Notice2022-27162
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX Pearl Equities Fee Schedule
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Published
December 15, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 240 (Thursday, December 15, 2022)</title>
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[Federal Register Volume 87, Number 240 (Thursday, December 15, 2022)]
[Notices]
[Pages 76645-76648]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-27162]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96472; File No. SR-PEARL-2022-53]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
Pearl Equities Fee Schedule
December 9, 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 November 30, 2022, MIAX PEARL, LLC (``MIAX Pearl'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the fee schedule (the
``Fee Schedule'') applicable to MIAX Pearl Equities, an equities
trading facility of the Exchange.
The text of the proposed rule change is available on the Exchange's
website at <a href="http://www.miaxoptions.com/rule-filings/pearl">http://www.miaxoptions.com/rule-filings/pearl</a>, at MIAX
Pearl's principal office, and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Exchange's
Fee Schedule to (i) adopt a reduced fee for executions of Midpoint Peg
Orders \3\ that remove liquidity and execute at the midpoint of the
Protected NBBO (``PBBO''); \4\ (ii) adopt a new Liquidity Code and
associated fee to the Liquidity Indicator Codes and Associated Fees
table for a Midpoint Peg Order; and (iii) update the Standard Rates
table to include the new Liquidity Indicator Code in the Removing
Liquidity column.
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\3\ A Midpoint Peg Order is a non-displayed Limit Order that is
assigned a working price pegged to the midpoint of the PBBO. A
Midpoint Peg Order receives a new timestamp each time its working
price changes in response to changes to the midpoint of the PBBO.
See Exchange Rule 2614(a)(3).
\4\ With respect to the trading of equity securities, the term
``Protected NBB'' or ``PBB'' shall mean the national best bid that
is a Protected Quotation, the term ``Protected NBO'' or ``PBO''
shall mean the national best offer that is a Protected Quotation,
and the term ``Protected NBBO'' or ``PBBO'' shall mean the national
best bid and offer that is a Protected Quotation. See Exchange Rule
1901.
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The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues, to
which market participants may direct their order flow. Based on
publicly available information, no single registered equities exchange
currently has more than approximately 17% of the total market share of
executed volume of equities trading, and the Exchange currently
represents approximately 1.06% of the overall market share.\5\
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\5\ See MIAX's ``The market at a glance/Equities/MTD AVERAGE'',
available at <a href="https://www.miaxoptions.com/">https://www.miaxoptions.com/</a> (Data as of 11/1/2022-11/
18/2022).
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Midpoint Peg Orders
The Exchange currently charges a standard fee of $0.0029 per share
for executions of orders in securities priced at or above $1.00 per
share that remove liquidity from the Exchange in all Tapes (such
orders, ``Removed Liquidity''). The Exchange now proposes to adopt a
reduced fee of $0.00265 per share for executions of Midpoint Peg Orders
in securities priced at or above $1.00 that execute at the midpoint of
the PBBO and remove liquidity from the Exchange in all Tapes. As
proposed, executions of Midpoint Peg Orders in securities priced below
$1.00 per share that execute at the midpoint of the PBBO and remove
liquidity from the Exchange will be charged a fee of 0.20% of the total
dollar of the transaction, which is the same fee that is currently
charged for all such executions.
The purpose of reducing the fee for executions of Midpoint Peg
Orders is to incentivize Equity Members \6\ (or ``Members'') to submit
additional liquidity-removing orders designed to execute at the
midpoint to the Exchange, as the cost of such executions would be lower
than it is today. In turn, the Exchange believes the submission of
additional Midpoint Peg Orders would encourage firms that post
liquidity at the midpoint to submit additional liquidity-providing
orders designed to execute at the midpoint to the Exchange, as such
orders would have a greater chance of being executed as a
[[Page 76646]]
result of additional contra-side liquidity-removing Midpoint Peg Orders
to interact with. Thus, the Exchange's proposal to reduce the fee for
executions of Midpoint Peg Orders is designed to deepen liquidity and
increase execution opportunities at the midpoint on the Exchange,
thereby improving the Exchange's market quality to the benefit of all
Members and enhancing its attractiveness as a trading venue.
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\6\ The term ``Equity Member'' is a Member authorized by the
Exchange to transact business on MIAX Pearl Equities. See Exchange
Rule 1901.
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The Exchange proposes to update the Liquidity Indicator Code and
Associated Fees Table as follows:
<bullet> Add new liquidity indicator code Rp, Removes Liquidity and
Executes at the Midpoint, Non-Displayed Midpoint Peg Order (All Tapes).
The Liquidity Indicator Code and Associated Fees table would specify
that orders that yield liquidity indicator code Rp would be assessed a
fee of $0.00265 per share in securities priced at or above $1.00 and
0.20% of the transaction's dollar value in securities priced below
$1.00.
The Exchange also proposes to add the above liquidity indicator
code to the Standard Rates table. Specifically, liquidity indicator
code Rp would be added to the ``Remove Liquidity'' column.
Implementation
The Exchange proposes to implement the changes to the Fee Schedule
pursuant to this proposal on December 1, 2022.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \7\ in general, and furthers
the objectives of section 6(b)(4) of the Act \8\ in particular, in that
it is an equitable allocation of reasonable fees and other charges
among its Equity Members and issuers and other persons using its
facilities. The Exchange also believes that the proposed rule change is
consistent with the objectives of section 6(b)(5) \9\ requirements that
the rules of an exchange be designed to prevent fraudulent and
manipulative acts and practices, and to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest, and, particularly, is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4).
\9\ 15 U.S.C 78f(b)(5).
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The Exchange operates in a highly fragmented and competitive market
in which market participants can readily direct their order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of sixteen registered equities exchanges, and
there are a number of alternative trading systems and other off-
exchange venues, to which market participants may direct their order
flow. Based on publicly available information, no single registered
equities exchange currently has more than approximately 17% of the
total market share of executed volume of equities trading.\10\ Thus, in
such a low-concentrated and highly competitive market, no single
equities exchange possesses significant pricing power in the execution
of order flow, and the Exchange currently represents less than 1.06% of
the overall market share. The Commission and the courts have repeatedly
expressed their preference for competition over regulatory intervention
in determining prices, products, and services in the securities
markets. In Regulation NMS, the Commission highlighted the importance
of market forces in determining prices and SRO revenues and also
recognized that current regulation of the market system ``has been
remarkably successful in promoting market competition in its broader
forms that are most important to investors and listed companies.'' \11\
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\10\ See supra note 5.
\11\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37499 (June 29, 2005).
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to new or different pricing structures being
introduced into the market. Accordingly, competitive forces constrain
the Exchange's transaction fees and rebates, and market participants
can readily trade on competing venues if they deem pricing levels at
those other venues to be more favorable. The Exchange believes the
proposal reflects a reasonable and competitive pricing structure
designed to incentivize market participants to direct their order flow
to the Exchange, which the Exchange believes would enhance liquidity
and market quality to the benefit of all Members and market
participants.
The Exchange believes that its proposal to charge a reduced fee for
Midpoint Peg Orders that remove liquidity and execute at the midpoint
is reasonable, equitable, and not unfairly discriminatory.
Specifically, the Exchange believes such proposal is reasonable, as it
is reasonably designed to incentivize Members to submit additional
Midpoint Peg Orders to the Exchange, which, in turn, the Exchange
believes would encourage firms that post midpoint liquidity to submit
additional liquidity-adding orders designed to execute at the midpoint
to the Exchange in order to interact with such Midpoint Peg Orders, as
described above. Thus, the Exchange believes the proposal reflects a
reasonable attempt to deepen liquidity and increase execution
opportunities at the midpoint on the Exchange, thereby improving the
Exchange's market quality to the benefit of all Members and enhancing
its attractiveness as a trading venue, particularly as the Exchange
believes the proposed reduction in the fee for executions of Midpoint
Peg Orders (i.e., $0.00025 per share lower than the standard fee for
Removed Liquidity) is not excessive and is reasonably related to the
market quality benefits it is intended to achieve. The Exchange also
believes that the proposed fee for executions of Midpoint Peg Orders is
equitable and not unfairly discriminatory, as such fee would be charged
uniformly to all executions of such orders for all Members.
New Liquidity Indicator Code
The Exchange believes its proposal to add new liquidity indicator
code ``Rp'' to the Liquidity Indicator Codes and Associated Fees table
and to add liquidity indicator code ``Rp'' to the ``Removing
Liquidity'' column of the Standard Rates table, is reasonable and
equitable because it will apply equally to all Members of the Exchange
that submit Midpoint Peg Orders that remove liquidity at the midpoint.
This liquidity indicator code would be returned on the real-time trade
reports sent to the Member that submitted the order. The use of
liquidity indicator codes is not unique to the Exchange as liquidity
indicator codes are currently utilized and described in the fee
schedules of other equity exchanges.\12\ Further, the Exchange's
proposed fee of
[[Page 76647]]
$0.00265 is competitive with other exchanges that provide a similar
pricing incentive.\13\
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\12\ See the fee schedule of MEMX LLC (``MEMX'') available on
their public website at <a href="https://info.memxtrading.com/fee-schedule/">https://info.memxtrading.com/fee-schedule/</a>;
and the fee schedule of the Investors Exchange LLC (``IEX'')
available on their public website at <a href="https://exchange.iex.io/resources/trading/fee-schedule/">https://exchange.iex.io/resources/trading/fee-schedule/</a>.
\13\ See fee code ``Rm'' of the MEMX fee schedule that assesses
a $0.0027 fee for removed volume from the MEMX Book, Midpoint Peg,
available on their public website at <a href="https://info.memxtrading.com/fee-schedule/">https://info.memxtrading.com/fee-schedule/</a>.
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For the reasons discussed above, the Exchange submits that the
proposal satisfies the requirements of sections 6(b)(4) and 6(b)(5) of
the Act in that it provides for the equitable allocation of reasonable
dues, fees and other charges among its Members and other persons using
its facilities and is not designed to unfairly discriminate between
customers, issuers, brokers, or dealers. As described more fully below
in the Exchange's statement regarding the burden on competition, the
Exchange believes that its transaction pricing is subject to
significant competitive forces, and that the proposed fees and rebates
described herein are appropriate to address such forces.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed change will impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act. The Exchange believes the proposed change
would encourage Members to maintain or increase their order flow to the
Exchange, thereby contributing to a deeper and more liquid market to
the benefit of all market participants and enhancing the attractiveness
of the Exchange as a trading venue. As a result, the Exchange believes
the proposal would enhance its competitiveness as a market that
attracts actionable orders, thereby making it a more desirable
destination venue for its customers. For these reasons, the Exchange
believes that the proposal furthers the Commission's goal in adopting
Regulation NMS of fostering competition among orders, which promotes
``more efficient pricing of individual stocks for all types of orders,
large and small.'' \14\
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\14\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
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Intramarket Competition
The Exchange believes that the proposal would incentivize Members
to submit additional order flow, including liquidity-adding and
liquidity-removing orders designed to execute at the midpoint, to the
Exchange, thereby enhancing liquidity and market quality on the
Exchange to the benefit of all Members, as well as enhancing the
attractiveness of the Exchange as a trading venue, which the Exchange
believes, in turn, would continue to encourage market participants to
direct additional order flow to the Exchange. Greater liquidity
benefits all Members by providing more trading opportunities and
encourages Members to send additional orders to the Exchange, thereby
contributing to robust levels of liquidity, which benefits all market
participants. The proposed reduced fee for executions of Midpoint Peg
Orders that remove liquidity at the midpoint from the Exchange will
apply to all such executions for all Members on the Exchange. As such,
the Exchange believes the proposed changes would not impose any burden
on intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Intermarket Competition
The Exchange believes its proposal will benefit competition, and
the Exchange notes that it operates in a highly competitive market.
Members have numerous alternative venues they may participate on and
direct their order flow to, including fifteen other equities exchanges
and numerous alternative trading systems and other off-exchange venues.
As noted above, no single registered equities exchange currently has
more than 17% of the total market share of executed volume of equities
trading.\15\ Thus, in such a low-concentrated and highly competitive
market, no single equities exchange possesses significant pricing power
in the execution of order flow. Moreover, the Exchange believes that
the ever-shifting market share among the exchanges from month to month
demonstrates that market participants can shift order flow in response
to new or different pricing structures being introduced to the market.
Accordingly, competitive forces constrain the Exchange's transaction
fees and rebates, including with respect to executions of Midpoint Peg
Orders, and market participants can readily choose to send their orders
to other exchanges and off-exchange venues if they deem fee levels at
those other venues to be more favorable.
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\15\ See supra note 5.
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As described above, the proposed changes represent a competitive
proposal through which the Exchange is seeking to encourage additional
order flow to the Exchange through a reduced fee for executions of
Midpoint Peg Orders. The proposed fee for executions of Midpoint Peg
Orders that remove liquidity at the midpoint from the Exchange is
competitive with fees charged by at least one other exchange that
offers a similar pricing incentive.\16\ Accordingly, the Exchange
believes its proposal would not burden, but rather promote, intermarket
competition by enabling it to better compete with other exchanges that
offer similar pricing incentives to market participants.
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\16\ See supra note 13.
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Additionally, the Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. Specifically,
in Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \17\ The fact
that this market is competitive has also long been recognized by the
courts. In NetCoalition v. Securities and Exchange Commission, the D.C.
circuit stated: ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their routing agents, have a wide range of choices of where to
route orders for execution'; [and] `no exchange can afford to take its
market share percentages for granted' because `no exchange possess a
monopoly, regulatory or otherwise, in the execution of order flow from
broker dealers' . . .''.\18\ Accordingly, the Exchange does not believe
its proposed pricing changes impose any burden on competition that is
not necessary or appropriate in furtherance of the purposes of the Act.
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\17\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\18\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to section
19(b)(3)(A)(ii) of the Act,\19\ and Rule
[[Page 76648]]
19b-4(f)(2) \20\ 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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\19\ 15 U.S.C. 78s(b)(3)(A)(ii).
\20\ 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
[squ] 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
[squ] Send an email to <a href="/cdn-cgi/l/email-protection#7e0c0b121b531d1113131b100a0d3e0d1b1d50191108"><span class="__cf_email__" data-cfemail="4d3f382128602e2220202823393e0d3e282e632a223b">[email protected]</span></a>. Please include File
Number SR-PEARL-2022-53 on the subject line.
Paper Comments
[squ] Send paper comments in triplicate to Vanessa Countryman,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-PEARL-2022-53. 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 submissions. You should submit only information that
you wish to make available publicly.
All submissions should refer to File Number SR-PEARL-2022-53 and
should be submitted on or before January 5, 2023. For the Commission,
by the Division of Trading and Markets, pursuant to delegated
authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-27162 Filed 12-14-22; 8:45 am]
BILLING CODE 8011-01-P
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