Notice2024-22025
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
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
September 26, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 187 (Thursday, September 26, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 187 (Thursday, September 26, 2024)]
[Notices]
[Pages 78920-78926]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-22025]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101122; File No. SR-PEARL-2024-44]
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 20, 2024.
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 11, 2024, 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.
---------------------------------------------------------------------------
\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 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 <a href="https://www.miaxglobal.com/markets/us-options/pearl-options/rule-filings">https://www.miaxglobal.com/markets/us-options/pearl-options/rule-filings</a> 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 proposes to amend Section (1)(a) of the Fee Schedule,
Exchange Rebates/Fees--Add/Remove Tiered Rebates/Fees, to: (1) amend
the Priority Customer \3\ origin table to increase certain Maker
rebates in Penny Classes (defined below); (2) establish a new ``Step-Up
Maker Rebate'' (described below) for the MIAX Pearl \4\ Market Maker
\5\ origin in Non-Penny Classes; and (3) remove certain alternative
volume criteria and corresponding footnotes applicable to executions of
orders for the Market Maker origin and non-Priority Customer, firm,
broker-dealer (``BD''), and non-MIAX Pearl Market Maker origin
(collectively referred to herein as ``Professional Members''). The
Exchange initially filed this proposal on August 30, 2024 (SR-PEARL-
2024-39). On September 11, 2024, the Exchange withdrew SR-PEARL-2024-39
and refiled this proposal.
---------------------------------------------------------------------------
\3\ The term ``Priority Customer'' means a person or entity that
(i) is not a broker or dealer in securities, and (ii) does not place
more than 390 orders in listed options per day on average during a
calendar month for its own beneficial accounts(s). The number of
orders shall be counted in accordance with Interpretation and Policy
.01 of Exchange Rule 100. See the Definitions section of the Fee
Schedule and Exchange Rule 100, including Interpretation and Policy
.01.
\4\ All references in this filing to ``MIAX Pearl'' are to the
options trading facility of MIAX PEARL, LLC. Any references to the
equities trading facility of MIAX PEARL, LLC would be to ``MIAX
Pearl Equities.'' See Exchange Rule 1901.
\5\ The term ``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 and Exchange Rule 100.
---------------------------------------------------------------------------
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 \6\ on MIAX Pearl in the relevant, respective
origin type (not including Excluded Contracts) \7\ (as the numerator)
expressed as a percentage of (divided by) TCV \8\ (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 has been reached by the Member. The Exchange
aggregates the volume of Members and their Affiliates.\9\ Members that
place resting
[[Page 78921]]
liquidity, i.e., orders resting on the Book \10\ of the MIAX Pearl
System,\11\ 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 \12\ 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
\13\ (``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.
---------------------------------------------------------------------------
\6\ The term ``Member'' means an individual or organization that
is registered with the Exchange pursuant to Chapter II of Exchange
Rules for purposes of trading on the Exchange as an ``Electronic
Exchange Member'' or ``Market Maker.'' Members are deemed
``members'' under the Exchange Act. See the Definitions section of
the Fee Schedule and Exchange Rule 100.
\7\ The term ``Excluded Contracts'' means any contracts routed
to an away market for execution. See the Definitions section of the
Fee Schedule.
\8\ The term ``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)). See the
Definitions section of the Fee Schedule. The term ``Exchange System
Disruption'' means an outage of a Matching Engine or collective
Matching Engines for a period of two consecutive hours or more,
during trading hours. Id. A ``Matching Engine'' 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. Id. 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.
\9\ The term ``Affiliate'' means (i) an affiliate of a Member of
at least 75% common ownership between the firms as reflected on each
firm's Form BD, Schedule A, or (ii) the Appointed Market Maker of an
Appointed EEM (or, conversely, the Appointed EEM of an Appointed
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market
Maker (who does not otherwise have a corporate affiliation based
upon common ownership with an EEM) that has been appointed by an EEM
and an ``Appointed EEM'' is an EEM (who does not otherwise have a
corporate affiliation based upon common ownership with a MIAX Pearl
Market Maker) that has been appointed by a MIAX Pearl Market Maker,
pursuant to the following process. A MIAX Pearl Market Maker
appoints an EEM and an EEM appoints a MIAX Pearl Market Maker, for
the purposes of the Fee Schedule, by each completing and sending an
executed Volume Aggregation Request Form by email to
<a href="/cdn-cgi/l/email-protection#2e434b434c4b5c5d46475e6e43474f56415e5a4741405d004d4143"><span class="__cf_email__" data-cfemail="28454d454a4d5a5b404158684541495047585c4147465b064b4745">[email protected]</span></a> no later than 2 business days prior to
the first business day of the month in which the designation is to
become effective. Transmittal of a validly completed and executed
form to the Exchange along with the Exchange's acknowledgement of
the effective designation to each of the Market Maker and EEM will
be viewed as acceptance of the appointment. The Exchange will only
recognize one designation per Member. A Member may make a
designation not more than once every 12 months (from the date of its
most recent designation), which designation shall remain in effect
unless or until the Exchange receives written notice submitted 2
business days prior to the first business day of the month from
either Member indicating that the appointment has been terminated.
Designations will become operative on the first business day of the
effective month and may not be terminated prior to the end of the
month. Execution data and reports will be provided to both parties.
See the Definitions section of the Fee Schedule.
\10\ The term ``Book'' means the electronic book of buy and sell
orders and quotes maintained by the System. See Exchange Rule 100.
\11\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\12\ The term ``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.
\13\ See Securities Exchange Act Release No. 88992 (June 2,
2020), 85 FR 35142 (June 8, 2020) (SR-PEARL-2020-06).
---------------------------------------------------------------------------
Proposal To Amend the Priority Customer Origin Table To Increase
Certain Maker Rebates in Penny Classes
First, the Exchange proposes to amend the Priority Customer origin
table to increase the Maker rebates in tiers 1 and 2 for Priority
Customer orders in Penny Classes that trade against all origins.
Currently, the Priority Customer origin table provides certain volume
criteria thresholds for all tiers that are based upon the total monthly
volume executed in all option classes by a Priority Customer on MIAX
Pearl as a percentage of TCV. Pursuant to the Priority Customer origin
table, Priority Customers qualify for the following Maker rebates when
Priority Customer orders in Penny Classes trade against all origins:
(i) ($0.25) \14\ per contract in tiers 1 and 2 if the Priority Customer
executes above 0.00% to at least 0.40% of TCV; (ii) ($0.45) per
contract in tier 3 if the Priority Customer executes above 0.40% to at
least 0.85% of TCV; (iii) ($0.49) per contract in tier 4 if the
Priority Customer executes above 0.85% to at least 1.25% of TCV; and
(iv) ($0.52) per contract in tiers 5 and 6 if the Priority Customer
executes above 1.25% of TCV.
---------------------------------------------------------------------------
\14\ Rebates are denoted in parentheses in the Fee Schedule.
---------------------------------------------------------------------------
The Exchange now proposes to amend the Priority Customer origin
table to increase the Maker rebates in tiers 1 and 2 from ($0.25) to
($0.31) per contract for Priority Customer orders in Penny Classes that
trade against all origins. The Exchange does not propose to amend any
of the volume threshold criteria or the Maker rebates or Taker fees in
any other tier for Priority Customer orders. The purpose of this
proposed change is for business and competitive reasons in order to
attract additional Penny Class volume from Members by increasing the
Maker rebates for options transactions in Penny Classes in tiers 1 and
2 for Priority Customer orders. The Exchange believes that this may, in
turn, encourage Members to submit more Priority Customer orders,
leading to increased liquidity on the Exchange to the benefit of all
market participants by providing more trading opportunities and tighter
spreads.
Proposal To Establish the Step-Up Maker Rebate for Market Maker Orders
in Non-Penny Classes
Next, the Exchange proposes to amend the Market Maker origin table
to establish a new ``Step-Up Maker Rebate,'' which will be noted as
footnote ``(i)'' following the table of transaction rebates and fees
for the Market Maker origin in Section (1)(a) of the Fee Schedule.
Currently, pursuant to the Market Maker origin table, Market Makers
qualify for the following Maker rebates when Market Maker orders in
Non-Penny Classes trade against all origins: (i) ($0.30) per contract
in tier 1 if the Market Maker executes above 0.00% to at least 0.20% of
TCV; (ii) ($0.30) per contract in tier 2 if the Market Maker executes
above 0.20% to at least 0.50% of TCV, or satisfies one of the three
alternative volume criteria of tier 2; \15\ (iii) ($0.60) per contract
in tier 3 if the Market Maker executes above 0.50% to at least 0.85% of
TCV, or satisfies the alternative volume criteria of tier 3; \16\ (iv)
($0.65) per contract in tier 4 if the Market Maker executes above 0.85%
to at least 1.25% of TCV, or satisfies the alternative volume criteria
of tier 4; \17\ (v) ($0.70) per contract in tier 5 if the Market Maker
executes above 1.25% to at least 1.40% of TCV; and (vi) ($0.85) per
contract in tier 6 if the Market Maker executes above 1.40% of TCV.
---------------------------------------------------------------------------
\15\ A Market Maker need only to satisfy one of the following
three alternative volume criteria in order to receive the rebates or
fees associated with tier 2 of the Market Maker origin table: (i)
the total monthly volume executed by the Market Maker collectively
in SPY/QQQ/IWM options on MIAX Pearl, not including Excluded
Contracts, is above 0.55% of SPY/QQQ/IWM TCV; or (ii) the Market
Maker adds liquidity collectively in SPY/QQQ/IWM options on MIAX
Pearl, not including Excluded Contracts, above 0.30% of SPY/QQQ/IWM
TCV; or (iii) the Market Maker satisfies the requirements of tier 2
of both the NBBO Setter Plus Program and tier 2 of the Midpoint Peg
Order Adding Liquidity at the Midpoint Volume Tiers table (referred
to herein as the ``Midpoint Volume Tiers'') in the MIAX Pearl
Equities Fee Schedule. MIAX Pearl Equities Fee Schedule, Sections
(1)(c) and (1)(e) for a complete description of the volume
requirements for tier 2 of the NBBO Setter Plus Program and tier 2
of the Midpoint Volume Tiers table. See also Securities Exchange Act
Release No. 98956 (November 15, 2023), 88 FR 81125 (November 21,
2023) (SR-PEARL-2023-63) (providing more background and explanation
of both programs for MIAX Pearl Equities); see also Fee Schedule,
Section (1)(a), Market Maker origin table. The term ``SPY/QQQ/IWM
TCV'' means total consolidated volume in SPY, QQQ, and IWM
calculated as the total national volume in SPY, QQQ, and IWM for the
month for which the fees apply, excluding consolidated volume
executed during the period of time in which the Exchange experiences
an Exchange System Disruption (solely in SPY, QQQ, or IWM options).
See the Definitions section of the Fee Schedule.
\16\ Market Makers satisfy the alternative volume criteria of
tier 3 by adding liquidity in SPY options on MIAX Pearl, not
including Excluded Contracts, above 1.10% of SPY TCV. The term ``SPY
TCV'' means total consolidated volume in SPY calculated as the total
national volume in SPY for the month for which the fees apply,
excluding consolidated volume executed during the period of time in
which the Exchange experiences an Exchange System Disruption (solely
in SPY options). See the Definitions section of the Fee Schedule.
Further, Market Makers qualify for: (i) Maker rebates of ($0.44) per
contract in SPY, QQQ and IWM options for their Market Maker origin
when trading against origins other than Priority Customer, and (ii)
Maker rebates of ($0.42) per contract in SPY, QQQ and IWM options
for their Market Maker origin when trading against Priority Customer
origins, if the Market Maker satisfies the alternative volume
criteria of tier 3, described above, of at least 1.10% in SPY when
adding liquidity. See Fee Schedule, Section (1)(a), note
``[diams]''.
\17\ Market Makers satisfy the alternative volume criteria of
tier 4 if the Market Maker's executions solely in SPY options on
MIAX Pearl, not including Excluded Contracts, is above 2.50% of SPY
TCV.
---------------------------------------------------------------------------
The Exchange now proposes that a Market Maker may qualify for a
Step-Up Maker Rebate of ($0.86) per contract for Market Maker orders in
Non-Penny Classes, instead of the otherwise applicable tiered Maker
rebate described above for tiers 1 through 6. In order to receive the
proposed Step-Up Maker Rebate, a Market Maker must have an increase in
the percentage of their added liquidity in Non-Penny Classes,
represented as a percentage of TCV, of at least 0.12% as compared to
the
[[Page 78922]]
Market Maker's July 2024 \18\ added liquidity in Non-Penny Classes.
---------------------------------------------------------------------------
\18\ The Exchange will use a baseline for added liquidity in
Non-Penny Classes of 0.00% of TCV for market participants that
become Market Makers of the Exchange after July 2024 for the purpose
of the Step-Up Maker Rebate calculation.
---------------------------------------------------------------------------
The Exchange proposes that the Step-Up Maker Rebate will expire no
later than January 31, 2025 (referred to herein as the ``sunset
period''),\19\ which will be stated in the same proposed footnote
``(i)'' in the Fee Schedule. The Exchange will issue an alert to market
participants should the Exchange determine that the Step-Up Maker
Rebate will expire earlier than January 31, 2025 or if the Exchange
determines to amend the criteria or rate applicable to the Step-Up
Maker Rebate prior to the end of the sunset period, and file a
corresponding rule filing pursuant to Rule 19b-4 of the Exchange Act
with the Commission.
---------------------------------------------------------------------------
\19\ The Exchange notes that at the end of the sunset period,
the Step-Up Maker Rebate will no longer apply unless the Exchange
files a rule filing pursuant to Rule 19b-4 of the Exchange Act with
the Commission to amend the criteria terms or update the baseline
month to a more recent month.
---------------------------------------------------------------------------
The proposed Step-Up Maker Rebate of ($0.86) per contract is the
same or within the range of similar rebates offered by competing
options exchanges for transactions by market makers in Non-Penny
Classes.\20\ The Exchange notes at least two competing options
exchanges provide similar calculations for enhanced rebates or reduced
fees for certain types of market participant orders by utilizing a
volume comparison of the current month to a prior baseline month.\21\
Accordingly, the proposed calculation for the Step-Up Maker Rebate is
not a new or novel concept for the method in which to provide an
enhanced rebate to market participants.
---------------------------------------------------------------------------
\20\ See The Nasdaq Stock Market LLC (``Nasdaq''), Options 7
Pricing Schedule, Section 2, Nasdaq Options Market--Fees and
Rebates, note 6, available at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/Nasdaq%20Options%207">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/Nasdaq%20Options%207</a> (last visited August 21,
2024) (providing $0.86 per contract rebate to market makers that add
liquidity in non-penny classes for market makers that qualify for
tier 6 for adding liquidity in penny classes); see also Cboe BZX
Exchange, Inc. (``BZX'') Options Fee Schedule, Transaction Fees,
Standard Rates table, available at <a href="https://www.cboe.com/us/options/membership/fee_schedule/bzx/">https://www.cboe.com/us/options/membership/fee_schedule/bzx/</a> (last visited August 21, 2024)
(providing tiered rebates ranging from $0.40 to $0.88 per contract
for market makers that add liquidity in non-penny classes).
\21\ See, e.g., Cboe EDGX Exchange, Inc. (``EDGX'') Options Fee
Schedule, Footnotes, Market Maker Volume Tiers, Tier 2, available at
<a href="https://www.cboe.com/us/options/membership/fee_schedule/edgx/">https://www.cboe.com/us/options/membership/fee_schedule/edgx/</a> (last
visited August 21, 2024) (providing a reduced fee for a market maker
that meets certain volume criteria, including a requirement that the
marker maker's step up average daily added volume in market maker
orders from July 2019 is greater than or equal to 0.10% of their OCC
customer volume); see also NYSE Arca, Inc. (``Arca'') Options Fees
and Charges, Trade-Related Charges for Standard Options, Customer
Penny Posting Credit Tiers table, 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> (last visited August 21, 2024)
(in general, providing enhanced rebate for a firm that has an
increase of at least 0.15% of TCADV in added liquidity over the
firm's March 2020 level of added liquidity).
---------------------------------------------------------------------------
The purpose of this proposed change is to provide an incentive for
Market Makers to provide liquidity in Non-Penny Classes in order to
receive the enhanced Step-Up Maker Rebate of ($0.86) per contract
instead of the tiered rebate that would otherwise be applicable for
such transactions. The Exchange believes that the proposed Step-Up
Maker Rebate will encourage Market Makers to add more liquidity in Non-
Penny Classes, thereby promoting price discovery and contributing to a
deeper and more liquid market, which benefits all market participants
and enhances the attractiveness of the Exchange as a trading venue. The
purpose of including the proposed sunset period in the Fee Schedule is
to provide clarity to Market Makers that, unless the Exchange
determines to amend or otherwise modify the Step-Up Maker Rebate, the
Step-Up Maker Rebate will expire at the end of the sunset period.
Proposal To Remove Certain Alternative Volume Criteria and
Corresponding Footnotes
Next, the Exchange proposes to amend Section (1)(a) of the Fee
Schedule to remove certain alternative volume criteria and
corresponding footnotes applicable to executions of orders for the
Market Maker and Professional Member origins.
The Exchange proposes to remove footnote ``#'' following the Marker
Maker origin table in Section (1)(a) of the Fee Schedule and the
corresponding alternative volume criteria in tier 2 of the Market Maker
origin table. As described above, the Exchange provides four
alternative volume calculation methods pursuant to which a Market Maker
may obtain the fees and rebates in tier 2 of the Market Maker origin
table.\22\ The fourth volume calculation method in tier 2 of the Market
Maker origin table is the cross-asset volume based requirement, denoted
by footnote ``#'' following the Marker Maker origin table, which
requires Market Makers to satisfy the requirements of tier 2 of both
the NBBO Setter Plus Program and tier 2 of the Midpoint Volume Tiers in
the MIAX Pearl Equities Fee Schedule.\23\ The Exchange now proposes to
remove the cross-asset volume calculation method and corresponding
footnote ``#'' such that there will no longer be a cross-asset volume
requirement for Market Makers to satisfy in order to reach the tier 2
rebates and fees of the Market Maker origin table. The Exchange does
not propose to amend the other three alternative volume calculation
methods that Market Makers can satisfy in order to reach the tier 2
rebates and fees of the Market Maker origin table.
---------------------------------------------------------------------------
\22\ See, generally, Fee Schedule, Section (1)(a), Market Maker
origin table. See also supra note 15.
\23\ See MIAX Pearl Equities Fee Schedule, Sections (1)(c) and
(1)(e) for a complete description of the volume requirements for
tier 2 of the NBBO Setter Plus Program and tier 2 of the Midpoint
Volume Tiers table. See also Securities Exchange Act Release No.
98956 (November 15, 2023), 88 FR 81125 (November 21, 2023) (SR-
PEARL-2023-63) (providing more background and explanation of both
programs for MIAX Pearl Equities).
---------------------------------------------------------------------------
The Exchange also proposes to remove footnote ``**'' and the
corresponding alternative volume criteria following the table of fees
and rebates for Market Maker orders and Professional Member orders in
Section (1)(a) of the Fee Schedule. Footnote ``**'' provides that
Market Makers and Professional Members may qualify for the Maker rebate
and the Taker fee associated with the highest tier for transactions in
Non-Penny Classes if the Market Maker or Professional Member executes
more than 0.30% volume in Non-Penny Classes, not including Excluded
Contracts, as compared to the TCV in all MIAX Pearl-listed option
classes, in the respective origin (i.e., either Market Maker origin or
Professional Member origin). For purposes of qualifying for such rates,
the Exchange aggregates the volume transacted by Members and their
Affiliates in the following origin types in Non-Penny Classes: (1) MIAX
Pearl Market Makers, and (2) non-Priority Customer, Firm, BD, and non-
MIAX Pearl Market Makers, i.e., Professional Members. The Exchange now
proposes to remove footnote ``**'' and the corresponding alternative
volume calculation method from the Fee Schedule.
The Exchange also proposes to remove footnote ``[supcaret]'' and
the corresponding alternative volume criteria following the table of
fees and rebates for Professional Members in Section (1)(a) of the Fee
Schedule. Footnote ``[supcaret]'' provides that Professional Members
may qualify for Maker rebates equal to the greater of: (A) ($0.37) for
Penny Classes and ($0.65) for Non-Penny Classes, or (B) the amount set
forth in the applicable tier reached by the Professional Member in the
relevant origin, if the Member and their Affiliates execute at least
1.25% volume in the relevant month, in Priority Customer origin type,
in all options classes, not
[[Page 78923]]
including Excluded Contracts, as compared to the TCV in all MIAX Pearl
listed option classes.
The purpose of these changes is for business and competitive
reasons as well as to reduce complexity and provide clarity within the
Fee Schedule. The Exchange initially established each of the above-
described alternative volume calculations in order to attract Market
Maker and/or Professional Member order flow. The Exchange recently
conducted an internal review and analysis of fees and rebates and
determined that it was appropriate to remove the alternative volume
calculations described above. The Exchange's standard volume
calculation methods (and the two alternative volume calculation methods
for tier 2 of the Marker Maker origin) remain highly competitive such
that they should enable the Exchange to continue to attract Market
Maker and Professional Member order flow and maintain market share. The
Exchange also notes that no Member has recently achieved any of the
three alternative volume calculation methods that the Exchange proposes
to remove from the Fee Schedule; accordingly, the Exchange believes it
will reduce complexity within the Fee Schedule and provide greater
clarity to remove the alternative volume calculation methods that are
not utilized.
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 \24\ in general, and
furthers the objectives of Section 6(b)(4) of the Act,\25\ in that it
is an equitable allocation of reasonable dues, fees and other charges
among Exchange Members and issuers and other persons using its
facilities, and 6(b)(5) of the Act,\26\ in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanisms of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(4).
\26\ 15 U.S.C. 78f(b)(1) and (b)(5).
---------------------------------------------------------------------------
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.'' \27\
---------------------------------------------------------------------------
\27\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
---------------------------------------------------------------------------
There are currently 17 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange had more than approximately 14-
15% of the multiply-listed equity options market share for the month of
July 2024.\28\ Therefore, no exchange possesses significant pricing
power. More specifically, the Exchange had a market share of
approximately 3.45% of executed volume of multiply-listed equity
options for the month of July 2024.\29\
---------------------------------------------------------------------------
\28\ 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 22,
2024).
\29\ See id.
---------------------------------------------------------------------------
The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
discontinue or reduce use of certain categories of products and
services, terminate an existing membership or determine to not become a
new member, and/or shift order flow, in response to transaction fee
changes. For example, on February 28, 2019, the Exchange filed with the
Commission a proposal to increase Taker fees in certain tiers for
options transactions in certain Penny Classes for Priority Customers
and decrease Maker rebates in certain tiers for options transactions in
Penny Classes for Priority Customers (which fee was to be effective
March 1, 2019).\30\ The Exchange experienced a decrease in total market
share for the month of March 2019, after the proposal went into effect.
Accordingly, the Exchange believes that its March 1, 2019, fee change,
to increase certain transaction fees and decrease certain transaction
rebates, may have contributed to the decrease in MIAX Pearl's market
share and, as such, the Exchange believes competitive forces constrain
the Exchange's, and other options exchanges, ability to set transaction
fees and market participants can shift order flow based on fee changes
instituted by the exchanges.
---------------------------------------------------------------------------
\30\ See Securities Exchange Act Release No. 85304 (March 13,
2019), 84 FR 10144 (March 19, 2019) (SR-PEARL-2019-07).
---------------------------------------------------------------------------
Proposal To Amend the Priority Customer Origin Table To Increase
Certain Maker Rebates in Penny Classes
The Exchange believes its proposal to amend the Priority Customer
origin to increase the Maker rebates in tiers 1 and 2 from ($0.25) to
($0.31) per contract for Priority Customer orders in Penny Classes that
trade against all origins is reasonable, equitable and not unfairly
discriminatory because it would further incentivize Priority Customer
orders to the Exchange. The Exchange believes that this may, in turn,
encourage Members to submit more Priority Customer orders, leading to
increased liquidity on the Exchange to the benefit of all market
participants by providing more trading opportunities and tighter
spreads. The Exchange believes the proposed increased Maker rebates in
tiers 1 and 2 for Priority Customer orders in Penny Classes is
equitable and not unfairly discriminatory because it will apply equally
to all market participants who provide Priority Customer orders in
Penny Classes.
Proposal To Establish the Step-Up Maker Rebate for Market Maker Orders
in Non-Penny Classes
The Exchange believes its proposal to establish the Step-Up Maker
Rebate is reasonable, equitably allocated and not unfairly
discriminatory because it provides Market Makers with an additional
incentive to achieve a certain volume threshold on the Exchange in Non-
Penny Classes. The Exchange believes that the proposed Step-Up Maker
Rebate is reasonable because it may encourage Market Makers to add more
liquidity in Non-Penny Classes, thereby promoting price discovery and
contributing to a deeper and more liquid market, which benefits all
market participants and enhances the attractiveness of the Exchange as
a trading venue.
The Exchange believes that it is equitable and not unfairly
discriminatory to provide the Step-Up Maker Rebate only to Market Maker
orders because Market Makers have market-making obligations and
regulatory requirements, which normally do not apply to other types of
market participants, such as Professional Members.\31\ Market Makers
additionally have obligations to make continuous markets, engage in a
course of dealings reasonably calculated to
[[Page 78924]]
contribute to the maintenance of a fair and orderly market, and not
make bids or offers or enter into transactions that are inconsistent
with a course of dealings. The Exchange believes the proposed Step-Up
Maker Rebate is equitable and not unfairly discriminatory because it
will be available equally to all Market Makers and will be provided in
an equal manner to all Market Makers that satisfy the volume threshold
requirements of the Step-Up Maker Rebate.
---------------------------------------------------------------------------
\31\ See, generally, Chapter VI of the Exchange's Rules.
---------------------------------------------------------------------------
The proposed Step-Up Maker Rebate promotes just and equitable
principles of trade, fosters cooperation and coordination with persons
engaged in facilitating transactions in securities, and protects
investors and the public interest because the proposed Step-Up Maker
Rebate may encourage Market Makers to send more orders to the Exchange
in Non-Penny Classes, which are typically less liquid as compared to
Penny Classes. To the extent that Market Maker order flow in Non-Penny
classes is increased by the proposal, market participants may
increasingly compete for the opportunity to trade on the Exchange,
including sending more orders which will have the potential to be
assessed lower fees and higher rebates. The resulting increased volume
and liquidity in Non-Penny Classes may benefit all Exchange
participants by providing more trading opportunities and tighter
spreads in option classes that are typically less liquid.
Additionally, the Exchange believes the proposed Step-Up Maker
Rebate of ($0.86) per contract is reasonable because it is the same, or
within the range, of similar rebates offered by competing options
exchanges for transactions by market makers in Non-Penny Classes.\32\
Also, the proposed calculation of the Step-Up Maker Rebate is
reasonable and not unfairly discriminatory because it is similar to the
calculation method utilized by at least two competing options exchanges
that provide enhanced rebates or reduced fees for certain types of
market participant orders by taking a volume comparison of the current
month to a prior baseline month.\33\ Accordingly, this approach to
determining an enhanced rebate (or reduced fee) is not new or novel.
---------------------------------------------------------------------------
\32\ See supra note 20.
\33\ See supra note 21.
---------------------------------------------------------------------------
The Exchange believes that it is reasonable to include the sunset
period in the Fee Schedule to provide clarity to all Market Makers
that, unless the Exchange determines to amend or otherwise modify the
Step-Up Maker Rebate, the Step-Up Maker Rebate will expire at the end
of the sunset period.
The Exchange believes it is reasonable, equitable and not unfairly
discriminatory to use a baseline for added liquidity in Non-Penny
Classes of 0.00% of TCV for market participants that become Market
Makers of the Exchange after July 2024 for the purpose of the Step-Up
Maker Rebate calculation because it will provide an additional
incentive for prospective firms to become Market Makers. The Exchange
believes this will incentivize new Market Makers to trade on the
Exchange, which will add to price discovery, enhance liquidity and
market quality, and contribute to a more robust and well-balanced
market ecosystem on the Exchange to the benefit of all Members and
market participants. The Exchange notes that the proposed Step-Up Maker
Rebate will not adversely impact any Market Maker's ability to qualify
for reduced fees or enhanced rebates offered under other pricing tiers/
incentives on the Exchange. Should a Market Maker not meet the required
criteria of the Step-Up Maker Rebate, the Market Maker will merely not
receive the corresponding enhanced rebate.
Proposal To Remove Certain Alternative Volume Criteria and
Corresponding Footnotes
The Exchange believes its proposal to remove the alternative volume
criteria and corresponding footnotes described above that are
applicable to executions of orders for the Market Maker and
Professional Member origins is reasonable, equitably allocated and not
unfairly discriminatory. The Exchange initially established each of the
above alternative volume criteria in order to attract Market Maker and
Professional Member order flow. The Exchange recently conducted an
internal review and analysis of fees and rebates and determined that it
was reasonable, equitable and not unfairly discriminatory to remove the
alternative volume calculations described above. The Exchange believes
its standard volume calculation methods (and the two remaining
alternative volume calculation methods for tier 2 of the Marker Maker
origin) remain highly competitive such that they should enable the
Exchange to continue to attract Market Maker and Professional Member
order flow and maintain market share.
The Exchange believes these proposed changes are equitable and not
unfairly discriminatory because no Member has recently achieved any of
the three alternative volume calculation methods that the Exchange
proposes to remove from the Fee Schedule. As such, no Member will
currently be impacted by the removal of these alternative volume
calculation methods. The Exchange further believes that the removal of
these alternative volume calculations will reduce complexity within the
Fee Schedule and provide greater clarity to all Members, particularly
since these methods are not utilized. Less complexity and greater
clarity in the Fee Schedule helps promote just and equitable principles
of trade and removes impediments to and perfects the mechanisms of a
free and open market and a national market system.
The Exchange also believes it is equitable and not unfairly
discriminatory to remove the alternative volume criteria described
above because with the proposed changes, the Exchange's standard volume
criteria (and the two remaining alternative volume calculation methods
for tier 2 of the Marker Maker origin) will continue to apply equally
to all Market Maker and Professional Member order flow, in each origin
respectively.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Intra-Market Competition
The Exchange does not believe that any of the proposed changes will
impose any burden on intra-market competition.
Proposal To Amend the Priority Customer Origin Table To Increase
Certain Maker Rebates in Penny Classes
The Exchange believes its proposal to amend the Priority Customer
origin to increase the Maker rebates in tiers 1 and 2 from ($0.25) to
($0.31) per contract for Priority Customer orders in Penny Classes that
trade against all origins will not impose any burden on intra-market
competition. Instead, the Exchange believes this proposed change will
promote competition because it will further incentivize Priority
Customer orders to the Exchange. The Exchange believes that this may,
in turn, encourage Members to submit more Priority Customer orders,
leading to increased liquidity on the Exchange to the benefit of all
market participants by providing more trading opportunities and tighter
spreads.
[[Page 78925]]
Proposal To Establish the Step-Up Maker Rebate for Market Maker Orders
in Non-Penny Classes
The Exchange believes its proposal to establish the Step-Up Maker
Rebate will not impose any burden on intra-market competition because
it provides all Market Makers with an additional incentive to achieve a
certain volume threshold on the Exchange in Non-Penny Classes. The
Exchange believes that this may encourage Market Makers to add more
liquidity in Non-Penny Classes, thereby promoting price discovery and
contributing to a deeper and more liquid market, which benefits all
market participants and enhances the attractiveness of the Exchange as
a trading venue. Again, the Exchange believes that this proposed change
promotes competition to the benefit of all market participants on the
Exchange, particularly in Non-Penny Classes, which are traditionally
less liquid. The resulting increased volume and liquidity in Non-Penny
Classes may benefit all Exchange participants by providing more trading
opportunities and tighter spreads in option classes that are typically
less liquid.
The Exchange also believes that using a baseline for added
liquidity in Non-Penny Classes of 0.00% of TCV for market participants
that become Market Makers of the Exchange after July 2024 for the
purpose of the Step-Up Maker Rebate calculation will incentivize new
market participants to trade on the Exchange and become Market Makers.
In turn, this may add to price discovery, enhance liquidity and market
quality, and contribute to a more robust and well-balanced market
ecosystem on the Exchange to the benefit of all Members and market
participants. Greater liquidity benefits all Members by providing more
trading opportunities and encourages Members to send additional orders
to the Exchange, thereby contributing to robust levels of liquidity,
which benefits all market participants. As described above, the
opportunity to qualify for the proposed new Step-Up Maker Rebate will
continue to be available to all Market Makers that meet the associated
volume requirement. As such the Exchange does not believe the proposed
changes would impose any burden on intra-market competition that is not
necessary or appropriate in furtherance of the purpose of the Act.
Proposal To Remove Certain Footnotes and Alternative Volume Criteria
The Exchange believes its proposal to remove the alternative volume
criteria and corresponding footnotes described above that are
applicable to executions of orders for the Market Maker and
Professional Member origins will not impose any burden on intra-market
competition. Each of these alternative volume criteria were established
in order to attract Market Maker and Professional Member order flow.
Based on the Exchange's recent internal review and analysis of fees and
rebates, the Exchange believes its standard volume calculation methods
(and the two remaining alternative volume calculation methods for tier
2 of the Marker Maker origin) remain highly competitive such that they
should enable the Exchange to continue to attract Market Maker and
Professional Member order flow.
The Exchange believes these proposed changes do not impose any
burden on intra-market competition because no Member has recently
achieved any of the three alternative volume calculation methods that
the Exchange proposes to remove from the Fee Schedule. As such, no
Member will currently be impacted by the removal of these alternative
volume calculation methods.
Inter-Market Competition
The Exchange does not believe that the proposed changes will impose
any burden on inter-market competition and 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. There are currently 18 registered
options exchanges competing for order flow. Based on publicly-available
information, and excluding index-based options, no single exchange had
more than approximately 14-15% of the multiply-listed equity options
market share for the month of July 2024.\34\ Therefore, no exchange
possesses significant pricing power. More specifically, the Exchange
had a market share of approximately 3.45% of executed volume of
multiply-listed equity options for the month of July 2024.\35\
---------------------------------------------------------------------------
\34\ See supra note 28.
\35\ See id.
---------------------------------------------------------------------------
In such an environment, the Exchange must continually adjust its
rebates and tiers to remain competitive with other options exchanges.
Because competitors are free to modify their own fees and tiers 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
tiers and rebates 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,\36\ and Rule 19b-4(f)(2) \37\ 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.
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78s(b)(3)(A)(ii).
\37\ 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#98eaedf4fdb5fbf7f5f5fdf6ecebd8ebfdfbb6fff7ee"><span class="__cf_email__" data-cfemail="d1a3a4bdb4fcb2bebcbcb4bfa5a291a2b4b2ffb6bea7">[email protected]</span></a>. Please include
file number SR-PEARL-2024-44 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-2024-44. 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
[[Page 78926]]
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-PEARL-2024-44 and should be submitted on
or before October 17, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
---------------------------------------------------------------------------
\38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-22025 Filed 9-25-24; 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 September 26, 2024.
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.