Notice2023-17304
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX Emerald Options Exchange Fee Schedule To Modify the Excessive Quoting Fee
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Published
August 14, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 155 (Monday, August 14, 2023)</title>
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[Federal Register Volume 88, Number 155 (Monday, August 14, 2023)]
[Notices]
[Pages 55096-55099]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-17304]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98088; File No. SR-EMERALD-2023-20]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the MIAX Emerald Options Exchange Fee Schedule To Modify the Excessive
Quoting Fee
August 8, 2023.
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 27, 2023, MIAX Emerald, LLC (``MIAX Emerald'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change as described in Items I and II 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 proposes to amend the MIAX Emerald Options Exchange
Fee Schedule (the ``Fee Schedule'') to modify the Excessive Quoting
Fee. The text of the proposed rule change is available on the
Exchange's website at <a href="https://www.miaxglobal.com/markets/us-options/emerald-options/rule-filings">https://www.miaxglobal.com/markets/us-options/emerald-options/rule-filings</a>, at MIAX Emerald's principal office, and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
[[Page 55097]]
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 Section (1)(c) of the Fee Schedule
to add an exemption such that Market Makers \3\ would not be assessed
the daily Excessive Quoting Fee for the first trading day that they
exceed the 3.5 billion inbound quote \4\ limit in a rolling 12-month
period. The Exchange originally filed this proposal on July 18, 2023
(SR-EMERALD-2023-17). On July 27, 2023, the Exchange withdrew SR-
EMERALD-2023-17 and refiled this proposal.
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\3\ The term ``Market Maker'' refers to ``Lead Market Maker''
(``LMM''), ``Primary Lead Market Maker'' (``PLMM'') and ``Registered
Market Maker'' (``RMM''), collectively. See the Definitions Section
of the Fee Schedule and Exchange Rule 100.
\4\ The term ``quote'' or ``quotation'' means a bid or offer
entered by a Market Maker that is firm and may update the Market
Maker's previous quote, if any. The Rules of the Exchange provide
for the use of different types of quotes, including Standard quotes
and eQuotes, as more fully described in Rule 517. A Market Maker
may, at times, choose to have multiple types of quotes active in an
individual option. See the Definitions Section of the Fee Schedule.
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Background
The Exchange adopted the Excessive Quoting Fee as a result of a
significant upgrade to the MIAX Emerald System \5\ network
architecture, based on customer demand, which resulted in the
Exchange's network environment becoming more transparent and
deterministic. Pursuant to the Excessive Quoting Fee, the Exchange will
assess a fee of $10,000 per day to any Market Maker that exceeds 3.5
billion inbound quotes sent to the Exchange on that particular day. In
counting the total number of quotes for the purposes of the Excessive
Quoting Fee, the Exchange excludes messages that are generated as a
result of sending a mass purge message to the Exchange. The 3.5 billion
inbound quote limit for the Excessive Quoting Fee resets each trading
day.\6\
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\5\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\6\ See Fee Schedule, Section (1)(c).
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Proposal
The Exchange proposes to adopt an exemption from the daily
Excessive Quoting Fee for the first trading day that a Market Maker
would incur such fee in a rolling 12-month period (the ``Exemption'').
For example, if a Marker Maker exceeds 3.5 billion inbound quotes on
August 1, 2023, the Exchange will not assess the Excessive Quoting Fee.
Following that initial exceeding day, if that same Market Maker exceeds
the 3.5 billion inbound quote limit again on any trading day between
August 2, 2023 and July 31, 2024, then the Exchange would assess the
Excessive Quoting Fee on each of those days. Continuing with this
scenario, beginning with August 1, 2024, if that same Marker Maker
exceeds the 3.5 billion inbound quote limit on September 1, 2024, the
Exchange would not assess the Excessive Quoting Fee for that day
because a new rolling 12-month period started. Following that exceeding
day of September 1, 2024, if that same Market Maker exceeds the 3.5
billion inbound quote limit again on any trading day between September
2, 2024 and August 31, 2025, then the Exchange would assess the
Excessive Quoting Fee on each of those days.
The purpose of the proposed Exemption is intended to provide one-
time relief to Market Makers from the Excessive Quoting Fee during a
12-month period. For example, increased volatility in the market place,
an increase in the number of options products quoted on the Exchange,
Market Makers testing new algorithms or technology, or some combination
of those factors, among others, may impact the number of quotes sent by
a Market Maker on a particular trading day, resulting in that Market
Maker potentially exceeding the 3.5 billion inbound quote limit. The
proposed Exemption would provide one-time relief in those types of
circumstances. The Exchange believes the proposed Exemption will not
undermine the purpose of the Excessive Quoting Fee, but will continue
to balance the interests of Market Makers sending quotes to the
Exchange, pursuant to their quoting obligations and quoting strategies,
while ensuring that Market Makers do not over utilize the Exchange's
System by sending excessive numbers of quotes to the potential
detriment of other Members \7\ of the Exchange.
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\7\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
the Definitions Section of the Fee Schedule.
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The proposal contemplates that a Market Maker would have to exceed
the high threshold of 3.5 billion inbound quotes on more than one
trading day in a rolling 12-month period before that Market Maker would
be charged the Excessive Quoting Fee (with the Exemption providing
relief once during a rolling 12-month period). The Exchange believes
the proposed Exemption is similar to the exemption currently offered by
the options markets for NYSE Arca, Inc. (``NYSE Arca Options'') and
NYSE American LLC (``NYSE American Options'') for those exchanges'
``Ratio Threshold Fee.'' \8\
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\8\ See NYSE American Options Fee Schedule, Section II. Monthly
Excessive Bandwidth Utilization Fees, 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> (``The Monthly Excessive
Bandwidth Utilization Fee will not be assessed for the first
occurrence in a rolling 12-month period.''); see also NYSE Arca
Options Fees and Charges, NYSE Arca Options General, note 12,
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> (``The Ratio Threshold
Fee is calculated on a monthly basis. This fee shall not apply to
orders that improve the Exchange's prevailing best bid-offer (BBO)
market at the time the orders are received. The fee will not be
assessed for the first occurrence in a rolling 12-month period.'').
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The Excessive Quoting Fee was not intended to be a source of
revenue for the Exchange, as the Exchange noted in its proposals to
adopt the Excessive Quoting Fee and increase the inbound quote
limit.\9\ Rather, the Excessive Quoting Fee was designed to ensure that
Market Makers do not over utilize the Exchange's System by sending
excessive numbers of quotes to the Exchange, potentially to the
detriment of all other Members of the Exchange. The proposed Exemption
provides one-time relief from the Excessive Quoting Fee during a 12-
month period and will not undermine the purpose of the Excessive
Quoting Fee, but will continue to balance the interests of Market
Makers sending quotes to the Exchange, pursuant to their quoting
obligations and quoting strategies and not over utilize the System. The
Exchange also notes that since the adoption of the Excessive Quoting
Fee in early 2021, the Exchange assessed the Excessive Quoting Fee only
one time.
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\9\ See Securities Exchange Act Release Nos. 91406 (March 24,
2021), 86 FR 16795 (March 31, 2021) (SR-EMERALD-2021-10) and 94368
(March 7, 2022), 87 FR 14051 (March 11, 2022) (SR-EMERALD-2022-09).
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Implementation
The proposed changes are immediately effective.
2. Statutory Basis
The Exchange believes that its proposal to amend the Fee Schedule
is consistent with section 6(b) of the Act \10\ in general, and
furthers the objectives of section 6(b)(4) and (5) of the Act \11\ 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 and does not unfairly
[[Page 55098]]
discriminate between customers, issuers, brokers or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4).
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The Proposed Rule Change Is Reasonable
The Exchange operates in a highly competitive market. 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.\12\
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\12\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than approximately 13%
of the market share of executed volume of multiply-listed equity and
exchange-traded fund (``ETF'') options trades.\13\ Therefore, no
exchange possesses significant pricing power in the execution of
multiply-listed equity and ETF options order flow. More specifically,
for the month of June 2023, the Exchange had a market share of 3.04% of
executed volume of multiply-listed equity and ETF options trades.\14\
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\13\ See the ``Market Share'' section of the Exchange's website,
available at <a href="https://www.miaxglobal.com/">https://www.miaxglobal.com/</a> (last visited July 27,
2023).
\14\ 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
shift order flow, or discontinue or reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain options exchange transaction fees. Stated otherwise,
modifications to exchange transaction fees can have a direct effect on
the ability of an exchange to compete for order flow.
The Exchange believes that the proposed Exemption is reasonable
because it provides one-time relief to Market Makers from the Excessive
Quoting Fee during a 12-month period during which a combination of
possible factors, described above, may result in that Market Maker
potentially exceeding the 3.5 billion inbound quote limit on a
particular trading day. The Exchange believes the proposed Exemption
will not undermine the purpose of the Excessive Quoting Fee, but will
continue to balance the interests of Market Makers sending quotes to
the Exchange, pursuant to their quoting obligations and quoting
strategies, while ensuring that Market Makers do not over utilize the
Exchange's System by sending excessive numbers of quotes to the
potential detriment of other Members of the Exchange. In the backdrop
of the competitive environment in which the Exchange operates, the
proposed rule change is a reasonable attempt by the Exchange to
mitigate effects of an ever-changing marketplace without affecting its
competitiveness or the quantity of quotes being sent by Market Makers.
The Exchange also believes the proposed Exemption is reasonable because
it is similar to the exemption currently offered by NYSE Arca Options
and NYSE American Options for their Ratio Threshold Fee.\15\
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\15\ See supra note 8.
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The Proposed Rule Change Is an Equitable Allocation of Fees
The Exchange believes the proposed change is an equitable
allocation of fees. The proposed Exemption is an equitable allocation
of fees because it would be available to all Market Makers. All Market
Makers would be eligible for the Exemption the first trading day they
would incur the daily Excessive Quoting Fee in a rolling 12-month
period. In addition, to the extent the Exemption encourages Market
Makers to maintain their quoting activity on the Exchange by mitigating
the initial impact of the Excessive Quoting Fee, the Exchange believes
the proposed change would promote market quality to the benefit of all
market participants.
The Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes that the proposal is not unfairly
discriminatory because it neither targets nor will it have a disparate
impact on any particular type of Market Maker. The Exchange believes
the proposed Exemption is not unfairly discriminatory because it would
apply to all Market Makers on an equal and non-discriminatory basis.
The Exemption, as proposed, would provide all Market Makers with an
exemption from the daily Excessive Quoting Fee the first trading day
such fee would be incurred in a rolling 12-month period. The Exchange
believes that the proposed change would encourage Market Makers to
continue quoting on the Exchange by providing one-time relief from the
Excessive Quoting Fee in a rolling 12-month period and providing Market
Makers with an opportunity to evaluate their quoting behavior, while
balancing the interests of all market participants that send messages
to the Exchange on a daily basis. The proposed change would thus
support continued quoting and trading opportunities for all market
participants, thereby promoting just and equitable principles of trade,
removing impediments to and perfecting the mechanism of a free and open
market and a national market system and, in general, protecting
investors and the public interest.
The Exchange will continue to review the quoting behavior of all
firms in connection with changing market conditions and technology or
algorithm changes on a regular basis to ensure that the proposed
Exemption is providing relief for Market Makers as intended.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with section 6(b)(8) of the Act, the Exchange does
not believe that the proposed rule change would impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Instead, as discussed above, the Exchange believes
that the proposed change would encourage the submission of additional
quotes to a public exchange, thereby promoting market depth, price
discovery and transparency and enhancing order execution opportunities
for all market participants.
Intramarket Competition
The Exchange does not believe the proposed changes would impose any
burden on intramarket competition that is not necessary or appropriate.
The proposed Exemption would apply equally to all Market Makers. All
Market Makers would be eligible for the Exemption for the first
occurrence that the Excessive Quoting Fee would be imposed for
exceeding the 3.5 billion inbound quote limit on a particular trading
day, over the course of a rolling 12-month period. To the extent the
proposed change is successful in encouraging Market Makers to maintain
their quoting activity on the Exchange, the Exchange believes the
proposed change will continue to promote market quality to the benefit
of all market participants.
Intermarket Competition
The Exchange operates in a highly competitive market in which
market participants can readily favor one of the 16 competing option
exchanges if they deem fee levels at a particular venue to
[[Page 55099]]
be excessive. In such an environment, the Exchange must continually
adjust its fees to remain competitive with other exchanges and to
attract order flow to the Exchange. Based on publicly-available
information, and excluding index-based options, no single exchange has
more than approximately 13% of the market share of executed volume of
multiply-listed equity and ETF options trades.\16\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity and ETF options order flow. More specifically,
for the month of June 2023, the Exchange had a market share of 3.04% of
executed volume of multiply-listed equity and ETF options trades.\17\
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\16\ See supra note 13.
\17\ See id.
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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 changes has become effective pursuant to section
19(b)(3)(A)(ii) of the Act \18\ and Rule 19b-4(f)(2) \19\ 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.
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\18\ 15 U.S.C. 78s(b)(3)(A)(ii).
\19\ 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#2052554c450d434f4d4d454e5453605345430e474f56"><span class="__cf_email__" data-cfemail="641611080149070b0909010a1017241701074a030b12">[email protected]</span></a>. Please include
file number SR-EMERALD-2023-20 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-EMERALD-2023-20. 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 a.m. and 3 p.m.
Copies of the filing also will be available for inspection and copying
at the principal office of the Exchange. Do not include personal
identifiable information in submissions; you should submit only
information that you wish to make available publicly. We may redact in
part or withhold entirely from publication submitted material that is
obscene or subject to copyright protection. All submissions should
refer to file number SR-EMERALD-2023-20 and should be submitted on or
before September 5, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17304 Filed 8-11-23; 8:45 am]
BILLING CODE 8011-01-P
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