Notice2022-11398
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
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Published
May 27, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 103 (Friday, May 27, 2022)</title>
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[Federal Register Volume 87, Number 103 (Friday, May 27, 2022)]
[Notices]
[Pages 32212-32215]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-11398]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94970; File No. SR-PEARL-2022-19]
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
May 23, 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 9, 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 Options
Fee Schedule (the ``Fee Schedule'').
The text of the proposed rule change is available on the Exchange's
website at <a href="http://www.miaxoptions.com/rule-filings/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.
[[Page 32213]]
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 Add/Remove Tiered Rebates/Fees
set forth in Section (1)(a) of the Fee Schedule to modify the Taker
fees (defined below) in certain Tiers for transactions in Penny Classes
(defined below) for MIAX Pearl Market Makers.\3\ The Exchange
originally filed this proposal on April 29, 2022 (SR-PEARL-2022-16). On
May 9, 2022, the Exchange withdrew SR-PEARL-2022-16 and resubmitted
this proposal.
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\3\ ``Market Maker'' 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 Exchange Rules. See the Definitions
Section of the Fee Schedule and Exchange Rule 100.
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Background
The Exchange currently assesses transaction rebates and fees to all
market participants which are based upon the total monthly volume
executed by the Member \4\ on MIAX Pearl in the relevant, respective
origin type (not including Excluded Contracts) \5\ (as the numerator)
expressed as a percentage of (divided by) TCV \6\ (as the denominator).
In addition, the per contract transaction rebates and fees are applied
retroactively to all eligible volume for that origin type once the
respective threshold tier (``Tier'') has been reached by the Member.
The Exchange aggregates the volume of Members and their Affiliates.\7\
Members that place resting liquidity, i.e., orders resting on the book
of the MIAX Pearl System,\8\ are paid the specified ``maker'' rebate
(each a ``Maker''), and Members that execute against resting liquidity
are assessed the specified ``taker'' fee (each a ``Taker''). For
opening transactions and ABBO \9\ uncrossing transactions, per contract
transaction rebates and fees are waived for all market participants.
Finally, Members are assessed lower transaction fees and receive lower
rebates for order executions in standard option classes in the Penny
Interval Program \10\ (``Penny Classes'') than for order executions in
standard option classes which are not in the Penny Interval Program
(``Non-Penny Classes''), where Members are assessed higher transaction
fees and receive higher rebates.
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\4\ ``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 the Definitions Section of
the Fee Schedule and Exchange Rule 100.
\5\ ``Excluded Contracts'' means any contracts routed to an away
market for execution. See the Definitions Section of the Fee
Schedule.
\6\ ``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 time in which the Exchange experiences an
``Exchange System Disruption'' (solely in the option classes of the
affected Matching Engine (as defined below)). The term Exchange
System Disruption, which is defined in the Definitions section of
the Fee Schedule, means an outage of a Matching Engine or collective
Matching Engines for a period of two consecutive hours or more,
during trading hours. The term Matching Engine, which is also
defined in the Definitions section of the Fee Schedule, is a part of
the MIAX PEARL electronic system that processes options orders and
trades on a symbol-by-symbol basis. Some Matching Engines will
process option classes with multiple root symbols, and other
Matching Engines may be dedicated to one single option root symbol
(for example, options on SPY may be processed by one single Matching
Engine that is dedicated only to SPY). A particular root symbol may
only be assigned to a single designated Matching Engine. A
particular root symbol may not be assigned to multiple Matching
Engines. The Exchange believes that it is reasonable and appropriate
to select two consecutive hours as the amount of time necessary to
constitute an Exchange System Disruption, as two hours equates to
approximately 1.4% of available trading time per month. The Exchange
notes that the term ``Exchange System Disruption'' and its meaning
have no applicability outside of the Fee Schedule, as it is used
solely for purposes of calculating volume for the threshold tiers in
the Fee Schedule. See the Definitions Section of the Fee Schedule.
\7\ ``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#066b636b646374756e6f76466b6f677e6976726f6968752865696b"><span class="__cf_email__" data-cfemail="9ef3fbf3fcfbecedf6f7eedef3f7ffe6f1eeeaf7f1f0edb0fdf1f3">[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.
\8\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\9\ ``ABBO'' means the best bid(s) or offer(s) disseminated by
other Eligible Exchanges (defined in Exchange Rule 1400(g) and
calculated by the Exchange based on market information received by
the Exchange from OPRA. See the Definitions Section of the Fee
Schedule and Exchange Rule 100.
\10\ See Securities Exchange Act Release No. 88992 (June 2,
2020), 85 FR 35142 (June 8, 2020) (SR-PEARL-2020-06).
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Proposal
The Exchange proposes to amend the Fee Schedule for the Exchange's
options market to modify the Taker fees in certain Tiers for options
transactions in Penny Classes for MIAX Pearl Market Makers. Currently,
the Exchange provides different Taker fees for options transactions in
Penny Classes for MIAX Pearl Market Makers when trading against
Priority Customer \11\ Origin in Tiers 5 and 6 depending on whether the
executing buyer and seller are or are not the same Member or Affiliate.
In particular, the Exchange assesses a Taker fee of $0.48 for options
transactions in Penny Classes for MIAX Pearl Market Makers when trading
against Priority Customer Origin in Tier 5 when the executing buyer and
seller are the same Member or Affiliates. This is denoted by the symbol
``[starf]'' following the tables of rebates and fees in Section (1)(a)
of the Fee Schedule. The Exchange also assesses a Taker fee of $0.50
for options transactions in Penny Classes for MIAX Pearl Market Makers
when trading against Priority Customer Origin in Tier 5 when the
executing buyer and seller are not the same Member or Affiliates. This
is denoted by the symbol ``[star]'' following the tables of rebates and
fees in Section (1)(a) of the Fee Schedule. Similarly, the Exchange
assesses a Taker fee of $0.47 for options transactions in Penny Classes
for MIAX Pearl Market Makers when trading against Priority Customer
Origin in Tier 6 when the executing buyer and seller are the same
Member or Affiliates. This is denoted by the symbol ``[starf]''
following the tables of rebates and fees in Section (1)(a) of the Fee
Schedule. The Exchange also assesses a Taker fee of $0.50 for options
transactions in Penny Classes for MIAX Pearl Market Makers when trading
against Priority Customer
[[Page 32214]]
Origin in Tier 6 when the executing buyer and seller are not the same
Member or Affiliates. This is denoted by the symbol ``[star]''
following the tables of rebates and fees in Section (1)(a) of the Fee
Schedule.
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\11\ 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.
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The Exchange now proposes to remove the symbols ``[starf]'' and
``[loz]'' from the Fee Schedule and no longer assess different Taker
fees for options transactions in Penny Classes for MIAX Pearl Market
Makers when trading against the Priority Customer Origin in Tiers 5 and
6 depending on whether the executing buyer and seller are or are not
the same Member or Affiliate. With the proposed changes, the Exchange
will assess the Taker fee rate of $0.50 for all options transactions in
Penny Classes for MIAX Pearl Market Makers when trading against the
Priority Customer Origin in Tiers 5 and 6. Accordingly, the Exchange
proposes to delete the $0.48 Taker fee rate in Tier 5 and $0.47 Taker
fee rate in Tier 6 in the MIAX Pearl Market Origin table for options
transactions in Penny Classes when trading against the Priority
Customer Origin.
The purpose of adjusting the specified Taker fees is for business
and competitive reasons. In order to attract order flow, the Exchange
initially set its Taker fees so that they were lower than other options
exchanges that operate comparable maker/taker pricing models.\12\ The
Exchange now believes that it is appropriate to further adjust these
specified Taker fees so that they are more in line with other
exchanges, but will still remain highly competitive such that they
should enable the Exchange to continue to attract order flow and
maintain market share.\13\
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\12\ See Securities Exchange Act Release Nos. 80061 (February
17, 2017), 82 FR 11676 (February 24, 2017) (SR-PEARL-2017-10)
(establishing the Exchange's fee schedule with the highest Tier
Taker fee of $0.47 for Market Makers in Penny Classes); 82900 (March
19, 2018), 83 FR 12836 (March 23, 2018) (SR-PEARL-2018-09) (lowering
Taker fees in Tiers 4, 5 and 6 to $0.43 for Market Makers in Penny
Classes approximately one year after the Exchange's launch); 83814
(August 9, 2018), 83 FR 40605 (August 15, 2018) (SR-PEARL-2018-17)
(increasing Taker fees in Tiers 4, 5 and 6 for Market Makers in
Penny Classes to bring those fees more in line with other options
exchanges' taker fees at that time).
\13\ See e.g., BOX Options Fee Schedule, Section I. Electronic
Transaction Fees, A. Non-Auction Transactions (base Taker fee of
$0.50 per contract for the Market Maker account type when trading
against a Public Customer).
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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 \14\ in general, and
furthers the objectives of Section 6(b)(4) of the Act,\15\ in that it
is an equitable allocation of reasonable dues, fees and other charges
among Exchange members and issuers and other persons using its
facilities, and 6(b)(5) of the Act,\16\ in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanisms of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(4).
\16\ 15 U.S.C. 78f(b)(1) and (b)(5).
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The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \17\
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\17\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than approximately 13-
14% market share for the month of May 2022.\18\ Therefore, no exchange
possesses significant pricing power. More specifically, as of May 9,
2022, the Exchange has a market share of approximately 4.67% of
executed volume of multiply-listed equity options for the month of May
2022.\19\ The Exchange believes that the ever-shifting market share
among the exchanges from month to month demonstrates that market
participants can discontinue or reduce use of certain categories of
products and services, terminate an existing membership or determine to
not become a new member, and/or shift order flow, in response to
transaction fee changes. For example, on February 28, 2019, the
Exchange filed with the Commission a proposal to increase Taker fees in
certain Tiers for options transactions in certain Penny classes for
Priority Customers and decrease Maker rebates in certain Tiers for
options transactions in Penny classes for Priority Customers (which fee
was to be effective March 1, 2019).\20\ The Exchange experienced a
decrease in total market share for the month of March 2019, after the
proposal went into effect. Accordingly, the Exchange believes that its
March 1, 2019, fee change, to increase certain transaction fees and
decrease certain transaction rebates, may have contributed to the
decrease in MIAX Pearl's market share and, as such, the Exchange
believes competitive forces constrain the Exchange's, and other options
exchanges, ability to set transaction fees and market participants can
shift order flow based on fee changes instituted by the exchanges.
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\18\ See ``The market at a glance,'' (last visited May 9, 2022),
available at <a href="https://www.miaxoptions.com/">https://www.miaxoptions.com/</a>.
\19\ See id.
\20\ See Securities Exchange Act Release No. 85304 (March 13,
2019), 84 FR 10144 (March 19, 2019) (SR-PEARL-2019-07).
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The Exchange believes its proposal to modify the Taker fees in
certain Tiers for options transactions in Penny classes for Market
Makers is reasonable, equitable and not unfairly discriminatory because
all similarly situated market participants in the same Origin type are
subject to the same tiered Taker fees and access to the Exchange is
offered on terms that are not unfairly discriminatory. For competitive
and business reasons, the Exchange initially set its Taker fees for
such orders generally lower than certain other options exchanges that
operate comparable maker/taker pricing models.\21\ The Exchange now
believes that it is appropriate to modify those specified Taker fees by
removing the different rates depending on whether the executing buyer
and seller are the same Member or Affiliates, thereby making the Taker
fee the same $0.50 for Tiers 5 and 6 so that they are more in line with
other exchanges, and will still remain highly competitive such that
they should enable the Exchange to continue to attract order flow and
maintain market share.
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\21\ See supra note 12.
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The Exchange believes its proposal is not unfairly discriminatory
because, with the proposed changes, the Taker fees for Market Makers
will be the same as the Taker fees for all other Origin types except
for Priority Customer Origin orders. With the proposed changes, the
Taker fees for Market Makers will be $0.50 per contract for all Tiers,
which is the same as the Taker fees for all Tiers for the Non-Priority
Customer, Firm, BD, and non-MIAX Pearl Market Makers Origin
[[Page 32215]]
(``Professional Members''). The Exchange believes that it is equitable
and not unfairly discriminatory to assess higher Taker fees to Market
Makers and Professional Members than to Priority Customer Origin
orders. A Priority Customer is by definition not a broker or dealer in
securities, and does not place more than 390 orders in listed options
per day on average during a calendar month for its own beneficial
account(s).\22\ This limitation does not apply to participants on the
Exchange whose behavior is substantially similar to that of market
professionals, including non-Priority Customers, Non-MIAX Pearl Market
Makers, Firms, and Broker-Dealers, who will generally submit a higher
number of orders (many of which do not result in executions) than
Priority Customers.
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\22\ See supra note 11.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange believes that the
proposed changes in the Taker fees for the applicable market
participants should continue to encourage the provision of liquidity
that enhances the quality of the Exchange's market and increases the
number of trading opportunities on the Exchange for all participants
who will be able to compete for such opportunities. The proposed rule
changes should enable the Exchange to continue to attract and compete
for order flow with other exchanges. However, this competition does not
create an undue burden on competition but rather offers all market
participants the opportunity to receive the benefit of competitive
pricing.
The proposed Taker fee adjustments are intended to keep the
Exchange's fees highly competitive with those of other exchanges, and
to encourage liquidity and should enable the Exchange to continue to
attract and compete for order flow with other exchanges. The Exchange
notes that it operates in a highly competitive market in which market
participants can readily favor competing venues if they deem fee levels
at a particular venue to be excessive. In such an environment, the
Exchange must continually adjust its rebates and fees to remain
competitive with other exchanges and to attract order flow. The
Exchange believes that the proposed rule changes reflect this
competitive environment because the proposal modifies the Exchange's
fees in a manner that encourages market participants to continue to
provide liquidity and to send order flow to the Exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act,\23\ and Rule 19b-4(f)(2) \24\ 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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\23\ 15 U.S.C. 78s(b)(3)(A)(ii).
\24\ 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#8dfff8e1e8a0eee2e0e0e8e3f9fecdfee8eea3eae2fb"><span class="__cf_email__" data-cfemail="dcaea9b0b9f1bfb3b1b1b9b2a8af9cafb9bff2bbb3aa">[email protected]</span></a>. Please include
File Number SR-PEARL-2022-19 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-2022-19. 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-2022-19, and should be submitted
on or before June 17, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-11398 Filed 5-26-22; 8:45 am]
BILLING CODE 8011-01-P
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