Notice2023-22929
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Fee Schedule for Purge Ports
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 18, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 200 (Wednesday, October 18, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 200 (Wednesday, October 18, 2023)]
[Notices]
[Pages 71894-71898]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-22929]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98734; File No. SR-EMERALD-2023-26]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the
Fee Schedule for Purge Ports
October 12, 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 29, 2023, MIAX Emerald, LLC (``MIAX Emerald'' 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 amend fees for Purge Ports.\3\
---------------------------------------------------------------------------
\3\ The proposed fee change is based on a recent proposal by
Nasdaq Phlx LLC (``Phlx'') to adopt fees for purge ports. See
Securities Exchange Act Release No. 97825 (June 30, 2023), 88 FR
43405 (July 7, 2023) (SR-Phlx-2023-28).
---------------------------------------------------------------------------
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'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
[[Page 71895]]
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 is proposing to amend the fees for Purge Ports, which
is a function enabling Market Makers \4\ to cancel all open quotes or a
subset of open quotes through a single cancel message. The Exchange
currently provides Market Makers the option to purchase Purge Ports to
assist in their quoting activity. Purge Ports provide Market Makers
with the ability to send purge messages to the Exchange System.\5\
Purge Ports are not capable of sending or receiving any other type of
messages or information. The use of Purge Ports is completely optional
and no rule or regulation requires that a Market Maker utilize them.
---------------------------------------------------------------------------
\4\ The term ``Market Makers'' refers to Lead Market Makers
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered
Market Makers (``RMMs'') collectively. See Exchange Rule 100.
\5\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
---------------------------------------------------------------------------
Unlike other options exchanges that charge fees for Purge Ports on
a per port basis,\6\ the Exchange assesses a flat fee of $1,500 per
month, regardless of the number of Purge Ports. Today, a Market Maker
may request and be allocated two (2) Purge Ports per Matching Engine to
which it connects and not all Market Makers connect to all Matching
Engines. The Exchange now proposes to amend the fee for Purge Ports to
align more with other exchanges who charge on a per port basis by
providing two (2) Purge Ports per Matching Engine for a monthly flat
fee of $600 per month per Matching Engine. The only difference with a
per port structure being is that Market Makers receive two (2) Purge
Ports per Matching Engine for the same proposed monthly fee, rather
than be charged separate fee for each Purge Port. The Exchange proposes
to charge the proposed fee for Purge Ports per Matching Engine, instead
on a per Purge Port basis, due to its system architecture which
provides two (2) Purge Ports per Matching Engine for redundancy
purposes. In addition, the proposed fee would be lower than what other
exchanges charge on a per port basis, notwithstanding that the Exchange
is providing up to two (2) Purge Ports for that same low fee.\7\
---------------------------------------------------------------------------
\6\ See Cboe BXZ Exchange, Inc. (``BZX'') Options Fee Schedule,
Options Logical Port Fees, Purge Ports ($750 per purge port per
month); Cboe EDGX Exchange, Inc. (``EDGX'') Options Fee Schedule,
Options Logical Port Fees, Purge Ports ($750 per purge port per
month); Cboe Exchange, Inc. (``Cboe'') Fee Schedule ($850 per purge
port per month). See also Nasdaq GEMX, Options 7, Pricing Schedule,
Section 6.C.(3). Nasdaq GEMX, LLC (``Nasdaq GEMX'') assesses its
members $1,250 per SQF Purge Port per month, subject to a monthly
cap of $17,500 for SQF Purge Ports and SQF Ports, applicable to
market makers. See also Securities Exchange Act Release No. 97825
(June 30, 2023), 88 FR 43405 (July 7, 2023) (SR-Phlx-2023-28).
\7\ Id.
---------------------------------------------------------------------------
Similar to a per port charge, Market Makers would be also able to
elect the number of Matching Engines they connect to and pay the
applicable fee. The Exchange believes the proposed fee provides Market
Makers with flexibility to control their Purge Ports costs based on the
number of Matching Engines it elects to connect to.
* * * * *
A logical port represents a port established by the Exchange within
the Exchange's system for trading and billing purposes. Each logical
port grants a Member the ability to accomplish a specific function,
such as order entry, order cancellation, access to execution reports,
and other administrative information.
Purge Ports are designed to assist Market Makers \8\ in the
management of, and risk control over, their quotes, particularly if the
firm is dealing with a large number of securities. For example, if a
Market Maker detects market indications that may influence the
execution potential of their quotes, the Market Maker may use Purge
Ports to reduce uncertainty and to manage risk by purging all quotes in
a number of securities. This allows Market Makers to seamlessly avoid
unintended executions, while continuing to evaluate the market, their
positions, and their risk levels. Purge Ports are used by Market Makers
that conduct business activity that exposes them to a large amount of
risk across a number of securities. Purge Ports enable Market Makers to
cancel all open quotes, or a subset of open quotes through a single
cancel message. The Exchange notes that Purge Ports increase efficiency
of already existing functionality enabling the cancellation of quotes.
---------------------------------------------------------------------------
\8\ Members seeking to become registered as a Market Maker must
comply with the applicable requirements of Chapter VI of the
Exchange's Rules.
---------------------------------------------------------------------------
The Exchange operates highly performant systems with significant
throughput and determinism which allows participants to enter, update
and cancel quotes at high rates. Market Makers may currently cancel
individual quotes through the existing functionality, such as through
the use of a mass cancel message by which a Market Maker may request
that the Exchange remove all or a subset of its quotations and block
all or a subset of its new inbound quotations.\9\As a result, Market
Makers can currently cancel quotes in rapid succession across their
existing logical ports \10\ or through a single cancel message, all
open quotes or a subset of open quotes.
---------------------------------------------------------------------------
\9\ See Exchange Rule 519C(a) and (b).
\10\ Current Exchange port functionality supports cancelation
rates that exceed one thousand messages per second and the
Exchange's research indicates that certain market participants rely
on such functionality and at times utilize such cancelation rates.
---------------------------------------------------------------------------
Similarly, Market Makers may also use cancel-on-disconnect control
when they experience a disruption in connection to the Exchange to
automatically cancel all quotes, as configured or instructed by the
Member or Market Maker.\11\ In addition, the Exchange already provides
similar ability to mass cancel quotes through the Exchange's risk
controls, which are offered at no charge that enables Market Makers to
establish pre-determined levels of risk exposure, and can be used to
cancel all open quotes.\12\ Accordingly, the Exchange believes that the
Purge Ports provide an efficient option as an alternative to already
available services and enhance the Participant's ability to manage
their risk.
---------------------------------------------------------------------------
\11\ See Exchange Rule 516C(c).
\12\ See Exchange Rule 532.
---------------------------------------------------------------------------
The Exchange believes that market participants benefit from a
dedicated purge mechanism for specific Market Makers and to the market
as a whole. Market Makers will have the benefit of efficient risk
management and purge tools. The market will benefit from potential
increased quoting and liquidity as Market Makers may use Purge Ports to
manage their risk more robustly. Only Market Makers that request Purge
Ports would be subject to the proposed fees, and other Market Makers
can continue to operate in exactly the same manner as they do today
without dedicated Purge Ports, but with the additional purging
capabilities described above.
Implementation Date
The proposed fees will be effective October 1, 2023.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with
[[Page 71896]]
section 6(b) of the Act,\13\ in general, and furthers the objectives of
section 6(b)(5) of the Act,\14\ in particular, in that it is not
designed to permit unfair discrimination among customers, brokers, or
dealers. The Exchange also believes that its proposed fee is consistent
with section 6(b)(4) of the Act \15\ because it represents an equitable
allocation of reasonable dues, fees and other charges among market
participants.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change would promote
just and equitable principles of trade and remove impediments to and
perfect the mechanism of a free and open market because offering Market
Makers optional service and flexible fee structures promotes choice,
flexibility, efficiency, and competition. The Exchange believes Purge
Ports enhance Market Makers' ability to manage quotes, which would, in
turn, improve their risk controls to the benefit of all market
participants. The Exchange believes that Purge Ports foster cooperation
and coordination with persons engaged in facilitating transactions in
securities because designating Purge Ports for purge messages may
encourage better use of such ports. This may, concurrent with the ports
that carry quotes and other information necessary for market making
activities, enable more efficient, as well as fair and reasonable, use
of Market Makers' resources. Similar connectivity and functionality is
offered by options exchanges, including the Exchange's own affiliated
options exchanges, and other equities exchanges.\16\ The Exchange
believes that proper risk management, including the ability to
efficiently cancel multiple quotes quickly when necessary, is similarly
valuable to firms that trade in the equities market, including Market
Makers that have heightened quoting obligations that are not applicable
to other market participants.
---------------------------------------------------------------------------
\16\ See supra notes 3 and 6. See also Securities Exchange Act
Release No. 77613 (April 13, 2016), 81 FR 23023 (April 19, 2016).
See also Securities Exchange Act Release Nos. 79956 (February 3,
2017), 82 FR 10102 (February 9, 2017) (SR-BatsBZX-2017-05); 79957
(February 3, 2017), 82 FR 10070 (February 9, 2017) (SR-BatsEDGX-
2017-07); 83201 (May 9, 2018), 83 FR 22546 (May 15, 2018) (SR-C2-
2018-006).
---------------------------------------------------------------------------
Purge Ports do not relieve Market Makers of their quoting
obligations or firm quote obligations under Regulation NMS Rule
602.\17\ Specifically, any interest that is executable against a
Member's or Market Maker's quotes that is received by the Exchange
prior to the time of the removal of quotes request will automatically
execute. Market Makers that purge their quotes will not be relieved of
the obligation to provide continuous two- sided quotes on a daily
basis, nor will it prohibit the Exchange from taking disciplinary
action against a Market Maker for failing to meet their continuous
quoting obligation each trading day.\18\
---------------------------------------------------------------------------
\17\ See Exchange Rule 604. See also generally Chapter VI of the
Exchange's Rules.
\18\ Id.
---------------------------------------------------------------------------
The Exchange is not the only exchange to offer this functionality
and to charge associated fees.\19\ The Exchange believes the proposed
fee for Purge Ports is reasonable because it is lower than that
currently charged by other exchanges. For example, BZX and EDGX charge
a fee of $750 per purge port per month, Cboe charges $850 per purge
port per month, Nasdaq GEMX assesses its members $1,250 per SQF Purge
Port per month, subject to a monthly cap of $17,500 for SQF Purge Ports
and SQF Ports.\20\
---------------------------------------------------------------------------
\19\ See supra notes 3 and 6.
\20\ See supra note 6.
---------------------------------------------------------------------------
The Exchange believes it is reasonable to charge $600 per month for
Purge Ports as such ports represent targeted enhancement of technology
and were specially developed to allow for the sending of a single
message to cancel multiple quotes, thereby assisting firms in
effectively managing risk. The Exchange also believes that a Member
that chooses to utilize Purge Ports may, in the future, reduce their
need for additional ports by consolidating cancel messages to the Purge
Port and thus freeing up some capacity of the existing logical ports
and, therefore, allowing for increased message traffic without paying
for additional logical ports. Purge Ports provide the ability to cancel
multiple quotes across multiple ports with less messaging from the
firms using the ports and therefore may create efficiencies for firms
and provide a more economical solution to their risk management needs.
In addition, Purge Port requests may cancel quotes submitted over
numerous ports and contain added functionality to purge only a subset
of these quotes. Effective risk management is important both for
individual market participants that choose to utilize risk features
provided by the Exchange, as well as for the market in general. As a
result, the Exchange believes that it is appropriate to charge fees for
such functionality as doing so aids in the maintenance of a fair and
orderly market.
The Exchange also believes that its ability to set fees for Purge
Ports is subject to significant substitution-based forces because
Market Makers are able to rely on currently available services both
free and those they receive when using existing trading protocols. If
the value of the efficiency introduced through the Purge Port
functionality is not worth the proposed fees, Market Makers will simply
continue to rely on the existing functionality and not pay for Purge
Ports. In that regard, Market Makers may currently cancel individual
quotes through the existing functionality, such as through the use of a
mass cancel message by which a Market Maker may request that the
Exchange remove all or a subset of its quotations and block all or a
subset of its new inbound quotations. Market Makers already can also
cancel quotes individually and by utilizing Exchange protocols that
allow them to develop proprietary systems that can send cancel messages
at a high rate.\21\ In addition, the Exchange already provides similar
ability to mass cancel quotes through the Exchange's risk controls,
which are offered at no charge that enables Market Makers to establish
pre-determined levels of risk exposure, and can be used to cancel all
open quotes.\22\
---------------------------------------------------------------------------
\21\ Current Exchange port functionality supports cancelation
rates that exceed one thousand messages per second and the
Exchange's research indicates that certain Participants rely on such
functionality and at times utilize such cancelation rates.
\22\ See Exchange Rule 532.
---------------------------------------------------------------------------
Similarly, Market Makers may use cancel-on-disconnect control when
they experience a disruption in connection to the Exchange to
immediately cancel all pending Exchange.\23\ Finally, this existing
purging functionality will allow Participants to achieve essentially
the same outcome in canceling quotes as they would by utilizing the
Purge Ports. Accordingly, the Exchange believes that the proposed Purge
Ports fee is reasonable because it is related to the efficiency of
Purge Ports related to other means and services already available which
are either free or already a part of a fee assessed to the
Participant's for existing connectivity. Accordingly, because Purge
Ports provide additional optional functionality, excessive fees would
simply serve to reduce or eliminate demand for this optional product.
---------------------------------------------------------------------------
\23\ See Exchange Rule 516C(c).
---------------------------------------------------------------------------
The Exchange also believes that offering Purge Ports at the
Matching Engine level promotes risk management across the industry, and
thereby facilitates investor protection. Some market participants, in
particular the larger firms, could and do build similar risk
functionality (as described above)
[[Page 71897]]
in their trading systems that permit the flexible cancellation of
quotes entered on the Exchange at a high rate. Offering Matching Engine
level protections ensures that such functionality is widely available
to all firms, including smaller firms that may otherwise not be willing
to incur the costs and development work necessary to support their own
customized mass cancel functionality.
As noted above, the Exchange is not the only exchange to offer
dedicated Purge Ports, and the proposed rate is lower than that charged
by other exchanges for similar functionality. The Exchange also
believes that moving to a per Matching Engine fee is reasonable due to
the Exchange's architecture that provides it the ability to provide two
(2) Purge Ports per Matching Engine for a fee that would still be lower
than other exchanges that charge on a per port basis. Generally
speaking, restricting the Exchange's ability to charge fees for these
services discourages innovation and competition. Specifically in this
case, the Exchange's inability to offer similar services to those
offered by other exchanges, and charge reasonable and equitable fees
for such services, would put the Exchange at a significant competitive
disadvantage and, therefore, serve to restrict competition in the
market--especially when other exchanges assess comparable fees higher
than those proposed by the Exchange.
The Exchange believes that the proposed Purge Port fees are
equitable because the proposed Purge Ports are completely voluntary as
they relate solely to optional risk management functionality.
The Exchange also believes that the proposed amendments to its fee
schedule are not unfairly discriminatory because they will apply
uniformly to all Market Makers that choose to use the optional Purge
Ports. Purge Ports are completely voluntary and, as they relate solely
to optional risk management functionality, no Market Maker is required
or under any regulatory obligation to utilize them. All Market Makers
that voluntarily select this service option will be charged the same
amount for the same services. All Market Makers have the option to
select any connectivity option, and there is no differentiation among
Market Makers with regard to the fees charged for the services offered
by the Exchange.
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. Purge Ports are completely
voluntary and are available to all Market Makers on an equal basis at
the same cost. While the Exchange believes that Purge Ports provide a
valuable service, Market Makers can choose to purchase, or not
purchase, these ports based on their own determination of the value and
their business needs. No Market Makers is required or under any
regulatory obligation to utilize Purge Ports. Accordingly, the Exchange
believes that Purge Ports offer appropriate risk management
functionality to firms that trade on the Exchange without imposing an
unnecessary or inappropriate burden on competition.
Furthermore, the Exchange operates in a highly competitive
environment, and its ability to price the Purge Ports is constrained by
competition among exchanges that offer similar functionality. As
discussed, there are currently a number of similar offers available to
market participants for higher fees at other exchanges. Proposing fees
that are excessively higher than established fees for similar
functionality would simply serve to reduce demand for the Purge Ports,
which as discussed, market participants are under no obligation to
utilize. It could also cause firms to shift trading to other exchanges
that offer similar functionality at a lower costs, adversely impacting
the overall trading on the Exchange and reducing market share. In this
competitive environment, potential purchasers are free to choose which,
if any, similar product to purchase to satisfy their need for risk
management. As a result, the Exchange believes this proposed rule
change permits fair competition among national securities exchanges.
The Exchange also does not believe the proposal would cause any
unnecessary or in appropriate burden on intermarket competition as
other exchanges are free to introduce their own purge port
functionality and lower their prices to better compete with the
Exchange's offering. The Exchange does not believe the proposed rule
change would cause any unnecessary or inappropriate burden on
intramarket competition. Particularly, the proposal would apply
uniformly to any market participant, in that it does not differentiate
between Market Makers. The proposal would allow any interested Market
Makers to purchase Purge Port functionality based on their business
needs.
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,\24\ and Rule 19b-4(f)(2) \25\ 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.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78s(b)(3)(A)(ii).
\25\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#3341465f561e505c5e5e565d4740734056501d545c45"><span class="__cf_email__" data-cfemail="bac8cfd6df97d9d5d7d7dfd4cec9fac9dfd994ddd5cc">[email protected]</span></a>. Please include
file number SR-EMERALD-2023-26 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-2023-26. 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="https://www.sec.gov/rules/sro.shtml">https://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
[[Page 71898]]
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-2023-26 and should
be submitted on or before November 8, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
---------------------------------------------------------------------------
\26\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22929 Filed 10-17-23; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on October 18, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.