' shall mean the
national best bid and offer. See Exchange Rule 1901.
\6\ The Exchange notes that it will aggregate each Member's
MPIDs and view quotes by Member Firm to determine the number of
securities in which the Member meets the quoting requirements for
that day.
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The Exchange currently provides a standard rebate of $0.0029 per
share for executions of Added Displayed Volume.\7\ The Exchange now
proposes to introduce a tiered pricing structure in which it will
provide an enhanced rebate for executions of Added Displayed Volume to
Members that meet certain quoting requirements. Specifically, the
Exchange proposes to provide an enhanced rebate of $0.0032 in Tier 1 of
the Market Quality Tiers for executions of Added Displayed Volume \8\
if the Member's Percent Time at NBBO \9\ is at least 25% in an average
of at least 250 securities, at least 50 of which must be MQ Securities,
per trading day during the month. Similarly, the Exchange proposes to
provide an enhanced rebate of $0.0034 in Tier 2 of the Market Quality
Tiers for executions of Added Displayed Volume if the Member's Percent
Time at NBBO is at least 25% in an average of at least 1,000
securities, at least 100 of which must be MQ Securities, per trading
day during the month.
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\7\ The Exchange notes that the standard rebate of $0.0029 per
share for executions of Added Displayed Volume in securities priced
at or above $1.00, applicable to Liquidity Indicator Codes AA, AB,
and AC, is not changing under this proposal.
\8\ The incentives provided for in the Market Quality Tiers will
be applicable to the following Liquidity Indicator Codes: AA, AB,
and AC. See section 1(b) Liquidity Indicator Codes and Associated
Fees of the Exchange's Fee Schedule available on its public website
(available at <a href="https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_04012022_b.pdf">https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_04012022_b.pdf</a>).
\9\ As proposed, the term ``Percent Time at NBBO'' means the
aggregate of the percentage of time during regular trading hours
where a Member has a displayed order of at least one round lot at
the national best bid (``NBB'') or the national best offer
(``NBO'').
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As noted above, to qualify for the incentive provided for in Tier 1
of the Market Quality Tiers, a Member must meet the quoting requirement
in an average of at least 250 securities traded on the Exchange (the
``Tier 1 Securities Requirement''), at least 50 of which must be MQ
Securities (the ``Tier 1 MQ Securities Requirement''), per trading day
during the month. To qualify for the incentive provided for in Tier 2
of the Market Quality Tiers, a Member must meet the quoting requirement
in an average of at least 1,000 securities traded on the Exchange (the
``Tier 2 Securities Requirement''), at least 100 of which must be MQ
Securities (the ``Tier 2 MQ Securities Requirement''), per trading day
during the month. The Tier 1 Securities Requirement and the Tier 2
Securities Requirement, collectively the ``Securities Requirement'' and
the Tier 1 MQ Securities Requirement and Tier 2 MQ Securities
Requirement, collectively the ``MQ Securities Requirement'' is referred
to under this proposal as the ``Incentive Criteria.'' The proposed MQ
Tiers are designed to enhance market quality both in a broad manner
with respect to all securities traded on the Exchange, through the
Securities Requirement, and in a targeted manner with respect to
certain designated securities in which the Exchange specifically seeks
to inject additional quoting competition (i.e., the MQ Securities),
through the MQ Securities Requirement. The number of MQ Securities in
which a Member meets the quoting requirement will be counted toward
both the Securities Requirement and the MQ Securities Requirement. In
order to determine whether a Member meets the applicable Securities
Requirements during a month, the average number of securities in which
such a Member meets the quoting requirement per trading day during the
month will be calculated by summing the number of securities in which
the Member met the quoting requirement for each trading day during the
month then dividing the resulting sum by the total number of trading
days in the month.\10\
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\10\ As an example, in a month with 20 trading days, if a Member
satisfied the quoting requirement in 125 securities (of which 25
were MQ Securities) for ten of the trading days in the month, and
satisfied the quoting requirement in 375 securities (of which 75
were MQ Securities) for the other ten trading days in the month,
such Member would meet the quoting requirement in an average of 250
securities (i.e., ((125 x 10) + (375 x 10))/20), inclusive of an
average of 50 MQ Securities (i.e., ((25 x 10) + (75 x 10))/20), per
trading day during the month. Therefore, such Member would meet the
applicable Securities Requirements during the month and would
qualify for the Tier 1 incentive for that month under this proposal.
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In addition, for the purposes of determining qualification for the
MQ Tiers, the Exchange will exclude: (1) Any trading day that the
Exchange's system experiences a disruption that lasts for more than 60
minutes during Regular Trading Hours; (2) any day with a scheduled
early market close; and (3) the ``Russell Reconstitution Day''
(typically the last Friday in June). The Exchange will exclude any
trading day that the Exchange's system experiences a disruption that
lasts for more than 60 minutes during Regular Trading Hours, any day
with a scheduled early market close, and the Russell Reconstitution Day
when determining both the numerator (i.e., the number of securities in
which a Member has met the quoting requirement for each trading day
during the month) and the denominator (i.e., the total number of
trading days in the month) for purposes of calculating the average
number of securities in which such Member meets the quoting requirement
per trading day during the month.
As further detail regarding such proposed exclusions, an Exchange
system disruption may occur, for example, where a certain group of
securities traded on the Exchange is unavailable for trading due to an
Exchange system issue. Similarly, the Exchange may be able to perform
certain functions with respect to accepting and processing orders, but
may have a failure to another significant process, such as routing to
other market centers, that would lead Members that rely on such process
to avoid utilizing the Exchange until the Exchange's entire system was
operational. The Exchange believes that these types of Exchange system
disruptions could preclude Members from participating on the Exchange
to the extent that they might have otherwise participated on such days,
and thus, the Exchange believes it
[[Page 31271]]
is appropriate to exclude such days when determining whether a Member
meets the applicable Securities Requirements during a month to avoid
penalizing Members that might otherwise have met such requirements.
Additionally, the Exchange believes that scheduled early market
closures, which typically are the day before, or the day after, a
holiday, may preclude some Members from participating on the Exchange
at the same level that they might otherwise. For similar reasons, the
Exchange believes it is appropriate to exclude the Russell
Reconstitution Day in the same manner, as the Exchange believes that
the Russell Reconstitution Day typically has extraordinarily high, and
abnormally distributed, trading volumes and the Exchange believes this
change to normal activity may affect a Member's ability to meet the
quoting requirement across various securities on that day. The Exchange
notes that the exclusion of any day during which the Exchange's system
experiences a disruption that lasts for more than 60 minutes during
Regular Trading Hours, any day with a scheduled early market close, and
the Russell Reconstitution Day is consistent with the methodologies
used by other exchanges when calculating certain Member trading and
other volume metrics for purposes of determining whether Members
qualify for certain pricing incentives, and the Exchange believes
application of this methodology is similarly appropriate for the
proposed MQ Tiers pricing incentive.\11\
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\11\ See e.g., the CBOE BZX Exchange, Inc. (``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>); the
Cboe EDGX Exchange, Inc. (``Cboe EDGX'') equities trading fee
schedule available 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>); and the
MEMX LLC, (``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>).
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A Member that qualifies for the enhanced rebate under MQ Tier 1 by
meeting the requirements described above during a particular month will
receive an enhanced rebate of $0.0032 per share for all executions of
Added Displayed Volume (unless a higher rebate applies) \12\ during
that month. This proposed rebate is $0.0003 higher than the standard
rebate ($0.0029) that would otherwise be applicable to such executions.
Similarly, a Member that qualifies for the enhanced rebate under MQ
Tier 2 by meeting the requirements described above during a particular
month will receive an enhanced rebate of $0.0034 per share for all
executions of Added Displayed Volume (unless a higher rebate applies)
during that month. This proposed rebate is $0.0005 higher than the
standard rebate ($0.0029) that would otherwise be applicable to such
executions. The Exchange notes that the proposed enhanced rebate will
only apply to executions in securities priced at or above $1.00 per
share; executions of a qualifying Member's displayed orders that add
liquidity to the Exchange in securities priced below $1.00 per share
will continue to receive the standard rebate applicable to executions
of such orders on the Exchange (i.e., 0.05% of the total value of the
transaction).
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\12\ The Exchange currently provides on its Fee Schedule that,
``to the extent a Pearl Equity Member qualifies for higher rebates
and/or lower fees than those provided by a tier for which such a
Member qualifies, the higher rebate and/or lower fees shall apply.''
See the Exchange's Fee Schedule, General Notes section, on its
public website (available at <a href="https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_04012022_b.pdf">https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_04012022_b.pdf</a>).
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The Exchange is proposing to provide the enhanced rebate for
executions of Added Displayed Volume for qualifying Members as a means
of recognizing the value of market participants that consistently quote
at the NBBO in a large number of securities generally, and in the MQ
Securities in particular. Given the proposed Incentive Criteria for the
Market Quality Tiers a Member must make a significant contribution to
market quality by providing liquidity at the NBBO in a large number of
securities, including certain designated securities in which the
Exchange specifically seeks to inject additional quoting competition
(i.e., the MQ Securities), for a significant portion of the day.
Through the proposed enhanced rebate for qualifying Members, the
Exchange hopes to provide improved trading conditions for all market
participants through narrower bid-ask spreads and increased depth of
liquidity available at the NBBO for a large number of securities
generally, including the MQ Securities in particular.
The Exchange notes that the proposed MQ Tiers are similar in
structure and purpose to pricing programs at other exchanges that are
designed to enhance market quality by incentivizing Members to achieve
minimum quoting standards, including minimum quoting at the NBBO in a
large number of securities generally, or certain designated securities
in particular.\13\ The Exchange further notes that, like the proposed
MQ Tiers, these programs include as an incentive the provision of an
enhanced rebate for executions of liquidity-adding displayed orders for
Members that meet the quoting and other requirements of those
programs.\14\
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\13\ See e.g., the Nasdaq equities trading fee schedule on its
public website, (available at <a href="http://www.nasdaqtrader.com/trader.aspx?id=pricelisttrading2">http://www.nasdaqtrader.com/trader.aspx?id=pricelisttrading2</a>) and Nasdaq Rule Equity 7, Section
114(d) describing Nasdaq's Qualified Market Maker Program, which
provides for an additional rebate (ranging from $0.0001 to $0.0002
per share) for executions of liquidity-providing displayed orders
(other than designated retail orders) in securities across all tapes
priced at or above $1.00 per share for members that, in addition to
executing transactions that represent a specified percentage of
consolidated volume and avoiding inefficient order entry practices
that place excessive burdens on Nasdaq's systems, quote at the NBBO
at least 25% of the time during regular market hours in an average
of at least 1,000 securities per day during the month; see also the
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>), which provides for an additional rebate (ranging
from $0.0001 to $0.0002 per share) under Cboe BZX's Liquidity
Management Program for executions of liquidity-providing displayed
orders in Tape B securities priced at or above $1.00 per share for
members that, in addition to adding a specified percentage of total
consolidated volume in Tape B securities and meeting certain other
quoting requirements with respect to a specified number of
securities designated as ``LMP Securities'' on a list determined by
Cboe BZX, quote at the NBBO at least 15% of the time during regular
trading hours in a specified number of such designated LMP
Securities (or achieve an alternative NBBO quoting standard
involving a size-setting element with respect to such designated LMP
Securities.); see also 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>), which provides for a rebate of $0.0033 per share in Tier
1 under MEMX's Displayed Liquidity Incentive (DLI) Tiers for
executions of liquidity providing displayed orders in securities
priced at or above $1.00 per share for members that have an NBBO
Time of at least 25% in an average of at least 1,000 securities, at
least 125 must be DLI Target Securities, per trading day during the
month, and a rebate of $0.0031 per share in Tier 2 for executions of
liquidity providing displayed orders in securities priced at or
above $1.00 per share for members that have an NBBO Time of at least
25% in an average of at least 250 securities, at least 75 of which
must be DLI Target Securities, per trading day during the month.
\14\ Id.
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In addition to the foregoing changes, the Exchange proposes to add
to the Fee Schedule definitions of the terms, ``Market Quality
Securities,'' and ``Percent Time at NBBO,'' that are consistent with
the descriptions of those terms as set forth above, as such terms are
used above describing the calculation methodology and criteria for
determining whether a Members qualifies for a rebate under the MQ Tiers
that the Exchange is proposing to add to the Fee Schedule, as described
above. The Exchange also proposes to make a minor non-substantive edit
to the definition of ADAV to remove the parenthetical ``Exchange System
Disruption'' to avoid confusion as the Exchange has a pre-existing
definition of Exchange System Disruption. The Exchange also proposes to
adopt a new paragraph to the General Notes section
[[Page 31272]]
to state that, ``[f]or the purpose of determining qualification for the
Market Quality Tiers the Exchange will exclude from its calculation:
(1) Any trading day that the Exchange's system experiences a disruption
that lasts for more than 60 minutes during regular trading hours; (2)
any day with a scheduled early market close; and (3) the ``Russell
Reconstitution Day'' (typically the last Friday in June).'' The
Exchange believes this adds additional clarity regarding the
methodology used to determine qualification for the Market Quality
Tiers.
Implementation
The proposed changes are immediately effective.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \15\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \16\ in
particular, in that it provides for the equitable allocation of
reasonable dues, fees and other charges among its 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) \17\ 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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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4).
\17\ 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.\18\ 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.'' \19\
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\18\ See supra note 3.
\19\ 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 in both a broad manner and in a targeted manner with
respect to the MQ Securities.
Market Quality Tiers
The proposed Market Quality Tiers are intended to encourage Members
to promote price discovery and market quality by quoting at the NBBO
for a significant portion of each day in a large number of securities
generally, and in MQ Securities in particular, thereby benefiting the
Exchange and other investors by providing improved trading conditions
for all market participants through narrower bid-ask spreads and
increasing the depth of liquidity available at the NBBO in a broad base
of securities, including the MQ Securities. Additionally, the Exchange
believes the proposed enhanced rebates for all executions of a
qualifying Member's Added Displayed Volume will simultaneously
incentivize such Member to direct additional displayed liquidity-
providing orders to the Exchange in a more general manner to receive
such enhanced rebate. Thus, the Exchange believes that the proposed
Market Quality Tiers will promote price discovery and market quality in
the MQ Securities and more generally on the Exchange, and, further,
that the resulting tightened spreads and increased displayed liquidity
will benefit all investors by deepening the Exchange's liquidity pool,
supporting the quality of price discovery, enhancing quoting
competition across all exchanges, and promoting market transparency.
The Exchange believes the proposed enhanced rebate of $0.0032 per
share provided to Members that qualify for Market Quality Tier 1
executions of Added Displayed Volume is reasonable, in that it does not
reflect a disproportionate increase above the standard rebate of
$0.0029 per share provided to all Members with respect to the provision
of Added Displayed Volume. Similarly, the Exchange believes the
proposed enhanced rebate of $0.0034 per share provided to Members that
qualify for Market Quality Tier 2 executions of Added Displayed Volume
is reasonable, in that it does not reflect a disproportionate increase
above the enhanced rebate of $.0.0032 per share provided to qualifying
Members in Tier 1 with respect to the provision of Added Displayed
Volume. Moreover, the Exchange believes the proposed enhanced rebate
associated with Market Quality Tier 2 is a reasonable means to
incentivize Members to increase their participation on the Exchange as
it provides Members with an additional opportunity to qualify for an
enhanced rebate for executions of Added Displayed Volume by satisfying
more stringent criteria than Tier 1.
The Exchange further believes that the proposed criteria for Tier 1
and Tier 2 of the Market Quality Tiers, and the associated enhanced
rebate for each is reasonable, in that the proposed criteria for Tier 2
is incrementally more difficult to achieve than that of Tier 1, and
thus Tier 2 appropriately offers a higher rebate commensurate with the
corresponding higher volume threshold. Therefore, the Exchange believes
that the Market Quality 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.
[[Page 31273]]
In addition the Exchange believes that it is reasonable and
consistent with an equitable allocation of fees to pay a higher rebate
for executions of Added Displayed Volume to Members that qualify for
one of the Market Quality Tiers with respect to the MQ Securities
because of the additional commitment to market quality reflected in the
associated quoting requirements. Such Members benefit all investors by
promoting price discovery and increasing the depth of liquidity
available at the NBBO and benefit the Exchange itself by enhancing its
competitiveness as a market center that attracts actionable orders.
Further, the Exchange notes that the proposed Market Quality Tiers
offers a new incentive on the Exchange that would apply uniformly to
all Members, and any Member may choose to qualify for one of the Market
Quality Tiers by meeting the associated requirements in any month,
regardless of the volume of transactions that it executes on the
Exchange. The Exchange acknowledges that firms that do not post
displayed liquidity on the Exchange or do so on a smaller scale may not
have the level of capital necessary to support meeting the proposed
Incentive Criteria, however, the Exchange believes that the
requirements are attainable for many market participants who do
actively quote on the Exchange and are reasonably related to the
enhanced market quality that the Market Quality Tiers are designed to
promote. Additionally, the Exchange notes that Members that do not meet
the proposed Incentive Criteria may still qualify for a rebate that is
higher than the standard rebate for executions of Added Displayed
Volume through the Add Volume Tiers Incentive, which does not require a
Member to consistently quote at the NBBO across a broad range of
securities. Accordingly, the Exchange believes that it is consistent
with an equitable allocation of fees and is not unfairly discriminatory
to pay a higher rebate in comparison with the rebate paid to other
Members for executions of displayed liquidity providing orders in
recognition of the benefits to the Exchange and market participants,
particularly as the magnitude of the additional rebate is not
unreasonably high, and is instead, reasonably related to such enhanced
market quality.
The Exchange also believes that including in the proposed Market
Quality Tiers criteria a quoting requirement for certain specified
securities (i.e., the MQ Securities), in addition to the more general
requirements of 250 securities in Tier 1 and 1,000 securities in Tier
2, is equitable and not unfairly discriminatory because the Exchange
has identified the MQ Securities as securities in which it would like
to inject additional quoting competition, which the Exchange believes
will generally act to narrow spreads, increase size at the NBBO, and
increase liquidity depth in such securities, thereby increasing the
attractiveness of the Exchange as a destination venue with respect to
such securities. Accordingly, the Exchange believes that this aspect of
the proposal is reasonable, equitably allocated, and not unfairly
discriminatory because it is consistent with the overall goals of
enhancing market quality.
Furthermore, as noted above, the proposed Market Quality Tiers are
similar in structure and purpose to pricing programs in place at other
exchanges that are designed to enhance market quality.\20\
Specifically, these programs, like the proposed Market Quality Tiers,
provide a higher rebate for executions of liquidity-adding displayed
orders for members that achieve minimum quoting standards, including
minimum quoting at the NBBO in a large number of securities generally,
or certain designated securities in particular.\21\ The Exchange also
notes that the proposed Market Quality Tiers are not dissimilar from
volume-based rebates and fees which have been widely adopted by
exchanges \22\ and are equitable and not unfairly discriminatory
because they are generally open to all members on an equal basis and
provide higher rebates and/or lower fees that are reasonably related to
the value of an exchange's market quality. Much like volume-based tiers
are designed to incentivize higher levels of liquidity provision, the
proposed Market Quality Tiers are designed to incentivize enhanced
market quality on the Exchange through tighter spreads, greater size at
the NBBO, and greater quoting depth in a large number of securities
generally, and in MQ Securities specifically, through the provision of
an enhanced rebate for all executions of a qualifying Member's Added
Displayed Volume, where such rebate will in turn incentivize higher
levels of displayed liquidity provision in a general manner.
Accordingly, the Exchange believes that the proposed Market Quality
Tiers would act to enhance liquidity and competition across exchanges
in the Market Quality Tiers and enhance liquidity provision in all
securities on the Exchange more generally by providing a rebate
reasonably related to such enhanced market quality to the benefit of
all investors, thereby promoting the principles discussed in Sections
6(b)(4) and 6(b)(5) of the Act.\23\
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\20\ See supra note 11.
\21\ Id.
\22\ See, e.g., the Cboe BZX equities trading fee schedule on
its public website (available at <a href="https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/">https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/</a>); the Cboe EDGX equities
trading fee schedule on its public website (available at <a href="https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/">https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/</a>); and the
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>).
\23\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange also believes that the calculation methodology and
criteria for determining whether a Member satisfies the requirements to
qualify for the Market Quality Tiers, as well as the definitions of
terms that are used, is reasonable, equitable, and non-discriminatory
because the definitions are designed to ensure that the Fee Schedule is
clear and as easily understandable as possible with respect to the
requirements of the proposed Market Quality Tiers. Additionally, the
Exchange believes that excluding (1) any trading day that the
Exchange's system experiences a disruption that lasts for more than 60
minutes during Regular Trading Hours; (2) any day with a scheduled
early market close; and (3) the Russell Reconstitution Day, when
determining whether a Member qualifies for a proposed Market Tier
during a month is reasonable, equitable, and non-discriminatory
because, as explained above, the Exchange believes doing so would help
to avoid penalizing Members that might otherwise have met the
requirements to qualify for a proposed Market Quality Tier due to
Exchange system disruptions, abbreviated trading days, and/or abnormal
market conditions. For similar reasons, the Exchange believes it is
appropriate to exclude the Russell Reconstitution Day, as the Exchange
believes the change to normal trading activity as a result of the
Russell Reconstitution may affect a Member's ability to meet the
quoting requirement across various securities on that day. The Exchange
notes that its proposed calculation methodology is consistent with the
methodologies used by other exchanges when calculating certain member
trading and other volume metrics for purposes of determining whether
members qualify for certain pricing incentives.\24\
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\24\ See supra note 13.
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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
[[Page 31274]]
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. Instead, as discussed above, the proposal
is intended to enhance market quality on the Exchange in a large number
of securities generally, and in the MQ Securities specifically, and to
encourage Members to maintain or increase their order flow on the
Exchange, thereby promoting price discovery and contributing to a
deeper and more liquid market to the benefit of all market
participants. As a 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.'' \25\
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\25\ 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 promote price discovery and market quality by quoting at the NBBO
for a significant portion of each day in a large number of securities,
including the MQ Securities, to maintain or increase their order flow
on 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, which the Exchange
believes, in turn, would continue to encourage market participants to
direct additional order flow to the Exchange. Greater liquidity
benefits all Members by providing more trading opportunities and
encourages Members to send additional orders to the Exchange, thereby
contributing to robust levels of liquidity, which benefits all market
participants. The opportunity to qualify for one of the Market Quality
Tiers and thus receive the corresponding enhanced rebate for executions
of Added Displayed Volume would be available to all Members that meet
the associated requirements in any month. Further, as noted above, the
Exchange believes that the proposed criteria for Tier 1 and Tier 2
(which has slightly more stringent criteria than Tier 1) of the Market
Quality Tiers, are attainable for Members and that the respective
enhanced rebates provided under each tier are reasonably related to the
enhanced market quality that each 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.\26\ 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
Added Displayed 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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\26\ See supra note 3.
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As described above, the proposal is designed to enhance market
quality on the Exchange and to encourage additional order flow and
quoting activity on the Exchange and to promote market quality through
pricing incentives that are comparable to, and competitive with,
pricing programs in place at other exchanges with respect to executions
of Added Displayed Volume.\27\ Accordingly, the Exchange believes the
proposal would not be a burden on, but rather promote, intermarket
competition by enabling the Exchange to better compete with other
exchanges that offer similar incentives to market participants that
enhance market quality and/or achieve certain volume criteria and
thresholds.
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\27\ See supra note 13.
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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.'' \28\ 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 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' . . .''.\29\ 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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\28\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\29\ 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
[[Page 31275]]
19(b)(3)(A)(ii) of the Act,\30\ and Rule 19b-4(f)(2) \31\ 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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\30\ 15 U.S.C. 78s(b)(3)(A)(ii).
\31\ 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#0a787f666f27696567676f647e794a796f69246d657c"><span class="__cf_email__" data-cfemail="295b5c454c044a4644444c475d5a695a4c4a074e465f">[email protected]</span></a>. Please include
File Number SR-PEARL-2022-21 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-2022-21. 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-2022-21 and should be submitted on
or before June 13, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10962 Filed 5-20-22; 8:45 am]
BILLING CODE 8011-01-P
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