Notice2023-03056
Self-Regulatory Organizations: MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change by MIAX PEARL, LLC To Amend the MIAX Pearl Options Fee Schedule
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Published
February 14, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 30 (Tuesday, February 14, 2023)</title>
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[Federal Register Volume 88, Number 30 (Tuesday, February 14, 2023)]
[Notices]
[Pages 9576-9579]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-03056]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96836; File No. SR-PEARL-2023-02]
Self-Regulatory Organizations: MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change by MIAX PEARL,
LLC To Amend the MIAX Pearl Options Fee Schedule
February 8, 2023.
Pursuant to the provisions of section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on January 31, 2023, 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.
[[Page 9577]]
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 proposes to amend the Add/Remove Tiered Rebates/Fees
set forth in Section 1(a) of the Fee Schedule that apply to the MIAX
Pearl Market Maker \3\ origin to modify the volume threshold for the
alternative volume criteria (described below) in Tier 2 (defined
below).
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\3\ ``Market Maker'' means a Member registered with the Exchange
for the purpose of making markets in options contracts traded on the
Exchange and that is vested with the rights and responsibilities
specified in Chapter VI of Exchange Rules. See the Definitions
Section of the Fee Schedule.
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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#bbd6ded6d9dec9c8d3d2cbfbd6d2dac3d4cbcfd2d4d5c895d8d4d6"><span class="__cf_email__" data-cfemail="aac7cfc7c8cfd8d9c2c3daeac7c3cbd2c5dadec3c5c4d984c9c5c7">[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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Alternative Volume Criteria Threshold Change in Tier 2
The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees
set forth in Section 1(a) of the Fee Schedule that apply to the MIAX
Pearl Market Maker origin, to modify the volume threshold for the
alternative Volume Criteria in Tier 2. The Market Maker origin
currently provides an alternative volume criteria in Tier 2, which is
based upon the total monthly volume executed by a MIAX Pearl Market
Maker collectively in SPY/QQQ/IWM options on the Exchange, expressed as
a percentage of total consolidated national volume in SPY/QQQ/IWM
options.\11\ Pursuant to this alternative volume criteria, a Market
Maker is able to reach the Tier 2 threshold if the Market Maker's total
executed monthly volume, not including Excluded Contracts, in SPY/QQQ/
IWM options on MIAX Pearl is above 0.75% of total consolidated national
monthly volume in SPY/QQQ/IWM options. For this calculation, volume
that is from resting liquidity (Maker) and taking liquidity (Taker) in
SPY/QQQ/IWM options is counted towards the alternative volume criteria,
and the 0.75% threshold does not have to be reached individually in
each of the three symbols. A Market Maker is able to qualify for Tier 2
rebates and fees, which will then be applicable to all volume executed
by the MIAX Pearl Market Maker on MIAX Pearl. The two
[[Page 9578]]
volume criteria available for Tier 2 is based upon either: (a) the
total monthly volume executed by the Market Maker in all options
classes on MIAX Pearl, not including Excluded Contracts, (as the
numerator), expressed as a percentage of (divided by) TCV (as the
denominator); or (b) the total monthly volume executed by the MIAX
Pearl Market Maker collectively in SPY/QQQ/IWM options on MIAX Pearl,
not including Excluded Contracts, (as the numerator), expressed as a
percentage of (divided by) SPY/QQQ/IWM TCV \12\ (as the denominator).
Once either volume criteria threshold in Tier 2 is reached by the
Market Maker, the Tier 2 per contract rebates and fees apply to all
volume in all options classes executed by that MIAX Pearl Market Maker
on MIAX Pearl.
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\11\ See Fee Schedule, Section 1(a), explanatory paragraph below
the tables and footnotes. See also Securities Exchange Act Release
Nos. 84592 (November 14, 2018), 83 FR 58646 (November 20, 2018) (SR-
PEARL-2018-23); 90906 (January 21, 2021), 86 FR 5296 (January 19,
2021) (SR-PEARL-2020-38).
\12\ ``SPY/QQQ/IWM TCV'' means total consolidated volume in SPY,
QQQ, and IWM calculated as the total national volume in SPY, QQQ,
and IWM 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 SPY,
QQQ, or IWM options). See the Definitions Section of the Fee
Schedule.
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The Exchange now proposes to modify the threshold for the
alternative volume criteria in Tier 2 from 0.75% to 0.55% of total
consolidated national monthly volume in SPY/QQQ/IWM options. With the
proposed change, a Market Maker will be able to reach the alternative
Volume Criteria in Tier 2 if the Market Maker's total executed monthly
volume, not including Excluded Contracts, in SPY/QQQ/IWM options on
MIAX Pearl is above 0.55% of total consolidated national monthly volume
in SPY/QQQ/IWM options. The Exchange is not modifying the calculation
method for a Market Maker to reach the alternative volume criteria in
Tier 2, only the threshold percentage. The Exchange proposes to make
the corresponding change to the volume threshold percentage described
in the explanatory paragraph for the alternative volume criteria for
Tier 2 that is below the tables in Section 1(a) of the Fee Schedule.
The purpose of this proposed change is for business and competitive
reasons. In order to attract order flow, the Exchange initially set its
volume threshold for the alternative volume criteria in Tier 2 at a
meaningful low level.\13\ In 2021, the Exchange then increased the
volume threshold for the alternative volume criteria in Tier 2.\14\ The
Exchange now believes that it is appropriate to adjust this volume
threshold so that it is more in line with the volume threshold that
Market Makers currently achieve in SPY/QQQ/IWM options on MIAX Pearl by
reducing the volume threshold for the alternative volume criteria in
Tier 2 from 0.75% to 0.55% in SPY/QQQ/IWM options. Further, the
Exchange believes that with the proposed change, the Exchange will
attract additional SPY/QQQ/IWM option order flow from Market Makers,
which should benefit all Exchange participants by providing more
trading opportunities and tighter spreads. The Exchange cannot predict
with certainty how many Market Makers will achieve the alternative
volume criteria in Tier 2 with the decreased threshold percentage.
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\13\ See Securities Exchange Act Release No. 84592 (November 14,
2018), 83 FR 58646 (November 20, 2018) (SR-PEARL-2018-23).
\14\ See Securities Exchange Act Release No. 90906 (January 21,
2021), 86 FR 5296 (January 19, 2021) (SR-PEARL-2020-38).
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Implementation
The proposed change will be effective beginning February 1, 2023.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with section 6(b) of the Act \15\ in general, and
furthers the objectives of section 6(b)(4) of the Act,\16\ in that it
is an equitable allocation of reasonable dues, fees and other charges
among Exchange members and issuers and other persons using its
facilities, and 6(b)(5) of the Act,\17\ in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanisms of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4).
\17\ 15 U.S.C. 78f(b)(1) and (b)(5).
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The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \18\
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\18\ 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 January 26, 2023, no single exchange has
more than approximately 12-13% equity options market share for the
month of January 2023.\19\ Therefore, no exchange possesses significant
pricing power. More specifically, as of January 26, 2023, the Exchange
had a market share of approximately 6.71% of executed volume of
multiply-listed equity options for the month of January 2023.\20\
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\19\ See ``The market at a glance,'' (last visited January 26,
2023), available at <a href="https://www.miaxoptions.com/">https://www.miaxoptions.com/</a>.
\20\ 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).\21\ 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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\21\ See Securities Exchange Act Release No. 85304 (March 13,
2019), 84 FR 10144 (March 19, 2019) (SR-PEARL-2019-07).
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The Exchange believes its proposal to decrease the threshold for
the alternative volume criteria in Tier 2 from 0.75% to 0.55% of total
consolidated national monthly volume in SPY/QQQ/IWM options is
reasonable, equitably allocated and not unfairly discriminatory because
the reduced threshold percentage should attract additional SPY/QQQ/IWM
option order flow from Market Makers, which will benefit all Exchange
participants by providing more trading opportunities and tighter
spreads.
[[Page 9579]]
The Exchange believes its proposal is reasonable, equitable and not
unfairly discriminatory because all similarly situated market
participants in the same origin type (MIAX Pearl Market Makers) are
subject to the same tiered Maker rebates and access to the Exchange is
offered on terms that are not unfairly discriminatory. The Exchange
believes its proposal will incentivize Market Makers to increase their
posted liquidity in SPY/QQQ/IWM options to the benefit of the entire
market, which will increase order flow sent to the Exchange, benefiting
all market participants through increased liquidity, tighter markets
and order interaction.
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 change should continue to encourage the provision of liquidity
in SPY/QQQ/IWM options that enhances the quality of the Exchange's
market and increases the number of trading opportunities on the
Exchange for all participants who will be able to compete for such
opportunities. The proposed rule changes should enable the Exchange to
continue to attract and compete for order flow with other exchanges.
However, this competition does not create an undue burden on
competition but rather offers all market participants the opportunity
to receive the benefit of competitive pricing.
The proposed change to the threshold criteria for the alternative
volume criteria in Tier 2 for the Market Maker origin is intended to
keep the Exchange's rebates highly competitive with those of other
exchanges, and to encourage liquidity and should enable the Exchange to
continue to attract and compete for order flow with other exchanges.
The Exchange notes that it operates in a highly competitive market in
which market participants can readily favor competing venues if they
deem fee levels at a particular venue to be excessive. In such an
environment, the Exchange must continually adjust its rebates and fees
to remain competitive with other exchanges and to attract order flow.
The Exchange believes that the proposed rule changes reflect this
competitive environment because the proposal modifies the Exchange's
fees in a manner that encourages market participants to continue to
provide liquidity and to send order flow to the Exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to section
19(b)(3)(A)(ii) of the Act,\22\ and Rule 19b-4(f)(2) \23\ 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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\22\ 15 U.S.C. 78s(b)(3)(A)(ii).
\23\ 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#97e5e2fbf2baf4f8fafaf2f9e3e4d7e4f2f4b9f0f8e1"><span class="__cf_email__" data-cfemail="3f4d4a535a125c5052525a514b4c7f4c5a5c11585049">[email protected]</span></a>. Please include
File Number SR-PEARL-2023-02 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-2023-02. 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 such 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-2023-02 and should be submitted on
or before March 7, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03056 Filed 2-13-23; 8:45 am]
BILLING CODE 8011-01-P
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