Notice2022-27376
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX Pearl Options Fee Schedule
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Published
December 19, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 242 (Monday, December 19, 2022)</title>
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[Federal Register Volume 87, Number 242 (Monday, December 19, 2022)]
[Notices]
[Pages 77654-77657]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-27376]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96480; File No. SR-PEARL-2022-54]
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
December 13, 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 MIAX Pearl Options
Fee Schedule (the ``Fee Schedule'').
The text of the proposed rule change is available on the Exchange's
website at <a href="http://www.miaxoptions.com/rule-filings/pearl">http://www.miaxoptions.com/rule-filings/pearl</a> at MIAX
Pearl's principal office, and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the
[[Page 77655]]
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees
set forth in Section 1)a) of the Fee Schedule to lower Taker fees
(defined below) in certain Tiers for transactions in Penny Classes
(defined below) for the Priority Customer \3\ origin.
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\3\ The term ``Priority Customer'' means a person or entity that
(i) is not a broker or dealer in securities, and (ii) does not place
more than 390 orders in listed options per day on average during a
calendar month for its own beneficial accounts(s). The number of
orders shall be counted in accordance with Interpretation and Policy
.01 of Exchange Rule 100. See the Definitions Section of the Fee
Schedule and Exchange Rule 100, including Interpretation and Policy
.01.
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Background
The Exchange currently assesses transaction rebates and fees to all
market participants which are based upon the total monthly volume
executed by the Member \4\ on MIAX Pearl in the relevant, respective
origin type (not including Excluded Contracts) \5\ (as the numerator)
expressed as a percentage of (divided by) TCV \6\ (as the denominator).
In addition, the per contract transaction rebates and fees are applied
retroactively to all eligible volume for that origin type once the
respective threshold tier (``Tier'') has been reached by the Member.
The Exchange aggregates the volume of Members and their Affiliates.\7\
Members that place resting liquidity, i.e., orders resting on the book
of the MIAX Pearl System,\8\ are paid the specified ``maker'' rebate
(each a ``Maker''), and Members that execute against resting liquidity
are assessed the specified ``taker'' fee (each a ``Taker''). For
opening transactions and ABBO \9\ uncrossing transactions, per contract
transaction rebates and fees are waived for all market participants.
Finally, Members are assessed lower transaction fees and receive lower
rebates for order executions in standard option classes in the Penny
Interval Program \10\ (``Penny Classes'') than for order executions in
standard option classes which are not in the Penny Interval Program
(``Non-Penny Classes''), where Members are assessed higher transaction
fees and receive higher rebates.
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\4\ ``Member'' means an individual or organization that is
registered with the Exchange pursuant to Chapter II of Exchange
Rules for purposes of trading on the Exchange as an ``Electronic
Exchange Member'' or ``Market Maker.'' Members are deemed
``members'' under the Exchange Act. See the Definitions Section of
the Fee Schedule and Exchange Rule 100.
\5\ ``Excluded Contracts'' means any contracts routed to an away
market for execution. See the Definitions Section of the Fee
Schedule.
\6\ ``TCV'' means total consolidated volume calculated as the
total national volume in those classes listed on MIAX PEARL for the
month for which the fees apply, excluding consolidated volume
executed during the period time in which the Exchange experiences an
``Exchange System Disruption'' (solely in the option classes of the
affected Matching Engine (as defined below)). The term Exchange
System Disruption, which is defined in the Definitions section of
the Fee Schedule, means an outage of a Matching Engine or collective
Matching Engines for a period of two consecutive hours or more,
during trading hours. The term Matching Engine, which is also
defined in the Definitions section of the Fee Schedule, is a part of
the MIAX PEARL electronic system that processes options orders and
trades on a symbol-by-symbol basis. Some Matching Engines will
process option classes with multiple root symbols, and other
Matching Engines may be dedicated to one single option root symbol
(for example, options on SPY may be processed by one single Matching
Engine that is dedicated only to SPY). A particular root symbol may
only be assigned to a single designated Matching Engine. A
particular root symbol may not be assigned to multiple Matching
Engines. The Exchange believes that it is reasonable and appropriate
to select two consecutive hours as the amount of time necessary to
constitute an Exchange System Disruption, as two hours equates to
approximately 1.4% of available trading time per month. The Exchange
notes that the term ``Exchange System Disruption'' and its meaning
have no applicability outside of the Fee Schedule, as it is used
solely for purposes of calculating volume for the threshold tiers in
the Fee Schedule. See the Definitions Section of the Fee Schedule.
\7\ ``Affiliate'' means (i) an affiliate of a Member of at least
75% common ownership between the firms as reflected on each firm's
Form BD, Schedule A, or (ii) the Appointed Market Maker of an
Appointed EEM (or, conversely, the Appointed EEM of an Appointed
Market Maker). An ``Appointed Market Maker'' is a MIAX PEARL Market
Maker (who does not otherwise have a corporate affiliation based
upon common ownership with an EEM) that has been appointed by an EEM
and an ``Appointed EEM'' is an EEM (who does not otherwise have a
corporate affiliation based upon common ownership with a MIAX PEARL
Market Maker) that has been appointed by a MIAX PEARL Market Maker,
pursuant to the following process. A MIAX PEARL Market Maker
appoints an EEM and an EEM appoints a MIAX PEARL Market Maker, for
the purposes of the Fee Schedule, by each completing and sending an
executed Volume Aggregation Request Form by email to
<a href="/cdn-cgi/l/email-protection#0f626a626d6a7d7c67667f4f62666e77607f7b6660617c216c6062"><span class="__cf_email__" data-cfemail="f69b939b949384859e9f86b69b9f978e9986829f999885d895999b">[email protected]</span></a> no later than 2 business days prior to
the first business day of the month in which the designation is to
become effective. Transmittal of a validly completed and executed
form to the Exchange along with the Exchange's acknowledgement of
the effective designation to each of the Market Maker and EEM will
be viewed as acceptance of the appointment. The Exchange will only
recognize one designation per Member. A Member may make a
designation not more than once every 12 months (from the date of its
most recent designation), which designation shall remain in effect
unless or until the Exchange receives written notice submitted 2
business days prior to the first business day of the month from
either Member indicating that the appointment has been terminated.
Designations will become operative on the first business day of the
effective month and may not be terminated prior to the end of the
month. Execution data and reports will be provided to both parties.
See the Definitions Section of the Fee Schedule.
\8\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\9\ ``ABBO'' means the best bid(s) or offer(s) disseminated by
other Eligible Exchanges (defined in Exchange Rule 1400(g)) and
calculated by the Exchange based on market information received by
the Exchange from OPRA. See the Definitions Section of the Fee
Schedule and Exchange Rule 100.
\10\ See Securities Exchange Act Release No. 88992 (June 2,
2020), 85 FR 35142 (June 8, 2020) (SR-PEARL-2020-06).
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Proposal
The Exchange proposes to amend the Fee Schedule for the Exchange's
options market to modify Taker fees in certain Tiers for options
transactions in Penny Classes for the Priority Customer origin.
Currently, for options transactions in all Penny Classes (except for
symbols SPY, QQQ and IWM),\11\ the Exchange assesses the following
Taker fees for the Priority Customer origin: $0.50 in Tier 1; $0.50 in
Tier 2; $0.50 in Tier 3; $0.49 in Tier 4; $0.48 in Tier 5; and $0.47 in
Tier 6. The Exchange assesses Taker fees for options transactions in
SPY for the Priority Customer origin as follows: $0.46 in Tier 1; $0.46
in Tier 2; $0.45 in Tier 3; $0.44 in Tier 4; $0.43 in Tier 5; and $0.42
in Tier 6. The Exchange also assesses Taker fees for options
transactions in QQQ and IWM for the Priority Customer origin as
follows: $0.50 in Tier 1; $0.50 in Tier 2; $0.48 in Tier 3; $0.47 in
Tier 4; $0.46 in Tier 5; and $0.45 in Tier 6.
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\11\ See Fee Schedule, Section 1)a), note ``*''.
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The Exchange now proposes to lower the Taker fees in certain Tiers
for options transactions in Penny Classes for the Priority Customer
origin. In particular, the Exchange proposes to lower the Taker fees
for options transactions in all Penny Classes, excluding SPY, QQQ and
IWM, for the Priority Customer origin as follows: from $0.50 to $0.48
in Tier 1; from $0.50 to $0.48 in Tier 2; from $0.50 to $0.48 in Tier
3; and from $0.49 to $0.48 in Tier 4. The Exchange also proposes to
lower the Taker fees for options transactions in QQQ and IWM for the
Priority Customer origin as follows: from $0.50 to $0.48 in Tier 1 and
from $0.50 to $0.48 in Tier 2. The purpose of these changes is for
business and competitive reasons in order to attract additional Penny
Class volume from Members by lowering certain Taker fees in options
classes that are typically among the most actively traded
[[Page 77656]]
symbols,\12\ which should benefit all Exchange participants by
providing more trading opportunities and tighter spreads.
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\12\ See supra note 10 (adopting the Penny Program that applies
to the 363 most actively traded multiply listed option classes).
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Implementation
The proposed changes will be effective beginning 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 \13\ in general, and
furthers the objectives of section 6(b)(4) of the Act,\14\ in that it
is an equitable allocation of reasonable dues, fees and other charges
among Exchange Members and issuers and other persons using its
facilities and does not unfairly discriminate between customers,
issuers, brokers or dealers.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(4).
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The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \15\
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\15\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, as of November 28, 2022, no single exchange has
more than approximately 12-13% equity options market share for the
month of November 2022.\16\ Therefore, no exchange possesses
significant pricing power. More specifically, as of November 28, 2022,
the Exchange has a market share of approximately 4.47% of executed
volume of multiply-listed equity options for the month of November
2022.\17\
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\16\ See ``The market at a glance,'' (last visited November 28,
2022), available at <a href="https://www.miaxoptions.com/">https://www.miaxoptions.com/</a>.
\17\ See id.
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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
discontinue or reduce use of certain categories of products and
services, terminate an existing membership or determine to not become a
new member, and/or shift order flow, in response to transaction fee
changes. For example, on February 28, 2019, the Exchange filed with the
Commission a proposal to increase Taker fees in certain Tiers for
options transactions in certain Penny classes for Priority Customers
and decrease Maker rebates in certain Tiers for options transactions in
Penny classes for Priority Customers (which fee was to be effective
March 1, 2019).\18\ The Exchange experienced a decrease in total market
share for the month of March 2019, after the proposal went into effect.
Accordingly, the Exchange believes that its March 1, 2019, fee change,
to increase certain transaction fees and decrease certain transaction
rebates, may have contributed to the decrease in MIAX Pearl's market
share and, as such, the Exchange believes competitive forces constrain
the Exchange's, and other options exchanges, ability to set transaction
fees and market participants can shift order flow based on fee changes
instituted by the exchanges.
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\18\ See Securities Exchange Act Release No. 85304 (March 13,
2019), 84 FR 10144 (March 19, 2019) (SR-PEARL-2019-07).
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The Exchange believes that its proposal is reasonable because it
will lower Taker fees for options transactions in Penny Classes in
certain Tiers for Priority Customer orders, which should encourage
Members to submit more Priority Customer orders, leading to increased
liquidity on the Exchange to the benefit of all market participants by
providing more trading opportunities and tighter spreads.
Further, the Exchange believes that it is equitable and not
unfairly discriminatory to assess lower Taker fees to Priority Customer
orders than to non-Priority Customer orders. A Priority Customer is by
definition not a broker or dealer in securities, and does not place
more than 390 orders in listed options per day on average during a
calendar month for its own beneficial account(s).\19\ This limitation
does not apply to participants on the Exchange whose behavior is
substantially similar to that of market professionals, including non-
Priority Customers, MIAX Pearl Market Makers, Firms, and Broker-
Dealers, who will generally submit a higher number of orders (many of
which do not result in executions) than Priority Customers.
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\19\ See Exchange Rule 100.
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Furthermore, the proposed decrease to Taker fees in Penny Classes
for Priority Customer transactions in certain Tiers will encourage
Members to send more orders to the Exchange. To the extent that
Priority Customer order flow in Penny Classes is increased by the
proposal, market participants will increasingly compete for the
opportunity to trade on the Exchange, including sending more orders,
which will have the potential to be assessed lower fees and higher
rebates. The resulting increased volume and liquidity will benefit all
Exchange participants by providing more trading opportunities and
tighter spreads.
For competitive and business reasons, the Exchange believes that
lower Taker fees assessable to Priority Customer transactions in QQQ
and IWM options in certain Tiers will encourage Members to execute more
volume in QQQ and IWM options on behalf of Priority Customers since
they will be assessed reduced fees for Priority Customer orders in
those options classes which remove liquidity. The Exchange believes for
these reasons that offering the reduced Taker fees for Priority
Customer transactions in QQQ and IWM options in certain Tiers is
equitable, reasonable and not unfairly discriminatory, and thus
consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange believes that the
proposed changes in the Taker fees for the applicable market
participants should continue to encourage the provision of liquidity
that enhances the quality of the Exchange's market and increases the
number of trading opportunities on the Exchange for all participants
who will be able to compete for such opportunities. The proposed rule
changes should enable the Exchange to continue to attract and compete
for order flow with other exchanges.
The proposed Taker fee decreases are intended to keep the
Exchange's fees highly competitive with those of other exchanges, and
to encourage liquidity and should enable the Exchange to continue to
attract and compete for order flow with other exchanges. The Exchange
notes that it operates in a highly competitive market in which market
participants can readily favor competing venues if they deem fee levels
at a particular venue to be excessive. In such an environment, the
Exchange must continually adjust its rebates and fees to remain
competitive with other exchanges and to attract order flow. The
Exchange believes that the proposed rule changes reflect this
competitive environment because the proposal modifies the Exchange's
fees in
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a manner that encourages market participants to continue to provide
liquidity and to send order flow to the Exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
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\20\ 15 U.S.C. 78s(b)(3)(A)(ii).
\21\ 17 CFR 240.19b-4(f)(2).
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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,\20\ and Rule 19b-4(f)(2) \21\ 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.
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#5b292e373e76383436363e352f281b283e38753c342d"><span class="__cf_email__" data-cfemail="5022253c357d333f3d3d353e2423102335337e373f26">[email protected]</span></a>. Please include
File Number SR-PEARL-2022-54 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-2022-54. 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-2022-54 and should be submitted on
or before January 9, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-27376 Filed 12-16-22; 8:45 am]
BILLING CODE 8011-01-P
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