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Notice2022-17096

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

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Published

August 10, 2022

Issuing agencies

Securities and Exchange Commission

Full Text

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[Federal Register Volume 87, Number 153 (Wednesday, August 10, 2022)]
[Notices]
[Pages 48702-48715]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-17096]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95419; File No. SR-PEARL-2022-30]

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

August 4, 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 July 26, 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'') to amend its monthly Trading Permit
\3\ fees for Members \4\ and no longer provide two monthly credits
associated with Trading Permit and non-transaction fees.
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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="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 Exchange commenced operations in February 2017 \5\ and adopted
its initial fee schedule that waived fees for Trading Permits to trade
on the Exchange.\6\ Although the fee was waived, an initial fee
structure was put in place in communicate our intent to charge a fee in
the future. As a new exchange entrant, the Exchange chose to offer
Trading Permits free of charge to encourage market participants to
trade on the Exchange and experience, among things, the quality of the
Exchange's technology and trading functionality. This practice is not
uncommon. Newly-opened exchanges often do not charge fees or charge
lower fees for certain services such as memberships to attract order
flow to an exchange, and later amend their fees to reflect the true
value of those services, absorbing all costs to provide those services
in the meantime. Allowing new exchange entrants time to build and
sustain market share through various pricing incentives before
increasing non-transaction fees encourages market entry and promotes
competition. It also enables these new exchanges to mature their
markets and allow market participants to trade on the new exchanges
without fees serving as a potential barrier to attracting memberships
and order flow.\7\
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\5\ See MIAX PEARL Successfully Launches Trading Operations,
dated February 6, 2017, available at <a href="https://www.miaxoptions.com/sites/default/files/alert-files/MIAX_Press_Release_02062017.pdf">https://www.miaxoptions.com/sites/default/files/alert-files/MIAX_Press_Release_02062017.pdf</a>.
\6\ See Securities Exchange Act Release No. 80061 (February 17,
2017), 82 FR 11676 (February 24, 2017) (SR-PEARL-2017-10).
\7\ See Securities Exchange Act Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (stating, ``[t]he
Exchange established this lower (when compared to other options
exchanges in the industry) Participant Fee in order to encourage
market participants to become Participants of BOX. . .''). See also
Securities Exchange Act Release No. 90076 (October 2, 2020), 85 FR
63620 (October 8, 2020) (SR-MEMX-2020-10) (``MEMX Membership Fee
Proposal'') (proposing to adopt the initial fee schedule and stating
that ``[u]nder the initial proposed Fee Schedule, the Exchange
proposes to make clear that it does not charge any fees for
membership, market data products, physical connectivity or
application sessions.''). MEMX has seen its market share increase
and recently proposed to adopt a membership fee and fees for
connectivity. See Securities Exchange Act Release Nos. 93927
(January 7, 2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19)
(proposing to adopt membership fees); and 95299 (July 15, 2022), 87
FR 43563 (July 21, 2022) (SR-MEMX-2022-17) (proposing to adopt fees
for connectivity). See also, e.g., Securities Exchange Act Release
No. 88211 (February 14, 2020), 85 FR 9847 (February 20, 2020) (SR-
NYSENAT-2020-05), available at <a href="https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rulefilings/filings/2020/SR-NYSENat-2020-05.pdf">https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rulefilings/filings/2020/SR-NYSENat-2020-05.pdf</a> (initiating market data fees for the NYSE National exchange
after initially setting such fees at zero).

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[[Page 48703]]

Later in 2018, as the Exchange's market share increased,\8\ it
adopted a nominal fee for Trading Permits along with a tiered-volume
based fee credit, known as the Trading Permit Fee Credit, and a Monthly
Volume Credit.\9\ The Exchange has not amended its Trading Permit fees
since the fees were first adopted in 2018. The Exchange established the
Trading Permit Fee Credit to continue to attract order flow and
increase membership by lowering the costs for Members that connect via
the MEO Interface \10\ and FIX Interface.\11\
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\8\ The Exchange experienced a monthly average trading volume of
3.94% for the month of March 2018. See Market at a Glance, available
at <a href="http://www.miaxoptions.com">www.miaxoptions.com</a> (last visited (June 22, 2022).
\9\ See Securities Exchange Act Release No. 82867 (March 13,
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
\10\ ``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.
\11\ ``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.
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The lower Trading Permit Fees, Trading Permit Fee Credit and
Monthly Volume Credit have served their purpose of incentivizing market
participants to trade on the Exchange as the Exchange's market share
continues to grow and increase since the fee and credits were
established.\12\ Therefore, the Exchange now proposes to amend the
monthly Trading Permit fees for Members and to no longer provide two
monthly credits associated with Trading Permit and non-transaction
fees. The proposed changes are designed to update the Exchange's
Trading Permit fees to reflect their current value based on the
Exchange's market share and ability to deliver value to its customers
through improved liquidity, enhanced functionality, and resilient
trading technology, rather than their value when MIAX Pearl was a new
options exchange entrant seeking to establish itself in a highly
competitive space over five years ago. The Exchange reviewed similar
fees charged by other options exchanges when considering the proposed
fee levels as well as the impact on current Members and whether the
proposed fee levels would continue to enable the Exchange to attract
new Members and retain existing Members. The Exchange notes that it
also socialized the proposed fee increases with current Members prior
to first implementing the changes. During this process, the Exchange
decided on price levels that it believes would aid and improve its
competitive footing and some Members informed the Exchange that they
anticipated a potential increase due to the lower rates the Exchange
historically charged and the resiliency and performance of its trading
platform. Each of these changes are described below.
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\12\ The Exchange experienced a monthly average trading volume
of 4.92% for the month of June 2022. See Market at a Glance, supra
note 8.
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Background
A Trading Permit confers the right to transact on the Exchange \13\
and are available to all Members. The Exchange notes that requiring a
Trading Permit to trade on the Exchange and charging a monthly fee for
such is comparable to other monthly membership requirements and
associated fees charged by other exchanges and is described further
below. 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 consistent with
the membership type. Without a Trading Permit, or ``membership'' as
referred to by 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. The Exchange has not amended
its Trading Permit fees since the fees were first adopted in 2018.\14\
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\13\ See Exchange Rule 200(a).
\14\ See supra note 9.
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Removal of Monthly Trading Permit Fee Credits
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 \15\ to encourage Members to send
increased Priority Customer \16\ order flow to the Exchange, which the
Exchange applied as a metric to the assessment of non-transaction fees
for that Member. Prior to and during periods when this proposal was not
in effect, the Exchange applied a different Monthly Volume Credit
depending on whether the Member connects to the Exchange via the FIX or
MEO Interface. Prior to and during periods when this proposal was not
in effect, the Exchange assessed the Monthly Volume Credit to each
Member that has executed Priority Customer volume along with that of
its affiliates,\17\ not including Excluded Contracts,\18\ of at least
0.30% of MIAX Pearl-listed Total Consolidated Volume (``TCV''),\19\ as
set forth in the following table:
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\15\ See Market at a Glance, supra note 8.
\16\ 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.
\17\ ``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#076a626a656275746f6e77476a6e667f6877736e6869742964686a"><span class="__cf_email__" data-cfemail="4f222a222d2a3d3c27263f0f22262e37203f3b2620213c612c2022">[email&#160;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.
\18\ ``Excluded Contracts'' means any contracts routed to an
away market for execution. See the Definitions Section of the Fee
Schedule.
\19\ ``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.

[[Page 48704]]

------------------------------------------------------------------------
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 and during periods when this proposal was not in
effect, the Monthly Volume Credit was a single, once-per-month credit
towards the aggregate monthly total of non-transaction fees assessable
to a Member.
The Exchange proposes 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 encourage members to increase their order
flow by providing a credit to those that exceeded a volume threshold.
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 even without the Monthly Volume Credit.
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 and during periods
when this proposal was not in effect, the Trading Permit fee credit was
applicable to Members that connected 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 and during periods when this
proposal was not in effect. 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 the MEO Interface
and FIX Interface. The Trading Permit fee credit has achieved its
purpose and the Exchange now believes that it is appropriate to remove
this credit in light of the current operating conditions and membership
population on the Exchange.
Amendments to Monthly Trading Permit Fees
The Exchange proposes to amend the Fee Schedule to amend the fees
for Trading Permits. As a self-regulatory organization, the Exchange's
membership department reviews applicants to ensure that each
application complies with Exchange Rule 200 as well as other
requirements for membership.\20\ Applicants must meet the Exchange's
qualification criteria prior to approval. The new member review
includes, but is not limited to, the registration and qualification of
associated persons, financial health of the proposed member, the
validity of the required clearing relationship, and the history of
disciplinary matters. Approved new Members are required to comply with
Exchange's By-Laws and Rules and are subject to regulation by the
Exchange. The Exchange also has ongoing regulatory responsibilities
over its Members.
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\20\ The Exchange's Membership Department must ensure, among
other things, that an applicant is not statutorily disqualified.
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The Exchange believes that there are many factors that may cause a
market participant to decide to become a member of a particular
exchange. Among various factors, the Exchange believes market
participants consider: (i) an exchange's available liquidity in options
series; (ii) trading functionality, latency, reliability, throughout,
access to liquidity, and determinism offered on a particular market;
(iii) product offerings; (iv) customer service on an exchange; and (v)
transactional pricing. The Exchange believes that the decision to
become a member of an exchange, particularly as a registered market
maker, is a complex one that is not solely based on non-transactional
costs assessed by an exchange. Market participants weigh the tradeoff
between where they choose to deploy liquidity versus where trading
opportunities exist. Of course, the cost of membership may factor into
a decision to become a member of a certain exchange, but the Exchange
believes it is by no means the only factor when comparing exchanges.
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'' \21\
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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\21\ See the Definitions Section of the Fee Schedule for the
monthly volume thresholds associated with each Tier.
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The Exchange has two types of Members, Electronic Exchange Members
\22\ (``EEMs'') and Market Makers.\23\ The Exchange currently charges
monthly fees for Trading Permits pursuant to Exchange Rule 200(f),
which varies based on the interface used by the Member and the Member's
monthly trading volumes. The Exchange provides two interfaces to access
the MIAX Pearl System,\24\ the FIX Interface and MEO Interface, and all
Members are able to use either interface based on their business models
and needs. The FIX Interface is the industry-wide uniform message
format and provides lower bandwidth, less capacity, and fewer Exchange
resources. EEMs, who are primarily order flow providers, are the only
users of the FIX Interface.\25\ No Market Maker uses the FIX Interface.
Meanwhile, the MEO Interface is the more robust interface offering
lower latency and higher throughput. Market Makers only use the MEO
Interface.
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\22\ 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 and
Exchange Rule 100.
\23\ 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 the Exchange
Rules. See the Definitions Section of the Fee Schedule and Exchange
Rule 100.
\24\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\25\ The Exchange does not propose to amend the fees for EEM
Clearing Firms, which is set at $250 per month and not based on the
amount of volume conducted on the Exchange. The term ``EEM Clearing
Firm'' means an EEM that solely clears transactions on the Exchange
and does not connect to the Exchange via either the FIX Interface or
MEO Interface. See the Definitions Section of the Fee Schedule.
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Today, seven (7) Members that are registered solely as EEMs elect
to utilize the MEO Interface. Based on their own business decisions and
needs, some EEMs may elect to utilize the MEO Interface today due to
its lower latency

[[Page 48705]]

and higher throughput. Also, six (6) Members are registered as both an
EEM and Market Maker. These Members may choose to utilize only the MEO
Interface for acting as either EEM or Market Maker, not only based on
their own business needs, but also as a means to streamline and
simplify their architecture between them and the Exchange. Each of
these Members are able to utilize the FIX Interface for their EEM
activities and avail themselves to the lower rates if they believe the
FIX Interface is aligned with their business needs.
Market Makers only use the MEO Interface because it provides
functionality that is designed to assist Market Makers in satisfying
their market making obligations. The Exchange offers three time-in-
force modifiers: \26\ Day Limit (``Day''), Immediate-Or-Cancel
(``IOC''), and Good `Til Cancelled (``GTC'').\27\ While all order types
are available for use on either interface, only the time-in-force
modifiers of IOC and Day are available on the MEO Interface.\28\ Market
Makers utilize the time-in-force of Day on orders to be posted on the
MIAX Pearl Options Book \29\ and to meet Market Makers' continuous
quoting obligations under Exchange Rule 605(d).\30\ Other Market Makers
that primarily remove liquidity tend to be more latency sensitive and
utilize the time-in-force of IOC on orders when looking to remove
liquidity from the MIAX Pearl Options Book. The MEO Interface allows
the submission of Cancel-Replacement orders,\31\ which allow for the
immediate cancellation of a previously received order and the
replacement of that order with a new order with new terms and
conditions.\32\ Cancel-Replacement orders are primarily used by Market
Makers as part of their continuous quoting obligations. Market Makers
only use the MEO Interface due to its lower latency, higher throughput,
available time-in-force instructions and order types that assist them
in satisfying their market making obligations. Market Makers do not use
the FIX Interface due to the unavailability of the above functionality.
While EEMs primarily use the FIX Interface, certain EEMs chose to use
the MEO interface due to its enhanced functionality and based on their
own business models.
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\26\ See MIAX Pearl Options Exchange User Manual, Section 6,
Order Types, available at <a href="https://www.miaxoptions.com/exchange-functionality/pearl">https://www.miaxoptions.com/exchange-functionality/pearl</a> (last visited June 30, 2022).
\27\ See, e.g., Exchange Rule 516.
\28\ See preamble to Exchange Rule 516 (noting that not all
order types and modifiers are available for use on each of the MEO
Interface and the FIX Interface). See also Section 4.1.1.2 of the
MEO Interface Specification, available at <a href="https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf">https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf</a> (indicating that the time-in-force
instructions of IOC and Day are available on the MEO interface).
\29\ The term ``Book'' means the electronic book of buy and sell
orders and quotes maintained by the System. See Exchange Rule 100.
\30\ Only the time-in-force modifiers of IOC and Day are
available on the MEO Interface. See Exchange Rule 516 (noting that
not all order types and modifiers are available for use on each of
the MEO Interface and the FIX Interface). See also MIAX Pearl
Options Exchange MEO Interface Specification, Section 4.1.1.2,
available at <a href="https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf">https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf</a> (indicating that the time-in-
force instructions of IOC and Day are available on the MEO
interface).
\31\ See MIAX Pearl Options Exchange User Manual, Section 6,
Interfaces and Liquidity Types, available at <a href="https://www.miaxoptions.com/exchange-functionality/pearl">https://www.miaxoptions.com/exchange-functionality/pearl</a> (last visited May
16, 2022).
\32\ See Exchange Rule 516(d).
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Current Trading Permit Fees. Prior to and during periods when this
proposal was not in effect, each Member who connected to the System via
the FIX Interface was 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%, $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 within the parameters of Tier 3 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.60%, $450.
Each Member who connected to the System via the MEO Interface was
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 within the parameters of Tier 3 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.60%, $500.
Proposed Trading Permit Fees. The pull on Exchange resources
associated with providing ongoing Member support, onboarding/off
boarding technology requests, monitoring, reporting, and the
surveillance and retention of increased message traffic due to
increased trading volumes continue to increase since Trading Permit
fees were first adopted in 2018.\33\ 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:
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\33\ See supra note 9.
---------------------------------------------------------------------------

(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 within 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 within the parameters of Tier 3 of the
Non-Transaction Fees Volume-Based Tiers, $6,000.
As discussed above, both the MEO Interface and FIX Interface are
available to all Members and each Member may choose which interface to
utilize based on their own business needs. The MEO Interface is
primarily used by Market Makers due to its robustness, lower latency,
and higher throughput \34\ and, as discussed below, utilizes greater
Exchange resources due to the increased volume of message traffic that
travels through the MEO interface. Trading Permit fees for Members who
connect through the MEO Interface are, therefore, higher than the
Trading Permit fees for Members who connect through the FIX Interface.
The FIX Interface provides lower capacity and bandwidth and, therefore,
utilizes less Exchange resources. The FIX Interface is primarily used
by order flow providers who tend to be less latency sensitive and
submit less orders and messages than Market Makers.
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\34\ Certain EEMs also choose to use the MEO interface due to
its enhanced functionality and based on their own business models.
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The Exchange has not amended its Trading Permit fees since the fees
were first adopted in 2018.\35\ The Exchange notes that its affiliates,
Miami International Securities Exchange, LLC (``MIAX'') and MIAX
Emerald, LLC (``MIAX Emerald''), charge EEMs a similar, fixed flat
trading permit fee of

[[Page 48706]]

$1,500,\36\ which equals the top tier proposed herein for users of the
FIX Interface and also entirely consists of EEMs. MIAX and MIAX Emerald
also charge tiered trading permit fees to Market Makers as the Exchange
proposes herein for users of the MEO Interface, which also primarily
consists of Market Makers. However, the Exchange's proposed fees for
users of the MEO Interface range from $2,500 to $6,000 while the fees
on MIAX and MIAX Emerald range from $7,000 to $22,000. The Exchange
also proposes to base its pricing on trading volume while MIAX and MIAX
Emerald base their trading permit fees on number of options classes
assigned to the Market Maker or the percentage of volume in option
classes.\37\ This is due to the difference in options assignments
between the Exchange, and MIAX and MIAX Emerald. On MIAX and MIAX
Emerald, Market Makers are assigned by options class, and are required
to quote nearly all options in the class. On the Exchange, Market
Makers are assigned by series, not class, and, therefore, trading
volume is the more equitable and metric by which to gauge their use of
the Exchange systems and related Trading Permit Fee.
---------------------------------------------------------------------------

\35\ Id.
\36\ 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 June 30, 2022).
\37\ Both MIAX and MIAX Emerald charge Market Makers a monthly
fee of $7,000 for up to 10 classes or up to 20% of classes assigned
by volume, $12,000 for up to 40 classes or up to 35% of classes
assigned by volume, $17,000 for up to 100 classes or up to 50% of
classes assigned by volume, or $22,000 for over 100 classes or over
50% of classes assigned by volume up to all classes listed on MIAX
or MIAX Emerald, as applicable. Id.
---------------------------------------------------------------------------

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 membership 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 membership 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 membership.

------------------------------------------------------------------------
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.
BOX Options Exchange LLC (``BOX'') Participant Fee: $1,500.
\38\.
Electronic Market Maker Trading
Permit Fees:
Tier 1 (up to and including 10
classes): $4,000.
Tier 2 (up to and including 40
classes): $6,000.
Tier 3 (up to and including 100
classes): $8,000.
Tier 1 (over 100 classes): $10,000.
NYSE Arca, Inc. (``NYSE Arca'') Options Trading Permits:
\39\.
Office and Clearing Firms: $1,000.
Market Makers: 1st OTP--$8,000 for
up to 60 plus the bottom 45% of
option issues.
2nd OTP--Additional $6,000 for up to
150 plus the bottom 45% of option
issues.
3rd OTP--Additional $5,000 for up to
500 plus the bottom 45% of option
issues.
4th OTP--Additional $4,000 for up to
1,100 plus the bottom 45% of option
issues.
5th OTP--Additional $3,000 for all
option issues.
6th-9th OTP--Additional $2,000.
10th or more OTPs--$500 for all
options issues.
NYSE American, LLC (``NYSE ATP Trading Permits:
American'') \40\.
Clearing Member: $1,000.
Order Flow Provider: $1,000.
Market Makers: $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 (``SQT'')
\41\. permit fees:
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
(``RMMO'') permit fees:
Tier 1 (less than 100 option
classes): $5,000.
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:
\42\.

[[Page 48707]]

Electronic Access Members
(``EAMs''): $500.
Primary Market Maker: $5,000 per
membership.
Competitive Market Maker: $2,500 per
membership.
Cboe Exchange, Inc. (``Cboe'') Electronic Trading Permit Fees:
\43\.
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'') \44\. Makers: $5,000.
Electronic Access Permits: $1,000.
Cboe BZX Exchange, Inc. (``Cboe $500 where member has an ADV < 5,000
BZX Optis'') \45\. contracts traded. \46\
$1,000 where member has an ADV >=
5,000 contracts traded.
------------------------------------------------------------------------

Implementation and Procedural History
The proposed rule change will be immediately effective. The
Exchange initially filed this proposal on July 1, 2021, with the
proposed fees being immediately effective.\47\ Between August 2021 and
February 2022, the Exchange withdrew and refiled the proposed rule
change, each time to meaningfully attempt to provide additional
justification for the proposed fee changes, provide enhanced details
regarding the Exchange's cost methodology, and address questions
contained in the Commission's suspension orders.\48\ The Commission
received one comment letter on the filings.\49\ The Commission again
suspended the proposed fees on February 18, 2022.\50\ The Commission
received one comment letter on that filing.\51\ The Exchange then
provided Trading Permits at the lower rates for the month of March 2022
and absorbed all associated costs with the lower rates.
---------------------------------------------------------------------------

\38\ See BOX fee schedule, Section 1, available at <a href="https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-June-1-2022-1.pdf">https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-June-1-2022-1.pdf</a>
(last visited June 29, 2022). BOX's Participant Fee is the analog to
the Exchange's Trading Permit fee for Members who use the FIX
interface. BOX's Electronic Market Maker Trading Permit fee is the
analog for the Exchange's Trading Permit fee for Members who use the
MEO interface. BOX had an average daily market share of 6.26% as of
June 30, 2022. See Market at a Glance, supra note 8.
\39\ 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 July 12, 2022).
NYSE Arca recently increased this Options Trading Permit Fees
approximately 45%. See Securities Exchange Act Release No. 95142
(June 23, 2022), 87 FR 38786 (June 29, 2022) (SR-NYSEArca-2022-36).
Under the new fee structure, it effectively costs a Market Maker
$26,000 per month to trade all options issues on NYSE Arca. NYSE
Arca's Options Trading Permit fee is the analog to the Exchange's
Trading Permit fee for Members who use the FIX interface. NYSE
Arca's Options Trading Permit fee for Market Makers is the analog
for the Exchange's Trading Permit fee for Members who use the MEO
interface.
\40\ 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 May 16, 2022). Under this fee structure, it
effectively costs a Market Maker $26,000 per month to trade all
options issues on NYSE American. NYSE American's ATP Trading Permit
fee for Clearing Members and Order Flow Providers is the analog for
the Exchange's Trading Permit fee for Members that use the FIX
interface. NYSE American's ATP Trading Permit fee for Market Makers
is the analog for the Exchange's Trading Permit fee for Members that
use the MEO interface.
\41\ 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 May 16, 2022).
Nasdaq PHLX Options' SQT and RMMO fees is the analog to the
Exchange's Trading Permit fee for Members that use the MEO
Interface.
\42\ 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 May 16, 2022).
Nasdaq ISE Options' EAM Access Fee is the analog to the Exchange's
Trading Permit fee for Members that use the FIX Interface. Nasdaq
ISE Options' Primary and Competitive Market Maker Access Fees are
the analog to the Exchange's Trading Permit fee for Members that use
the MEO Interface.
\43\ 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 June 30, 2022). Cboe's Electronic
Access Permit fee and Clearing TPH fee are the analog to the
Exchange's Trading Permit fee for Members that use the FIX
Interface. Cboe's Market Maker Permit fee is the analog to the
Exchange's Trading Permit fee for Members that use the MEO
Interface.
\44\ 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
June 30, 2022). C2's Market Maker Access Permit fee is the analog to
the Exchange's Trading Permit fee for Members that use the MEO
Interface. C2's Electronic Access Permit fee is the analog to the
Exchange's Trading Permit fee for Members that use the FIX
Interface.
\45\ See ``Membership Fees'' section of the Cboe BZX Options Fee
Schedule, available at <a href="https://www.cboe.com/us/options/membership/fee_schedule/bzx">https://www.cboe.com/us/options/membership/fee_schedule/bzx</a> (last visited June 30, 2022). The Exchange
understands Cboe BZX Options charges the same Membership Fee to all
of its Options Members.
\46\ Under the Exchange's tiered structure, a Member may trade
approximately 106,000 more contracts on the Exchange than on Cboe
BZX Options and continue to qualify for the Exchange's lowest tier.
For example, a Member would qualify for Tier 1 of the Exchange's
tiered pricing structure where that Member's total volume as a
percentage of TCV is between 0.00% and 0.30%. Assuming an average of
37 million contracts are traded each day during a month, that Member
would qualify for Tier 1 where that Member traded less than 111,000
contracts that day and be charged $500, the same fee as Cboe BZX
Options, where that Member connects via the FIX Interface. On Cboe
BZX Options, the Exchange understands that same member would no
longer qualify for their lowest tier when their ADV equals or
exceeds 5,000 contracts and be charged a fee of $1,000 for that
month.
\47\ See Securities Exchange Act Release No. 92366 (July 9,
2021), 86 FR 37379 (SR-PEARL-2021-32).
\48\ See Securities Exchange Act Release Nos. 92797 (August 27,
2021), 86 FR 49399 (September 2, 2021) (SR-PEARL-2021-32)
(``Suspension Order 1''); 93555 (November 10, 2021), 86 FR 64254
(November 17, 2021) (SR-PEARL-2021-54); 93895 (January 4, 2022), 87
FR 1217 (January 10, 2022) (SR-PEARL-2021-59).
\49\ See Letter from Richard J. McDonald, Susquehanna
International Group, LLC (``SIG''), to Vanessa Countryman,
Secretary, Commission, dated September 28, 2021 (``SIG Letter 1'').
\50\ See Securities Exchange Act Release No. 94287 (February 18,
2022), 87 FR 10837 (February 25, 2022) (SR-PEARL-2022-05)
(``Suspension Order 2'').
\51\ See Letter from Richard J. McDonald, SIG, to Vanessa
Countryman, Secretary, Commission, dated March 15, 2022 (``SIG
Letter 2'').
---------------------------------------------------------------------------

On March 30, 2022, the Exchange withdrew the proposed rule change
that was previously suspended by the Commission on February 18, 2022.
After providing Trading Permits at the lower rates for the month of
March 2022, on March 30, 2022, the Exchange submitted a revised
proposal for effectiveness beginning April 1, 2022.\52\ This revised
proposal argued that the proposed fees were constrained by competition
based on a similar filing for permit/membership fees by MEMX LLC
(``MEMX'').\53\ The Commission received one comment letter on that
filing.\54\ The Exchange withdrew this revised proposal and submitted a
further revised filing providing additional support for its competition
based

[[Page 48708]]

justification on May 17, 2022.\55\ In response to feedback from
Commission Staff, the Exchange then withdrew that revised proposal and
submitted a further revised proposal to provide additional support for
the proposed fee change and to enhance its competition based
justification on July 12, 2022.\56\ Again, in response to feedback from
Commission Staff, the Exchange withdrew that revised proposal and
submitted this further revised proposal to provide additional support
for the proposed fee change and to enhance its competition based
justification on July 26, 2022.
---------------------------------------------------------------------------

\52\ See Securities Exchange Act Release No. 94696 (April 12,
2022), 87 FR 22987 (April 18, 2022) (SR-PEARL-2022-09).
\53\ 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).
\54\ See Letter from Brian Sopinsky, SIG, to Vanessa Countryman,
Secretary, Commission, dated May 9, 2022 (``SIG Letter 3'').
\55\ See Securities Exchange Act Release No. 94993 (May 26,
2022), 87 FR 33518 (June 2, 2022) (SR-PEARL-2022-23).
\56\ See SR-PEARL-2022-28.
---------------------------------------------------------------------------

2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \57\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \58\ 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 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.
---------------------------------------------------------------------------

\57\ 15 U.S.C. 78f(b).
\58\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

The proposed changes to the Fee Schedule are reasonable in several
respects. As a threshold matter, the Exchange is subject to significant
competitive forces in the market for order flow, which constrains its
pricing determinations. The fact that the market for order flow is
competitive has 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 order-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 possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers' . . . .'' \59\
---------------------------------------------------------------------------

\59\ See NetCoalition, 615 F.3d at 539 (D.C. Cir. 2010) (quoting
Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR
74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention to determine
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, 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.'' \60\
---------------------------------------------------------------------------

\60\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------

Congress directed the Commission to ``rely `on competition,
whenever possible, in meeting its regulatory responsibilities for
overseeing the SROs and the national market system.' '' \61\ As a
result, the Commission has historically relied on competitive forces to
determine whether a fee proposal is equitable, fair, reasonable, and
not unreasonably or unfairly discriminatory. ``If competitive forces
are operative, the self-interest of the exchanges themselves will work
powerfully to constrain unreasonable or unfair behavior.'' \62\
Accordingly, ``the existence of significant competition provides a
substantial basis for finding that the terms of an exchange's fee
proposal are equitable, fair, reasonable, and not unreasonably or
unfairly discriminatory.'' \63\
---------------------------------------------------------------------------

\61\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep.
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that
the national market system evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed.'').
\62\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
\63\ Id.
---------------------------------------------------------------------------

In its 2019 guidance on fee proposals, Commission staff indicated
that they would look at factors beyond the competitive environment,
such as cost, only if a ``proposal lacks persuasive evidence that the
proposed fee is constrained by significant competitive forces.'' \64\
The Commission staff further indicated in its 2019 guidance that an
exchange can demonstrate competitive forces exist by showing that
``substantially similar but not identical'' substitutable products or
services exist and that ``elasticity of demand'' may be evidence that
competitive forces exist.\65\
---------------------------------------------------------------------------

\64\ See U.S. Securities and Exchange Commission, ``Staff
Guidance on SRO Rule filings Relating to Fees,'' (May 21, 2019),
available 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>.
\65\ Id.
---------------------------------------------------------------------------

The Exchange believes that there are many factors that may cause a
market participant to decide to become a member of a particular
exchange including: (i) an exchange's available liquidity in options
series; (ii) trading functionality offered on a particular market;
(iii) product offerings; (iv) customer service on an exchange; and (v)
transactional pricing. As discussed above, the Exchange believes that
the decision to become a member of an exchange, particularly as a
registered market maker, is a complex one that is not solely based on
non-transactional costs assessed by an exchange. Market participants
weigh the tradeoff between where they choose to deploy liquidity versus
where trading opportunities exist. Of course, the cost of membership,
ports and market data may factor into a decision to become a member of
a certain exchange, but the Exchange believes it is by no means the
only factor when comparing exchanges. In general, there are a number of
factors that market participants may consider when deciding to become a
member of the Exchange or any other options exchange.
Market Makers
Market makers play an important role on options exchanges as they
provide liquidity. In options markets, registered market makers are
assigned options series \66\ and are required to quote in those options
series for a specified time period during the day.\67\ Typically, a
lead or primary market maker \68\ will be required to quote for a
longer period of time during the day as compared to other market makers
registered on an exchange.\69\ Additionally, market makers are
typically required to quote within a certain width on options
markets.\70\ Greater liquidity on options

[[Page 48709]]

markets benefits all market participants by providing more trading
opportunities and attracting greater participation by market makers. An
increase in the activity of market makers in turn facilitates tighter
spreads. Market participants are attracted to options markets that have
ample liquidity and tighter spreads in options series.
---------------------------------------------------------------------------

\66\ See Exchange Rule 602, Phlx, ISE, Nasdaq GEMX, Inc.
(``GEMX''), Nasdaq MRX, Inc. (``MRX''), Nasdaq BX, Inc. (``BX'') and
Nasdaq Options Market (``NOM'') Options 2, Section 3; Cboe Rule
5.50; BOX Exchange LLC (``BOX'') Rule 8030; MIAX Rule 602; and NYSE
Arca Rule 6.35-O.
\67\ See Exchange Rule 604, ISE, GEMX and MRX, Phlx, BX and NOM
Options 2, Section 5; Cboe Rule 5.52; BOX Rule 8050; MIAX Rule 604;
and NYSE Arca Rule 6.37A-O.
\68\ Options markets refer to the primary market maker on an
exchange in several ways.
\69\ See Exchange Rule 604, BX Options 2, Section 4; ISE, GEMX
and MRX, and Phlx Options 2, Section 5; BOX Rule 8055; MIAX Rule
604; and NYSE Arca Rule 6.37A-O.
\70\ See BX Options 2, Section 4; ISE, GEMX and MRX, Phlx and
NOM Options 2, Section 5; and Cboe Rule 5.52; BOX Rule 8040.
---------------------------------------------------------------------------

Trading Functionality
An exchange's trading functionality attracts market participants
who may elect, for example, to submit an order into a price improving
auction,\71\ enter a complex order,\72\ or utilize a particular order
type.\73\ Different options exchanges offer different trading
functionality to their members. For example, with respect to priority
and allocation of an order book, some options exchanges have price/time
allocation,\74\ some have a size pro-rata allocation,\75\ while other
exchanges offer both allocation models.\76\ The allocation methodology
on a particular options exchange's order book may attract certain
market participants. Also, the manner in which some options markets
structure their solicitation auction,\77\ or opening process,\78\ may
be attractive to certain market participants. Finally, some exchanges
have trading floors \79\ which may accommodate trading for certain
market participants or trading firms.\80\
---------------------------------------------------------------------------

\71\ See ISE, GEMX, MRX, Phlx and BX Options 3, Section 13; MIAX
Rule 515A; Cboe Rule 5.37; and BOX Rules 7150 and 7245. The Exchange
does not currently offer a price improving auction.
\72\ See Phlx and ISE Options 3, Section 14; MIAX Rule 518; Cboe
Rule 5.33; BOX Rule 7240; and NYSE Arca Rule 6.91-O. The Exchange
does not currently offer complex order functionality.
\73\ See Exchange Rule 516, ISE, GEMX, MRX, Phlx, BX and NOM
Options 3, Section 7; MIAX Rule 516; Cboe Rule 5.6; BOX Rule 7110;
and NYSE Arca Rule 6.62-O.
\74\ See Exchange Rule 514, Cboe Rule 5.85; BOX Rule 7130; and
NYSE Arca Rule 6.76-O.
\75\ See Phlx, ISE, GEMX and MRX Options 3, Section 10; and BOX
Rule 7135.
\76\ See BX Options 3, Section 10. While BX's rule permits both
price/time and size pro-rata allocation, all symbols on BX are
currently designated as Price/Time. See also BOX Rules 7130 and
7135. MIAX's rule permits both Price-Time and Pro-Rata allocation.
See also MIAX Rule 514.
\77\ See ISE, GEMX and MRX Options 3, Section 11; NYSE American
Rules 971.1NY and 971.2NY; and Cboe Rule 5.39.
\78\ See Exchange Rule 503, ISE, GEMX, MRX, Phlx, BX and NOM
Options 3, Section 8; Cboe Rule 5.31, MIAX Rule 503, BOX Rule 7070,
and NYSE Arca Rule 6.64-O.
\79\ Today, Phlx, Cboe, BOX, NYSE Arca, and NYSE American LLC
have a trading floor. Trading floors require an on-floor presence to
execute options transactions.
\80\ There are certain features of open outcry trading that are
difficult to replicate in an electronic trading environment. The
Exchange has observed, and understands from various market
participants, that they have had difficulty executing certain
orders, such as larger orders and high-risk and complicated
strategies, in an all-electronic trading configuration without the
element of human interaction to negotiate pricing for these orders.
---------------------------------------------------------------------------

Product Offerings
Introducing new and innovative products to the marketplace designed
to meet customer demands may attract market participants to a
particular options venue. New products in the options industry may
allow market participants greater trading and hedging opportunities, as
well as new avenues to manage risks. The listing of new options
products enhances competition among market participants by providing
investors with additional investment vehicles, as well as competitive
alternatives, to existing investment products. An exchange's
proprietary product offering may attract order flow to a particular
exchange to trade a particular options product.\81\
---------------------------------------------------------------------------

\81\ See, e.g., options on the Nasdaq-100 Index[supreg]
available on ISE, GEMX and Phlx and Cboe's Market Volatility
Index[supreg]. Currently, the Exchange does not list any proprietary
products.
---------------------------------------------------------------------------

Transaction Pricing
The pricing available on a particular exchange may impact a market
participant's decision to submit order flow to a particular options
venue. The options industry is competitive. Clear substitutes to the
Exchange exist in the market for options security transaction services;
the Exchange is only one of sixteen options exchanges to which market
participants may direct their order flow and memberships. Within this
environment, market participants can freely, and often do, shift their
order flow and memberships among the Exchange and competing venues in
response to changes in their respective pricing schedules.
* * * * *
The Exchange believes the fees in this case are reasonable and
constrained by competitive forces. Evidence is set forth below showing
that substitutable products and elasticity of demand exist when it
comes to purchasing a Trading Permit or membership on an exchange.
Trading Permit Fee Increase
Trading Permit and Similar Membership Fees Are Constrained by
Competition
The Exchange's Trading Permit Fees are subject to significant
competitive forces as evidenced by available substitutes and elasticity
of demand. As discussed above, the Exchange believes that there are
many factors that may cause a market participant to decide to become a
member of a particular exchange including: (i) an exchange's available
liquidity in options series; (ii) trading functionality, latency,
reliability, throughout, access to liquidity, and determinism offered
on a particular market; (iii) product offerings; (iv) customer service
on an exchange; and (v) transactional pricing. The Exchange believes
that the decision to become a member of an exchange is a complex one
that is not solely based on non-transactional costs assessed by an
exchange.
The Exchange believes that there is value in being a Member of the
Exchange and retaining that Membership as the Exchange's market share
has grown. Exchanges compete with each other for memberships and must
consider this competitive dynamic when setting fees for memberships,
such as Trading Permits. In this case, the proposed Trading Permit fees
are reasonable and constrained by competition because, as illustrated
by the above table, they are in the range of similar types of
membership fees charged to analogous categories of market participants
by other exchanges, including those with similar market share.\82\ The
proposed monthly Trading Permit fees are also lower than or comparable
to the membership and trading permit fees imposed by several other
national securities exchanges that charge such fees.\83\ Should the
Exchange seek to adopt Trading Permit Fees that are higher than that of
other exchanges, it would risk losing Members and having them
potentially connect to the Exchange via other means. Becoming a member
of the exchange does not ``lock'' a potential member into a market or
diminish the overall competition for exchange services. The decision to
become a member of an exchange is made at the beginning of the
relationship, and is no less subject to competition than trading fees
or market data.
---------------------------------------------------------------------------

\82\ See supra notes 38-46 and accompanying text.
\83\ See id.
---------------------------------------------------------------------------

Availability of Substitutes. The Commission staff indicated in its
2019 guidance that an exchange can demonstrate competitive forces exist
by showing that ``substantially similar but not identical''
substitutable products or services exist.\84\ That is clearly the case
here. No broker-dealer is required to become a Member of the Exchange.
Instead, many market participants waited for the Exchange to grow to a
certain percentage of market share before they decided to become an
Exchange Member. In addition, many market participants still have not
joined the Exchange despite the Exchange's growth in recent years to
consistently be

[[Page 48710]]

approximately 4-5% of the overall equity options market share. To
illustrate, the Exchange currently has 41 Members.\85\ 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 94 members.\86\ 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.
---------------------------------------------------------------------------

\84\ See supra note 64.
\85\ 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>.
\86\ 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).
---------------------------------------------------------------------------

The Exchange acknowledges that competitive forces may compel
certain broker-dealers to be members of all equity options exchanges
based on their business models. These broker-dealers may engage in
latency sensitive trading strategies that benefit from being a member
and connecting directly to an exchange based on the business model they
choose to employ. Competitive forces that may drive certain broker-
dealers to become members of each exchange based on their business
models is not unique to the options market. This dynamic also exists in
equities and acknowledged by MEMX and considered by the Commission in a
recent MEMX proposal to adopt a monthly membership fee.\87\ 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, just as one may do when considering whether
to become an member of an equity exchange.
---------------------------------------------------------------------------

\87\ See MEMX Membership Fee Proposal, supra note 7.
---------------------------------------------------------------------------

Other broker-dealers may not find a need in becoming a member of
all or some exchanges. There is no requirement, regulatory or
otherwise, that any broker-dealer connect to and access any (or all of)
the available options exchanges. One other exchange recently noted in a
proposal to amend their own trading permit fees that of the 62 market
making firms that are registered as Market Makers across Cboe, MIAX,
and BOX, 42 firms access only one of the three exchanges.\88\ Further,
the Exchange and its affiliates, MIAX and MIAX Emerald, have a total of
47 members. Of those 47 total members, 35 are members of all three
exchanges, four are members of only two (2) exchanges, and eight (8)
are members of only one exchange. Of those that are Market Makers today
on the Exchange, two (2) are not registered as Market Makers on MIAX
and one (1) is not registered as a Market Maker on MIAX Emerald. Broken
down even further, of those Market Makers that use the MEO Interface
and reached the Exchange's top tier for the Trading Permit fee for June
2022, one (1) Market Maker was only a Member of the Exchange and not
its two affiliates, MIAX and MIAX Emerald. The above data evidences
that a Market Maker need not be a Member of all options exchanges, let
alone the Exchange and its two affiliates, and market makers elect to
do so based on their own business decisions and need to directly access
each exchange's liquidity pool.
---------------------------------------------------------------------------

\88\ See Securities Exchange Act Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change to Amend the
Fee Schedule on the BOX Options Market LLC Facility To Adopt
Electronic Market Maker Trading Permit Fees). The Exchange believes
that BOX's observation demonstrates that market making firms can,
and do, select which exchanges they wish to access, and,
accordingly, options exchanges must take competitive considerations
into account when setting fees for such access.
---------------------------------------------------------------------------

The Exchange also is not aware of any reason why a Market Maker
could not cease being a permit holder in response to price increases
that it deems unreasonable from its own business perspective. The
Exchange does not assess any termination fee for a Member to drop its
Trading Permit, nor is the Exchange aware of any other costs that would
be incurred by a Market Maker to do so. Further, a broker-dealer may
employ a business model that is not latency sensitive, such as one that
only enters resting liquidity and, therefore, may not find interest in
exchange membership. Exchange membership may also not be useful for
order routing firms that seek to route orders to an exchange through
another means, described below, solely as part of their best execution
obligations or to comply with the trade-through requirements under
Chapter XIV of the Exchange's Rules. Such broker-dealers may utilize
various existing substitutes to access an exchange. For example, in
lieu of becoming a member at each options exchange, a market
participant may join one exchange and elect to have their orders routed
in the event that a better price is available on an away market,
including the Exchange. Nothing in the Order Protection Rule requires a
firm to become a Member at the Exchange, or any other options
exchange.\89\ Further, if the Exchange is not at the NBBO, the Exchange
will route an order to an away market that is at the NBBO to prevent a
trade-through and also ensure that the order was executed at a superior
price.\90\
---------------------------------------------------------------------------

\89\ See Options Order Protection and Locked/Crossed Market Plan
(August 14, 2009), available at <a href="https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf">https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf</a>.
\90\ Exchange Members may elect to not route their orders by
marking an order as ``do-not-route.'' In this case, the order would
not be routed.
---------------------------------------------------------------------------

Some other broker-dealers may not deem it necessary to be a Member
of the Exchange and may elect to access the Exchange through other
means. As a substitute for joining an exchange, a third-party may be
utilized to execute an order on an exchange. For example, a third-party
broker-dealer Member of the Exchange may be utilized by a retail
investor to submit orders into an exchange. An institutional investor
may utilize a broker-dealer, a service bureau,\91\ or request sponsored
access \92\ through a member of an exchange in order to submit an order
directly to an options exchange.\93\ A market participant may either
pay the costs associated with becoming a member of an exchange or, in
the alternative, a market participant may elect to pay commissions to a
broker-dealer, pay fees to a service bureau to submit trades, or pay a
member to sponsor the market participant in order to submit trades
directly to an exchange.\94\ Market

[[Page 48711]]

participants may elect any of the above substitute models and weigh the
varying costs when determining how to submit trades to an exchange.
Depending on the number of orders to be submitted, technology, ability
to control submission of orders, and projected revenues, a market
participant may determine one model is more cost efficient as compared
to the alternatives. The above examples clearly demonstrate competitive
forces exist by the availability of ``substantially similar but not
identical'' substitutable products or services to becoming a Member of
the Exchange. Also, based on the disparity in amount of memberships
among exchanges detailed above, numerous market participants take
advantage of these substitutes to send order flow to the Exchange in
lieu of becoming a Member.
---------------------------------------------------------------------------

\91\ Service bureaus provide access to market participants to
submit and execute orders on an exchange. On the Exchange, a Service
Bureau may be a Member. Some Members utilize a Service Bureau for
connectivity and that Service Bureau may not be a Member. Some
market participants utilize a Service Bureau who is a Member to
submit orders.
\92\ Sponsored Access is an arrangement whereby a member permits
its customers to enter orders into an exchange's system that bypass
the member's trading system and are routed directly to the Exchange,
including routing through a service bureau or other third-party
technology provider.
\93\ This may include utilizing a Floor Broker and submitting
the trade to one of the five options trading floors.
\94\ The Exchange notes that it does not have insight into the
economics of such a relationship where a broker-dealer utilizes
another entity to access the Exchanges. It is presumed that a third-
party that provides access to an exchange does so on behalf of
multiple broker-dealers and provides access to multiple exchanges.
It is also presumed that any increased volume that might cause such
third party to achieve a higher Trading Permit pricing tier maybe
offset through achieving a higher rebate on the Exchange or other
economic arrangement between the parties.
---------------------------------------------------------------------------

Elasticity of Demand. The Exchange notes it is not aware of any
reason why Members could not simply drop their access to an exchange
(or not initially access an exchange) if an exchange were to establish
prices for its non-transaction fees that, in the determination of such
Member, did not make business or economic sense for such Member to
access such exchange. The Exchange again notes that Members are not
required by rule, regulation, or competitive forces to be a Member on
the Exchange.
Elasticity of demand for Exchange Membership exists when it comes
to purchasing a Trading Permit and, as evidenced by the below data,
Members have terminated their memberships since the proposed fees were
first in effect. First, and most notably, the Exchange has not seen an
increase in memberships since it first adopted the proposed fee
increase. In fact, three Members terminated their memberships in the
time since the proposed fee increase first went into effect. In June
2021, the month immediately preceding the initial implementation of
this proposed fee change, the Exchange had 20 users of the MEO
Interface and 28 users of the FIX Interface. These numbers remained
stagnant until August 2021, where one Member that utilized the MEO
Interface ceased utilizing the MEO Interface and again in December 2021
where one Member that utilized the FIX Interface ceased utilizing the
FIX Interface. These numbers again remained stagnant until March 2022,
where another Member that utilized the FIX Interface ceased utilizing
the FIX Interface. This resulted in 19 users of the MEO Interface and
26 users of the FIX Interface. Further, other exchanges have also
experienced termination of memberships if their members deem permit or
membership fees to be unreasonable or excessive. For example, the
Exchange notes that a BOX participant modified its access to BOX in
connection with the implementation of a proposed change to BOX's permit
fees.\95\ The absence of new memberships coupled with the termination
of two memberships on the Exchange, as well as similar membership
changes on another options exchange in relation to a trading permit fee
increase, clearly shows that elasticity of demand exists.
---------------------------------------------------------------------------

\95\ According to BOX, a Market Maker on BOX terminated its
status as a Market Maker in response to BOX's proposed modification
of Market Maker trading permit fees. See Securities Exchange Act
Release No. 94894 (May 11, 2022), 87 FR 29987 (May 17, 2022) (SR-
BOX-2022-17). BOX noted, and the Exchange agrees, that this Market
Maker's decision demonstrates that Market Makers can, and do, alter
their membership status if they deem permit fees at an exchange to
be unsuitable for their business needs, thus demonstrating the
competitive environment for Market Maker permit fees and the
constraints on options exchanges when setting Market Maker permit
fees.
---------------------------------------------------------------------------

Also, the Exchange has not experienced any Member decreasing their
trading activity on the Exchange in order to move to a lower tier and
be charged the corresponding lower fee. In fact, between June 2021 and
July 2021, one Member that utilizes the MEO Interface moved up from
Tier 1 to Tier 3 due to increasing their trading volume on the
Exchange. This occurred again between January 2022 and February 2022,
where another Member that utilizes the MEO Interface moved up from Tier
1 to Tier 2 also due to increasing their trading volume on the
Exchange.
The Exchange has not experienced a net decrease in Members due to
the fee increase, because the Exchange believes numerous considerations
are taken into account when deciding to be a member of an exchange,
including, but not limited to: (i) an exchange's available liquidity in
options series; (ii) trading functionality, latency, reliability,
throughout, access to liquidity, and determinism offered on a
particular market; (iii) product offerings; (iv) customer service on an
exchange; and (v) transactional pricing when socializing the change.
Fees are not the sole consideration. As stated above, the Exchange
socialized the proposed fee increase with Members prior to first
implementing the change. During that process, some Members stated that
they anticipated a potential increase due to the lower rates the
Exchange historically charged.
The Proposed Fees Are Reasonable and Constrained by Similar Fees
Charged by Other Options Exchanges
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 with similar market share. The
Exchange believes other exchanges' membership and trading permit fees,
even those of its affiliates, are useful examples of alternative
approaches to charging for memberships and how such fees are
constrained by like fees charged by other exchanges.
Again, the Exchange has not amended its Trading Permit fees since
the fees were first adopted in 2018.\96\ As described above, the
Exchange's proposed fee increase results in fees that remain lower than
those of its affiliates, MIAX and MIAX Emerald. First, MIAX and MIAX
Emerald charge EEMs a similar, fixed flat trading permit fee of
$1,500,\97\ which equals the top tier proposed herein for users of the
FIX Interface and also primarily consists of EEMs. Members that do not
qualify for the top tier on the Exchange would pay a lower Trading
Permit Fee than they would on MIAX or MIAX Emerald. Like the Exchange
currently employs for MEO Interface, which is primarily used by Market
Makers, MIAX and MIAX Emerald charge tiered trading permit fees to
Market Makers. However, the Exchange's proposed fees for users of the
MEO Interface are lower and range from $2,500 to $6,000, while the
Trading Permit fees on MIAX and MIAX Emerald range from $7,000 to
$22,000.
---------------------------------------------------------------------------

\96\ See supra note 9.
\97\ 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 June 30, 2022).
---------------------------------------------------------------------------

The below discussion illustrates how the Exchange has historically
undercharged for access via Trading Permits as compared to other
options exchanges. As discussed further above, the Exchange chose to
charge less than other options exchanges to attract memberships and
order flow as a new options exchange entrant. The Exchange now seeks to
increase its Trading Permit Fees due to the maturity of its market
while keeping in mind the competitive constraints based on similar fees
by other options exchanges.
The proposed Trading Permit Fees compare favorably with those of
other options exchanges. The Exchange proposes to charge users of the
FIX Interface monthly fees ranging from

[[Page 48712]]

$500 to $1,500 based on trading volume. Users of the FIX Interface are
primarily EEMs, which generally consist of order flow providers. Cboe
charges monthly electronic trading permit fees based on the category of
participant, such as $3,000 for Electronic Access Permit holders and
$2,000 for Clearing TPH Permit holders (the Exchange notes that it only
charges $250 per month for EEM Clearing Firms). Cboe's Electronic
Access Permit fee is the analog to the Exchange's Trading Permit fee
for Members that use the FIX Interface and is higher than the
Exchange's proposed highest tier.
The Exchange's proposed monthly Trading Permit Fees for users of
the MEO Interface, which are primarily Market Makers, range from $2,500
to $6,000 based on trading volume. Basing such fees on trading volume
is analogous to other options exchanges that base their similar fees
charged to Market Makers based on the number of options classes
assigned. For example, NYSE Arca charges Market Makers a base fee of
$8,000 and charges additional fees ranging from $500 to $6,000 on top
of the base fee and depending on the options issues assigned, could
result in monthly options trading permit fees ranging from $8,000 to
$26,000 (or higher), which is higher than the Exchange's highest
proposed tier of $6,000. NYSE American charges electronic Market Makers
a base fee of $8,000 and charges additional fees ranging from $500 to
$6,000 on top of the base fee and depending on the options issues
assigned, which could result in monthly options trading permit fees
ranging from $8,000 to $26,000 (or higher), also higher than the
Exchange's highest proposed tier of $6,000.
The proposed Trading Permit Fee also compares favorably with those
of other options exchanges with similar market share. Under the
Exchange's tiered structure, a Member may trade approximately 106,000
more ADV contracts on the Exchange than on Cboe BZX Options \98\ and
continue to qualify for the Exchange's lowest Tier. For example, a
Member would qualify for Tier 1 of the Exchange's tiered pricing
structure where that Member's total volume as a percentage of TCV is
between 0.00% and 0.30%. Assuming an average of 37 million contracts
are traded each day during a month that Member would qualify for Tier 1
where that Member traded less than an ADV of 111,000 contracts and be
charged $500 for the month, the same fee as Cboe BZX Options, where
that Member connects via FIX.\99\ On Cboe BZX Options, the Exchange
understands that same member would no longer qualify for their lowest
tier when their ADV equals or exceeds 5,000 contracts and be charged a
fee of $1,000 for that month.\100\
---------------------------------------------------------------------------

\98\ Cboe BZX Options had an average daily market share of 7.95%
as of June 23, 2022. See ``Market at a Glance'', available at
<a href="https://www.miaxoptions.com/">https://www.miaxoptions.com/</a> (last visited June 23, 2022).
\99\ See ``Membership Fees'' section of the Cboe BZX Options Fee
Schedule, available at <a href="https://www.cboe.com/us/options/membership/fee_schedule/bzx">https://www.cboe.com/us/options/membership/fee_schedule/bzx</a> (last visited April 13, 2022). The Exchange
understands Cboe BZX Options charges the same Membership Fee to all
of its Options Members.
\100\ The Exchange proposes to also charge a fee of $1,000 per
month to Members that qualify for Tier 2, the same as BZX's highest
tier. The Exchange acknowledges that the Exchange's Trading Permit
fee would be higher than BZX where a Member qualifies for Tier 3.
---------------------------------------------------------------------------

Like the Exchange, BOX also employs a tier pricing structure for
market maker trading permit fees charging $4,000 to $10,000 per month
based on options classes traded.\101\ BOX's pricing structure is the
analog for the Exchange's Trading Permit Fees for users of the MEO
Interface as that interface is primarily used by Market Makers. BOX's
lowest tier only equals the Exchange's second tier for the MEO
interface and its third and fourth tier exceed the Exchange's highest
tier.
---------------------------------------------------------------------------

\101\ See Securities Exchange Act Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17).
---------------------------------------------------------------------------

The Proposed Fees Are Equitable and Not Unfairly Discriminatory
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
first adopted its tiered pricing structure in 2018 and has not amended
the volume requirement since, nor does it propose to do so herein.
Nonetheless, the Exchange continues to believe the tiered pricing
structure remains not unfairly discriminatory because it is based on
the amount of trading a Member conducts on the Exchange, related use of
Exchange services, and the value of the Exchange's technology offering.
In other words, the more a firm uses the Exchange's system, the more
that firm will pay than others that use the system less. The proposed
fees also remain not unfairly discriminatory because they continue to
be based on the type of interface utilized and the value drawn from the
use of that interface.
The tiered pricing structure remains not unfairly discriminatory
because it is based on the amount of trading a Member conducts on the
Exchange, related use of Exchange services, and the value of the
Exchange's technology offering. The Exchange offers a premium System
network, connectivity, and a highly deterministic trading environment,
the cost of which per tier is in relation to the value it provides. The
Exchange is recognized as a leader in network monitoring, determinism,
risk protections, and network stability. For example, the Exchange
experiences approximately a 95% determinism rate, system throughput of
approximately 10.8 million quotes per second and average round trip
latency rate of approximately 30.76 microseconds for a single quote.
The Exchange provides a highly resilient trading platform that
experienced 99.9999% of uptime since its inception over 5 years ago.
The Exchange provides extreme performance and radical scalability
designed to match the unique needs of trading differing asset class/
market model combinations.
Again, Exchange systems offer two customer interfaces, FIX
Interface gateway for orders, and ultra-low latency MEO Interface and
data feeds with best-in-class wire order determinism. The Exchange also
offers automated continuous testing to ensure high reliability,
advanced monitoring and systems security, and employs a software
architecture that results in minimizing the demands on power, space,
and cooling while allowing for rapid scalability, resiliency and fault
isolation. The Exchange also provides latency equalized cross-connects
in the primary data center ensures fair and cost efficient access to
the Exchange's Systems.
The tiered pricing structure represent the value of the Exchange's
industry leading technology platform and is based on how frequently a
Member trades on the Exchange. The more use, the more value a Member is
extolling from the Exchange. The Exchange believes that a Member that
qualifies for the first tier should not be charged the same as a Member
that qualifies for the highest tier because the Member that qualifies
for the first tier uses the Exchange less than the Member that
qualifies for the highest tier. Members that qualify for the lowest
tier tend to connect to the Exchange as part of their best execution
obligations and generally tend to send the least amount of orders and
messages over those connections.\102\

[[Page 48713]]

Those Members generally send fewer orders and messages to the Exchange
resulting in less use of the Exchange resources. Therefore, the Trading
Permit fees for those Members should rightfully be lower than others
that trade on the Exchange for other reasons, such as a low-latency
trading strategies that requires sending more orders and messages
which, therefore, utilize a greater amount or Exchange resources and
extoll great value from their use of the Exchange's industry leading
technology offering.
---------------------------------------------------------------------------

\102\ An EEM may satisfy its best execution obligations by using
the FIX Interface, limiting their costs. Those EEMs that choose to
use the MEO Interface do so for reasons other than best execution,
such as the enhanced functionality provided by the MEO Interface,
and the proposed fees would not serve as a barrier to satisfying
best execution.
---------------------------------------------------------------------------

Next, the existing tiered pricing structure remains not unfairly
discriminatory because it continues to be based on the type of
interface utilized and the value drawn from the use of that interface.
As discussed above, both the MEO Interface and FIX Interface continue
to be available to all Members and each Member may choose which
interface to utilize based on their own business needs. The FIX
Interface is the industry-wide uniform message format and provides
lower bandwidth, less capacity, and fewer Exchange resources. EEMs, who
are primarily order flow providers, are the primary users of the FIX
Interface. Meanwhile, the MEO Interface is the more robust interface
offering lower latency and higher throughput. Market Makers primarily
use the MEO Interface due to its functionality, robustness, lower
latency, and higher throughput and utilizes greater Exchange resources
due to the increased volume of message traffic that travel through the
MEO Interface.
As stated above, the Exchange offers three time-in-force modifiers:
Day, IOC, and GTC. While all order types are available for use on
either interface, only the time-in-force modifiers of IOC and Day are
available on the MEO Interface. Market Makers utilize the time-in-force
of Day on orders to be posted on the MIAX Pearl Options Book and to
meet Market Makers' continuous quoting obligations under Exchange Rule
605(d). Other Market Makers, and certain EEMs, that primarily remove
liquidity tend to be more latency sensitive and utilize the time-in-
force of IOC on orders when looking to remove liquidity from the MIAX
Pearl Options Book. The MEO Interface allows the submission of Cancel-
Replacement orders, which allow for the immediate cancellation of a
previously received order and the replacement of that order with a new
order with new terms and conditions. Cancel-Replacement orders are
primarily used by Market Makers as part of their continuous quoting
obligations. Market Makers, and certain EEMs, are the primary users of
the MEO Interface due to its lower latency, higher throughput,
available time-in-force instructions and order types that assist them
in satisfying their market making obligations. The Exchange also offers
its Aggregate Risk Manager (``ARM'') over the MEO Interface and it is
available to both EEMs and Market Makers.\103\
---------------------------------------------------------------------------

\103\ See Exchange Rules 517(A) (Aggregated Risk Manager for
EEMs) and 517B (Aggregate Risk Manager for Market Makers).
---------------------------------------------------------------------------

The FIX Interface provides lower capacity and bandwidth and,
therefore, utilizes less Exchange resources. The FIX Interface is
primarily used by EEMs, who tend to be less latency sensitive and
submit less orders and messages than Market Makers. The FIX Interface
provides EEMs all the functionality necessary for them to satisfy their
best execution obligations. However, EEMs may choose to use the MEO
Interface due to its lower latency, higher throughput, available
functionality based on their business needs if they choose.
The Exchange notes that while Market Maker users of the MEO
Interface continue to account for a vast majority of the increased
System usage placed on the Exchange, Market Makers continue to be
valuable market participants on the exchanges as the options market is
a quote driven industry. The Exchange recognizes the value that Market
Makers bring to the Exchange. The Exchange proposes higher, separate
fees for users of the MEO Interface that are more aligned with the
costs and resources that Market Makers continue to place on the
Exchange and its systems.
The Exchange notes that Market Makers are the predominant users of
the MEO Interface and consume the most bandwidth and resources of the
network, transact the vast majority of the volume on the Exchange, and
require the high touch network support services provided by the
Exchange and its staff. The Exchange notes that users of the FIX
Interface, i.e., non-Market Makers, take up significantly less Exchange
resources as discussed further below. Further, the Exchange notes that
MEO users account for greater than 99% of message traffic over the
network, while FIX users account for less than 1% of message traffic
over the network. In the Exchange's experience, most Exchange Members
do not have a business need for the high performance network solutions,
like MEO, required by Market Makers and certain EEMs.
Over the period from March 2022 through May 2022, the Exchange
processed 1.3 billion messages via the FIX Interface (0.33% of total
messages received). Over that same time period, the Exchange processed
386.1 billion messages (99.67% of total messages received) over the MEO
Interface. This marked difference between the number of FIX and MEO
messages processed, when mapped to servers, software, storage, and
networking results in a much higher allocation of total resources to
support the MEO Interface. For one, the Exchange expends greater
resources to maintain the resilience of the MEO Interface to ensure its
ongoing operation in accordance with Regulation SCI. Another, the
Exchange must expand its storage capacity to retain these increased
messages in compliance with its record keeping obligations. The
Exchange must also expend additional resources to surveil and ensure
proper regulatory oversight of this increased message traffic. These
pulls on Exchange resources have only increased since it first adopted
the Trading Permit fee in March of 2018 \104\ when the Exchange's
trading volume for that month averaged 3.94%.\105\ Today, the
Exchange's average daily trading volume for June 2022 is 4.92%.\106\
This additional volume increases the pull on Exchange resources
necessary to surveil and regulate its market while also procuring
additional capacity to store and monitor those messages in compliance
with its record keeping obligations under the Exchange Act.
---------------------------------------------------------------------------

\104\ See supra note 9.
\105\ See Market at a Glance, supra note 8.
\106\ Id.
---------------------------------------------------------------------------

Users of the MEO Interface, therefore, receive greater value than
Users of the FIX Interface due to its higher throughput, lower latency,
and available functionality. As the above data shows, the Exchange also
expends much more resources to support the MEO Interface than it does
to support the FIX Interface. The existing tiered pricing structure is
designed to account for these facts. Trading Permit fees for Members
who connect through the MEO Interface are, therefore, higher than the
Trading Permit fees for Members who connect through the FIX Interface.
The tiered pricing structure also accounts for the corresponding use of
the MEO and FIX Interfaces and charges more for those that use either
interface more in terms of trading volume and proportionate pull on
Exchange resources. Therefore, the proposed monthly Trading Permit fees
are not unfairly discriminatory because they would be assessed equally
across all Members based on the type of interface and related usage of
Exchange resources.
The tiered pricing structure has been in place since 2018 \107\ and
similar

[[Page 48714]]

membership pricing structures utilized by other options exchanges
assess permit fees at different rates, based upon a member's
participation on that exchange,\108\ and, as such, this concept is not
new or novel. The Exchange also notes the some options exchanges employ
a tiered pricing structure for membership fees based on options
assigned or traded while the Exchange employs a tier pricing structure
based on trading volume. The Exchange believes both are analogous and
lead to the same result. Also see the BZX example explained above.
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\107\ See supra note 9.
\108\ See e.g., Securities Exchange Act Release No. 94894 (May
11, 2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17). NYSE Arca
Options Fees and Charges, p.1 (assessing market makers $6,000 for up
to 175 option issues, an additional $5,000 for up to 350 option
issues, an additional $4,000 for up to 1,000 option issues, an
additional $3,000 for all option issues on the exchange, and an
additional $1,000 for the fifth trading permit and for each trading
permit thereafter); NYSE American Options Fee Schedule, p. 23
(assessing market makers $8,000 for up to 60 plus the bottom 45% of
option issues, an additional $6,000 for up to 150 plus the bottom
45% of option issues, an additional $5,000 for up to 500 plus the
bottom 45% of option issues, and additional $4,000 for up to 1,100
plus the bottom 45% of option issues, an additional $3,000 for all
issues traded on the exchange, and an additional $2,000 for 6th to
9th ATPs; plus an addition fee for premium products). See also BZX
Options assesses the Participant Fee, which is a membership fee,
according to a member's ADV. See Cboe BZX Options Exchange Fee
Schedule under ``Membership Fees''. The Participant Fee is $500 if
the member ADV is less than 5000 contracts and $1,000 if the member
ADV is equal to or greater than 5,000 contracts.
---------------------------------------------------------------------------

The proposed fees are equitable and not unfairly discriminatory as
the fees apply equally to all Members. As such, all similarly situated
Members, with the same trading volume, will be subject to the same
Trading Permit fee. The Exchange also believes that assessing lower
fees to Members with less trading volume is reasonable and appropriate
as it will allow the Exchange to retain and attract smaller-scale
Members, which are an integral component of the options industry
marketplace. Since these smaller Members utilize less bandwidth and
capacity on the Exchange's network due to the lower trading volume, the
Exchange believes it is reasonable and appropriate to offer Members a
lower fee. Furthermore, the Exchange tiered pricing is beneficial and
valued by smaller Market Makers who provide liquidity in less liquid
options classes. The Exchange fears that without its tiered pricing
structure, smaller Market Makers would discontinue their membership and
cease providing much needed liquidity in less liquid options classes to
the detriment of all market participants. The Exchange must, therefore,
consider Members' ability to discontinue their memberships when
considering any potential changes to its tiered volume requirements and
that Members' ability to transition to another exchange they view
offers more attractive volume thresholds and pricing. The proposed
fees, therefore, represent the equitable allocation of reasonable dues,
fees and other charges because the fees are generally lower than other
exchanges and the proposed tiered fees are similar to other tiered
pricing structures on other options exchanges.\109\
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\109\ The Exchange does not charge a separate fee to Market
Makers for options assignments.
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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. The Exchange established the Monthly Volume Credit
when it first launched operations to encourage Members to increase
their order flow by providing a credit to those that exceeded a volume
threshold. 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 even without the Monthly Volume Credit.\110\
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\110\ See the Exchange's Fee Schedule available at <a href="https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Options_Fee_Schedule_07122022.pdf">https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Options_Fee_Schedule_07122022.pdf</a>.
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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. The Exchange
established the Trading Permit fee credit to lower the costs for
Members that connect via the MEO Interface and/or FIX Interface as a
means to attract order flow and memberships after the Exchange first
launched operations. The Exchange now believes that it is appropriate
to remove this credit in light of the current operating conditions and
membership on the Exchange.

B. Self-Regulatory Organization's Statement on Burden on Competition

In accordance with Section 6(b)(8) of the Act, \111\ 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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\111\ 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.
As described above, the Exchange's proposed Trading Permit fees are
lower than or similar to the cost of membership and trading permits on
other exchanges,\112\ 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. As
stated above, the number of FIX and MEO Interface users remained
stagnant until August 2021, where one Member that utilized the MEO
Interface ceased utilizing that interface and again in December 2021,
where one Member that utilized the FIX Interface ceased utilizing that
interface.
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\112\ See supra notes 38-46.
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The Exchange also does not believe charging different fees for MEO
and FIX

[[Page 48715]]

Interface users and basing the amount of such fees on trading volume
would impose any burden on intermarket or intramarket competition that
is not necessary or appropriate in furtherance of the purposes of the
Act. As discussed above, the FIX Interface is the uniform industry
message protocol used by most exchanges and provides lower throughput
and bandwidth than the MEO Interface. Users are free to use either
interface based on their business need and the pricing structure is
aligned with the interface used, its pull on Exchange resources, and
the Member's monthly trading volume. The tiered pricing structure is
based on the type of interface and trading volume in place on the
Exchange today and the Exchange does not propose to amend the volume
requirements associated with each Tier. Rather, it is simply seeking to
amend the associated fees. Basing such fees on trading volume would may
also stimulate intramarket competition because it is analogous to other
exchanges that base like fees on options classes traded or assigned. A
Member may cease being a Member if they believe the tiered structure is
not appropriate or that another exchange presents a better value.
Likewise, a market participant that is not already a Member may cease
membership on another exchange or become a Member of MIAX Pearl where
they deem the Exchange's Trading Permit fee to be a better value based
on its trading activity and business needs.
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
regarding memberships or in the execution of multiply-listed equity and
ETF options order flow. Over the course of 2021 and 2022, the
Exchange's market share has fluctuated between approximately 3-6% of
the U.S. equity options industry.\113\ The Exchange is not aware of any
evidence that a market share of approximately 3-6% provides the
Exchange with anti-competitive pricing power when it comes to
competition for memberships. The Exchange believes that the ever-
shifting market share among exchanges from month to month demonstrates
that market participants can discontinue memberships 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 and
retain memberships on the Exchange.
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\113\ See supra note 8.
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The proposed fee change will not impact intermarket competition
because it will apply to all Members equally. Also, Members are free to
use either the FIX or MEO Interface and may choose the interface that
better meets their business needs based on their trading models and
behavior. 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

The Exchange responded to comment letters in a prior proposal.\114\
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\114\ See supra note 55.
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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,\115\ and Rule 19b-4(f)(2) \116\ 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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\115\ 15 U.S.C. 78s(b)(3)(A)(ii).
\116\ 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#0c7e796069216f6361616962787f4c7f696f226b637a"><span class="__cf_email__" data-cfemail="f183849d94dc929e9c9c949f8582b1829492df969e87">[email&#160;protected]</span></a>. Please include
File Number SR-PEARL-2022-30 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-2022-30. 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-2022-30 and should be submitted on
or before August 31, 2022.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\117\
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\117\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17096 Filed 8-9-22; 8:45 am]
BILLING CODE 8011-01-P

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