Notice2024-19767
Self-Regulatory Organizations: MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify the Excessive Quoting Fee
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Published
September 4, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 171 (Wednesday, September 4, 2024)</title>
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[Federal Register Volume 89, Number 171 (Wednesday, September 4, 2024)]
[Notices]
[Pages 71958-71961]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-19767]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100857; File No. SR-EMERALD-2024-22]
Self-Regulatory Organizations: MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify
the Excessive Quoting Fee
August 28, 2024.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 15, 2024, 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.
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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 Emerald 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/all-options-exchanges/rule-filings">https://www.miaxglobal.com/markets/us-options/all-options-exchanges/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.
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 another exemption to the daily Excessive Quoting fee. The Exchange
filed the initial proposal on August 5, 2024 (SR-EMERALD-2024-20). On
August 15, 2024, the Exchange withdrew SR-EMERALD-2024-20 and
resubmitted this proposal.
For background, the Exchange adopted the Excessive Quoting Fee as a
result of a significant upgrade to the MIAX Emerald System \3\ network
architecture, based on customer demand, which resulted in the
Exchange's network environment becoming more transparent and
deterministic.
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\3\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
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Pursuant to the Excessive Quoting Fee, the Exchange will assess a
fee of $10,000 per day to any Market Maker \4\
[[Page 71959]]
that exceeds 3.5 billion inbound quotes \5\ sent to the Exchange on
that particular day. However, the daily Excessive Quoting Fee will not
be assessed for the first day that a Market Maker exceeds the 3.5
billion inbound quote limit in a rolling 12-month period.\6\ 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 (i.e., cancel/
replace messages). The 3.5 billion inbound quote limit for the
Excessive Quoting Fee resets each trading day.\7\
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\4\ 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.
\5\ 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.
\6\ This exemption was established in 2023. See Securities
Exchange Act Release No. 98088 (August 8, 2023), 88 FR 55096 (August
14, 2023) (SR-EMERALD-2023-20).
\7\ See Fee Schedule, Section 1)c).
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Proposal
The Exchange proposes to amend Section 1)c) of the Fee Schedule to
establish another exemption to the daily Excessive Quoting Fee. In
particular, the Exchange proposes that, notwithstanding the exemptions
described above, the Exchange may determine not to assess the Excessive
Quoting Fee in times of extraordinary market conditions, with such
determination to be made by a designated Exchange Official. The
Exchange notes that its rules already provide other instances of review
by an Exchange Official in times of extraordinary or unusual market
conditions; accordingly, such review is not new or novel.\8\
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\8\ See, e.g., Exchange Rule 506(d)(1).
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The Exchange provides the following example of how the proposed
exemption would operate. On Day 1, if Marker Maker ``Firm A'' exceeds
3.5 billion inbound quotes, the Exchange would not assess the Excessive
Quoting Fee because this is the first trading day within a rolling 12-
month period in which that particular Market Maker surpassed the 3.5
billion inbound quote limit. On Day 2, if Firm A again exceeds 3.5
billion inbound quotes the Exchange would normally assess the Excessive
Quoting Fee; however, if the Exchange Official determines that
extraordinary market conditions existed on Day 2, the Exchange would
not assess the Excessive Quoting Fee on all Market Makers,\9\ including
Firm A, for exceeding the inbound quote limit on that day. As such,
Firm A would not be assessed the Excessive Quoting Fee on Day 2, but
the rolling 12-month period would still be in effect for Firm A. On Day
3, if Firm A again exceeds 3.5 billion inbound quotes, in the absence
of extraordinary market conditions declared by the designated Exchange
Official, the Exchange would assess the Excessive Quoting Fee on Firm
A.
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\9\ For Market Makers that did not yet exceed the 3.5 billion
inbound quote limit, Day 2 would also not count towards the
exemption in the rule that allows Market Makers to exceed the limit
one time on a rolling 12-month basis. See Fee Schedule, Section
1)c).
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The purpose of this proposal is to provide relief to Market Makers
when there is increased volatility in the market place to the extent
that Market Makers may routinely exceed the 3.5 billion inbound quote
limit over one or more trading days. As previously noted by the
Exchange, increased volatility in the market place may lead to an
increase in the number of quotes generated by Market Makers for
existing options. The result of these types of market conditions and
factors is that a Market Maker will potentially exceed the 3.5 billion
inbound quote limit each day while those conditions continue to exist.
The Exchange believes that this proposal will help allow the Exchange
to maintain fair and orderly markets based on unusual market conditions
or extreme volatility, which may impact all participants of the
Exchange.
The Exchange believes that 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 \10\ of the Exchange.
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\10\ 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 extreme market conditions would have
to occur in order for the Exchange to invoke the proposed exemption.
The Exchange Official in charge of making such determination would take
into account several different factors and market conditions. Such
conditions may include, but are not limited to, swings in major U.S.
indices (i.e., the S&P 500, Dow Jones Industrial Average, or Nasdaq-100
Indices) without such indices stabilizing up or down; higher than
expected or unusual trading volumes; and increased volatility in the
marketplace. In the Exchange's experience, when there is higher than
expected price fluctuation, this generates a higher volume of quotes,
leading to a significant increase in quoting activity by Market Makers.
The Exchange believes that the process of exempting certain trading
days from counting towards the Excessive Quoting Fee is similar to that
utilized by NYSE Arca, Inc. (``NYSE Arca'') for exempting certain
trading days from counting towards NYSE Arca's ``Monthly Excessive
Bandwidth Utilization Fee,'' \11\ although the substantive basis for
the exemptions are different.
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\11\ See NYSE Arca Options Fees and Charges, page 13, 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 Exchange may exclude one
or more days of data for purposes of calculating the Fee for an OTP
Holder or OTP Firm if the Exchange determines, in its sole
discretion, that one or more OTP Firms or the Exchange was
experiencing a bona fide systems problem.'').
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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.\12\ 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 relief during times of extraordinary market conditions, based
upon review by a designated Exchange Official, 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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\12\ 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).
See supra note 6.
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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
[[Page 71960]]
consistent with Section 6(b) of the Act \13\ in general, and furthers
the objectives of Section 6(b)(4) and (5) of the Act \14\ 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 discriminate between
customers, issuers, brokers or dealers.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(4).
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The 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.\15\
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\15\ 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 17 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than approximately 16-
17% of the market share of executed volume of multiply-listed equity
and exchange-traded fund (``ETF'') options trades.\16\ 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 July 2024, the Exchange had a market share of 4.40% of
executed volume of multiply-listed equity and ETF options trades.\17\
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\16\ 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 5,
2024).
\17\ See id.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
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 relief to Market Makers from the Excessive Quoting
Fee in times of extraordinary market conditions, based upon review of
several factors by a designated Exchange Official. 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 that the process of exempting
certain trading days from counting towards the Excessive Quoting Fee is
similar to that utilized by NYSE Arca, Inc. (``NYSE Arca'') for
exempting certain trading days from counting towards NYSE Arca's
``Monthly Excessive Bandwidth Utilization Fee,'' \18\ although the
substantive basis for the exemptions are different.
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\18\ See supra note 11.
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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 during times of
extraordinary market conditions. For clarity, when the Exchange
Official determines that extraordinary market conditions exist, every
Market Maker of the Exchange would qualify for the proposed exemption
and not be subject to the Excessive Quoting Fee on that particular
trading day(s).\19\ 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.
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\19\ See supra note 9.
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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 Exchange believes that the proposed change would encourage Market
Makers to continue quoting on the Exchange during times of
extraordinary market conditions, which will help maintain fair and
orderly markets to the benefit of all Exchange market participants. The
proposed exemption 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 during
times of extraordinary market conditions. 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
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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 17 competing option
exchanges if they deem fee levels at a particular venue to 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 16-17% of the market share of executed volume of
multiply-listed equity and ETF options trades.\20\ 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 July 2024, the Exchange had a market share of 4.40% of
executed volume of multiply-listed equity and ETF options trades.\21\
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\20\ See supra note 16.
\21\ 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 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="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#592b2c353c743a3634343c372d2a192a3c3a773e362f"><span class="__cf_email__" data-cfemail="8cfef9e0e9a1efe3e1e1e9e2f8ffccffe9efa2ebe3fa">[email protected]</span></a>. Please include
file number SR-EMERALD-2024-22 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-2024-22. 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 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-2024-22 and should
be submitted on or before September 25, 2024.
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. 2024-19767 Filed 9-3-24; 8:45 am]
BILLING CODE 8011-01-P
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