Notice2023-21618
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
October 2, 2023
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 88 Issue 189 (Monday, October 2, 2023)</title>
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[Federal Register Volume 88, Number 189 (Monday, October 2, 2023)]
[Notices]
[Pages 67838-67841]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-21618]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98527; File No. SR-PEARL-2023-46]
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
September 26, 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 September 12, 2023, MIAX PEARL, LLC (``MIAX Pearl'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
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 (``Fee Schedule'').
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxglobal.com/markets/
[[Page 67839]]
us-options/pearl-options/rule-filings at MIAX Pearl's principal office,
and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange originally filed this proposal on August 31, 2023 (SR-
PEARL-2023-41). On September 12, 2023, the Exchange withdrew SR-PEARL-
2023-41 and refiled this proposal. The Exchange proposes to amend
Section 1)a) of the Fee Schedule, Exchange Rebates/Fees--Add/Remove
Tiered Rebates/Fees, that applies to the MIAX Pearl Market Maker \3\
origin, to modify the volume criteria thresholds applicable to Tier 5
and Tier 6.
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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 the 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 process described in the Fee Schedule. 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 To Amend the Volume Criteria Thresholds in Tier 5 and Tier 6
for the Market Maker Origin
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 criteria thresholds for
Tiers 5 and 6. The Market Maker origin currently provides certain
volume criteria thresholds in Tier 5 that is based upon the total
monthly volume executed in all option classes by a Market Maker on MIAX
Pearl as a percent of TCV. Pursuant to the Market Maker origin table,
Market Makers will qualify for the following Maker rebates and Taker
fees in Tier 5 if the Market Maker executes above 1.25% to at least
1.50% of TCV: (i) Maker rebates of ($0.48), against origins other than
Priority Customer in Penny Classes; (ii) Maker rebates of ($0.45),
against the Priority Customer origin in Penny Classes; (iii) Taker fees
of $0.50, against origins other than Priority Customer in Penny
Classes; (iv) Taker fees of $0.50, against the Priority Customer origin
in Penny Classes; (v) Maker rebates of ($0.70), against all origins in
Non-Penny Classes; and (vi) Taker fees of $1.08, against all origins in
Non-Penny Classes.
The Market Maker origin currently provides certain volume criteria
thresholds in Tier 6 that is based upon the total monthly volume
executed in all option classes by a Market Maker on MIAX Pearl as a
percent of TCV. Pursuant to the Market Maker origin table, Market
Makers will qualify for the following Maker rebates and Taker fees in
Tier 6 if the Market Maker executes above 1.50% of TCV: (i) Maker
rebates of ($0.48), against origins other than Priority Customer in
Penny Classes; (ii) Maker rebates of ($0.46), against the Priority
Customer origin in Penny Classes; (iii) Taker fees of $0.50, against
origins other than Priority Customer in Penny Classes; (iv) Taker fees
of $0.50, against the Priority Customer origin in Penny Classes; (v)
Maker rebates of ($0.85), against all origins in Non-Penny
[[Page 67840]]
Classes; and (vi) Taker fees of $1.07, against all origins in Non-Penny
Classes.
The Exchange proposes to reduce the upper threshold for the volume
criteria in Tier 5 of the Market Maker origin from 1.50% to 1.40%.
Accordingly, with the proposed change, Market Makers will qualify for
the following Maker rebates and Taker fees in Tier 5 if the Market
Maker executes above 1.25% to at least 1.40% of TCV: (i) Maker rebates
of ($0.48), against origins other than Priority Customer in Penny
Classes; (ii) Maker rebates of ($0.45), against the Priority Customer
origin in Penny Classes; (iii) Taker fees of $0.50,against origins
other than Priority Customer in Penny Classes; (iv) Taker fees of
$0.50, against the Priority Customer origin in Penny Classes; (v) Maker
rebates of ($0.70), against all origins in Non-Penny Classes; and (vi)
Taker fees of $1.08, against all origins in Non-Penny Classes.
The Exchange also proposes to modify the volume criteria threshold
for Tier 6 of the Market Maker origin from above 1.50% to now be above
1.40% in light of the proposed change to the volume criteria in Tier 5,
above. Accordingly, with the proposed change to the volume criteria in
Tier 6, Market Makers will qualify for the following Maker rebates and
Taker fees in Tier 6 if the Market Maker executes above 1.40% of TCV:
(i) Maker rebates of ($0.48),against origins other than Priority
Customer in Penny Classes; (ii) Maker rebates of ($0.46), against the
Priority Customer origin in Penny Classes; (iii) Taker fees of $0.50,
against origins other than Priority Customer in Penny Classes; (iv)
Taker fees of $0.50, against the Priority Customer origin in Penny
Classes; (v) Maker rebates of ($0.85), against all origins in Non-Penny
Classes; and (vi) Taker fees of $1.07, against all origins in Non-Penny
Classes.
The purpose of this proposed change is for business and competitive
reasons. With the proposed change, Market Makers should more easily
qualify for the higher rebates and lower fees associated with obtaining
the volume criteria in Tier 6. The Exchange believes the proposed
change would incentivize Market Makers to improve their posted
liquidity to the benefit of the entire market, which should increase
order flow sent to the Exchange, benefitting all market participants
through increased liquidity, tighter markets and order interaction.
Additionally, as the amount and type of volume that is executed on the
Exchange has shifted since it first established the volume criteria
thresholds for Tiers 5 and 6, the Exchange has determined to level-set
this threshold amount so that it is more reflective of the current type
and amount of volume executed on the Exchange.
The Exchange has designated these changes to be immediately
effective.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \11\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \12\ in that it
is an equitable allocation of reasonable dues, fees, and other charges
among its Exchange members and issuers and other persons using its
facilities.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4).
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The Exchange believes its proposal to modify the volume criteria
thresholds for Tiers 5 and 6 of the Market Maker origin provides for
the equitable allocation of reasonable dues and fees and is not
unfairly discriminatory for the following reasons. 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.'' \13\
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 13-14% of
the market share of executed volume of multiply listed equity and
exchange-traded fund (``ETF'') options trades as of August 23, 2023,
for the month of August 2023.\14\ Therefore, no exchange possesses
significant pricing power in the execution of multiply-listed equity
and ETF options order flow. More specifically, as of August 23, 2023,
the Exchange had a market share of approximately 6.21% of executed
volume of multiply-listed equity and ETF options for the month of
August 2023.\15\
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\13\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
\14\ 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 August 23,
2023).
\15\ See id.
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The Exchange believes that the ever-shifting market shares 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 transaction and/or non-
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).\16\ The Exchange experienced a
decrease in total market share between the months of February and March
of 2019, after the fees were in effect. Accordingly, the Exchange
believes that the March 1, 2019 fee change may have contributed to the
decrease in the Exchange's market share and, as such, the Exchange
believes competitive forces constrain options exchange transaction fees
and market participants can shift order flow based on fee changes
instituted by the exchanges.
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\16\ 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 modify the volume criteria
thresholds for Tiers 5 and 6 of the Market Maker origin is reasonable,
equitable, and not unfairly discriminatory because Market Makers should
more easily qualify for the higher Maker rebates and lower Taker fees
associated with those tiers. The Exchange believes the proposed change
is reasonable because it should incentivize Market Makers to increase
order flow sent to the Exchange, benefiting all market participants
through increased liquidity, tighter markets and order interaction.
Additionally, as the amount and type of volume that is executed on the
Exchange has shifted since it first established the volume criteria
thresholds for Tiers 5 and 6 of the Market Maker origin, the Exchange
has determined to level-set this threshold amount so that it is more
reflective of the current type and amount of volume executed on the
Exchange. The Exchange also believes the proposed change is not
unfairly discriminatory because it is designed to encourage Market
Makers to increase their order flow to the Exchange in order to qualify
for the higher Maker rebates and lower Taker fees in Tier 6, which
should benefit all Members by providing greater execution opportunities
on the Exchange and contribute to a deeper, more liquid market, to the
benefit of all investors and market participants.
[[Page 67841]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Intra-Market Competition
The Exchange believes its proposal to modify the volume criteria
thresholds for Tiers 5 and 6 of the Market Maker origin will not impose
any burden on intra-market competition because the Exchange believes
that it will not place any category of Exchange market participant at a
competitive disadvantage because it will apply to all Market Makers
equally. The proposal to modify the volume criteria thresholds for
Tiers 5 and 6 of the Market Maker origin is intended to improve market
quality. The Exchange believes that its proposal will encourage Market
Makers to improve market quality by making it easier for Market Makers
to achieve higher tiers, resulting in higher rebates and lower fees,
which should result in narrower bid-ask spreads and increased depth of
liquidity. This in turn will attract additional order flow to the
Exchange, increasing trading opportunities to the benefit of all market
participants. Accordingly, the Exchange believes that the proposed
changes will continue to attract order flow to the Exchange, thereby
encouraging additional volume and liquidity to the benefit of all
market participants.
Inter-Market Competition
The Exchange believes its proposal will not impose any burden on
inter-market competition because, as described above, 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, or rebate opportunities
available at other venues to be more favorable. In such an environment,
the Exchange must continually adjust its fees to remain competitive
with other options exchanges. Because competitors are free to modify
their own fees in response, and because market participants may readily
adjust their order routing practices, the Exchange believes that the
degree to which fee changes in this market may impose any burden on
competition is extremely limited. The Exchange believes that the
proposed rule changes reflect this competitive environment because they
modify 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,\17\ and Rule 19b-4(f)(2) \18\ 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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\17\ 15 U.S.C. 78s(b)(3)(A)(ii).
\18\ 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#285a5d444d054b4745454d465c5b685b4d4b064f475e"><span class="__cf_email__" data-cfemail="d3a1a6bfb6feb0bcbebeb6bda7a093a0b6b0fdb4bca5">[email protected]</span></a>. Please include
file number SR-PEARL-2023-46 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-2023-46. 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-PEARL-2023-46 and should be submitted on or
before October 23, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21618 Filed 9-29-23; 8:45 am]
BILLING CODE 8011-01-P
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