
[Federal Register Volume 82, Number 76 (Friday, April 21, 2017)]
[Notices]
[Pages 18792-18795]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08058]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80468; File No. SR-PEARL-2017-18]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX 
PEARL Fee Schedule

April 17, 2017.
    Pursuant to the provisions of 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 April 6, 2017, MIAX PEARL, LLC (``MIAX PEARL'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX PEARL Fee 
Schedule (the ``Fee Schedule'').
    The Exchange initially filed the proposal on March 29, 2017 (SR-
PEARL-2017-14). That filing was withdrawn and replaced with the current 
filing (SR-PEARL-2017-18).
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/rule-filings/pearl 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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fee Schedule to permit Exchange 
Market Makers \3\ to appoint Electronic Exchange Members \4\ 
(``EEMs''), and vice versa, as ``Affiliates,'' solely for purposes of 
calculating transaction volume in order to qualify for certain 
transaction rebate and fee incentives under the Fee Schedule. The 
Exchange notes that this concept of appointment between market makers 
and order flow providers currently exists at a number of other 
exchanges, including Bats BZX Exchange, Inc. (``BATS''), Bats EDGX 
Exchange, Inc. (``EDGX''), Chicago Board Options Exchange, Incorporated 
(``CBOE''), NYSE Amex Options LLC (``Amex Options''), and NASDAQ PHLX 
LLC (``PHLX''), as more fully discussed below.
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    \3\ 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 the Exchange's Rules. 
See Exchange Rule 100.
    \4\ The term ``Electronic Exchange Member'' or ``EEM'' means the 
holder of a Trading Permit who is a Member representing as agent 
Public Customer Orders and Non-Customer Orders on the Exchange and 
those non-Market Maker Members conducting proprietary trading. EEMs 
are deemed ``members'' under the Exchange Act. See Exchange Rule 
100.
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    In order for the Exchange to implement this concept of appointment, 
the Exchange proposes to amend the definition of ``Affiliate'' 
contained in the Definitions section of the Fee Schedule. The 
definition of ``Affiliate'' currently reads:
    ``Affiliate'' means an affiliate of a Member of at least 75% common 
ownership between the firms as reflected on each firm's Form BD, 
Schedule A.

The Exchange proposes to amend the definition so that it instead reads:
    ``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 membership@miaxoptions.com 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.
    The purpose of the proposed rule change is to increase 
opportunities for EEMs and Market Makers, who do not otherwise have a 
corporate affiliation based upon common ownership with a MIAX PEARL 
Market Maker or EEM, as the case may be, to potentially qualify for 
tiered pricing incentives on the Exchange. Specifically, the Exchange 
proposes to allow a MIAX PEARL Market Maker to designate an EEM as its 
``Appointed EEM'' and for an EEM to designate a MIAX PEARL Market Maker

[[Page 18793]]

as its ``Appointed Market Maker'' for purposes of Section 1(a) of the 
Fee Schedule. Members of the Exchange would effectuate such designation 
by completing and sending an executed Volume Aggregation Request Form 
by email to the Exchange no later than 2 business days prior to the 
first business day of the month in which the designation is to become 
effective.\5\ As specified in the proposed Fee Schedule, the Exchange 
would view the transmittal of the validly completed and executed form 
along with the Exchange's acknowledgement of the effective designation 
as acceptance of such an appointment.\6\ The proposed new concepts 
would be applicable to all tiered pricing offered by the Exchange in 
Section 1(a) of the Fee Schedule, and are designed to increase 
opportunities for Members to qualify for such tiers.
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    \5\ Members should direct their executed forms to 
membership@miaxoptions.com.
    \6\ The Exchange further notes that, as proposed, the Exchange 
would only recognize one such designation for each party once every 
12 months (from the date of its most recent designation), which 
designation would 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 party indicating that the 
appointment has been terminated.
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    The Exchange currently offers tiers of rebates and fees as 
described in Section 1(a) of the Fee Schedule. Under the current tiers, 
Members that achieve certain volume criteria may qualify for reduced 
fees or enhanced rebates for various executions, including executions 
of Priority Customer \7\ and Market Maker orders. In connection with 
such tiers, the Exchange calculates on a monthly basis a Member's 
volume in the applicable category (e.g., Priority Customer orders or 
Market Maker orders), as specified in the Fee Schedule for each 
applicable transaction.\8\ For example, upon reaching a volume 
threshold that qualifies a Member for a specified tier under the Add/
Remove Tiered Rebates/Fees scale, a Member receives the enhanced rebate 
or reduced fee associated with the tier achieved for each eligible 
contract executed within that tier on the Exchange.
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    \7\ 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).
    \8\ For example, under Section 1(a), volume thresholds are 
calculated based on the total monthly volume executed by the Member 
on MIAX PEARL in the relevant Origin type, not including Excluded 
Contracts, (as the numerator) expressed as a percentage of (divided 
by) TCV (as the denominator). The per contract transaction rebates 
and fees shall be applied retroactively to all eligible volume once 
the threshold has been reached by Member. The Exchange aggregates 
the volume of Members and their Affiliates in the Add/Remove Tiered 
Fees. ``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). ``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. 
``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. See the Definitions Section 
of the Fee Schedule.
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    Under the Exchange's current Fee Schedule, a Member is permitted to 
aggregate volume with a Member's ``Affiliates'', which are defined as 
firms that have at least 75% common ownership with the Member as 
reflected on each firm's Form BD, Schedule A.\9\ Thus, Members that act 
as EEMs with affiliated broker-dealers that are Market Makers on the 
Exchange, and vice-versa, may be able to potentially qualify for 
certain pricing incentives offered by the Exchange based on such 
affiliation and aggregation.
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    \9\ See the definition of ``Affiliate'' in the Definitions 
section of the Fee Schedule.
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    The Exchange proposes that all MIAX PEARL Market Makers who do not 
otherwise have a corporate affiliation based upon common ownership with 
an EEM (whether in the same broker-dealer or in a separate broker-
dealer) would be able to appoint an EEM to aggregate its volume for 
purposes of reaching tier thresholds under the Fee Schedule, and 
conversely, all EEMs who do not otherwise have a corporate affiliation 
based upon common ownership with a MIAX PEARL Market Maker (whether in 
the same broker-dealer or in a separate broker-dealer) could appoint a 
MIAX PEARL Market Maker for the same purposes.\10\ The proposal would 
be available to all MIAX PEARL Market Makers and EEMs, except for those 
MIAX PEARL Market Makers who otherwise have a corporate affiliation 
based upon common ownership with an EEM (and vice versa). The proposed 
change would enable a MIAX PEARL Market Maker without an affiliated EEM 
to enter into a relationship with an Appointed EEM. By virtue of 
designating an Appointed Market Maker, an EEM benefits by establishing 
an execution relationship with a MIAX PEARL Market Maker that may 
potentially provide greater liquidity to trade with its own Priority 
Customer volume. To be clear, the Exchange notes that an EEM that has a 
corporate affiliation based upon common ownership with a MIAX PEARL 
Market Maker may only aggregate volumes with its corporate-affiliated 
MIAX PEARL Market Maker, and not with any other MIAX PEARL Market 
Maker. Further, MIAX PEARL Market Makers that have multiple Market 
Maker memberships which are already aggregated by the Exchange for 
purposes of qualifying the Member for tiered pricing incentives will be 
treated as a single entity.
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    \10\ The Commission notes that the Exchange calculates on a 
monthly basis a Member's volume in the applicable category (e.g., 
Priority Customer orders or Market Maker orders), as specified in 
the Fee Schedule for each applicable transaction. See supra note 8 
and accompanying text.
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    Thus, the proposed changes would enable Members that may not 
currently qualify for tiered pricing incentives to potentially avail 
themselves of such incentives, as well as to assist Members to 
potentially achieve a higher tier, thus qualifying for higher rebates 
or reduced transaction fees. The Exchange believes these proposed 
changes would incentivize Members to direct their order flow to the 
Exchange to the benefit of all market participants. Further, the 
Exchange believes that the proposed changes would encourage MIAX PEARL 
Market Makers to increase their participation on the Exchange, which 
would increase capital commitment and liquidity on the Exchange to the 
benefit of all market participants.
    As proposed, the Exchange will only recognize one such designation 
for each party once every 12 months (from the date of its most recent 
designation), which designation would remain in effect unless or until 
the parties informed the Exchange of its termination.\11\ The Exchange 
believes that this requirement would impose a measure of exclusivity 
and would enable both parties to rely upon each other's transaction 
volumes executed on the Exchange, and potentially increase such 
volumes, which is beneficial to all Exchange participants. Other 
exchanges have adopted similar concepts and permit their market makers 
and order flow providers to appoint one another for purposes of volume 
aggregation to reach higher volume tier thresholds.\12\
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    \11\ See supra note 6.
    \12\ See Securities Exchange Act Release Nos. 77524 (April 5, 
2016), 81 FR 21417 (April 11, 2016) (SR-BatsBZX-2016-04); 77526 
(April 5, 2016), 81 FR 21405 (April 11, 2016) (SR-BatsEDGX-2016-05); 
77926 (May 26, 2016), 81 FR 35421 (June 2, 2016) (SR-CBOE-2016-045); 
78382 (July 21, 2016), 81 FR 49293 (July 27,2016) (SR-Phlx-2016-62).
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2. Statutory Basis
    MIAX PEARL believes that its proposal to amend its Fee Schedule is

[[Page 18794]]

consistent with Section 6(b) of the Act \13\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act,\14\ 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 
6(b)(5) of the Act,\15\ 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.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
    \15\ 15 U.S.C. 78f(b)(1) and (b)(5).
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    The Exchange believes that its proposed fees and rebates are 
reasonable, fair and equitable, and non-discriminatory for the 
following reasons. First, the proposal would be available to all MIAX 
PEARL Market Makers and EEMs (except for those MIAX PEARL Market Makers 
who otherwise have a corporate affiliation based upon common ownership 
with an EEM (and vice versa)), and the decision to be designated as an 
``Appointed EEM'' or ``Appointed Market Maker'' is completely voluntary 
and Members may elect to accept this appointment or not. Excluding 
Members that have a corporate affiliation by common ownership from also 
appointing other Members as ``Affiliates'' is equitable and not 
unfairly discriminatory because those Members are already eligible to 
aggregate volume and thus potentially qualify for tiered pricing 
incentives. In addition, the proposed changes would enable Members that 
are not able to achieve tiered pricing incentives to potentially avail 
themselves of such pricing as well as to assist Members that are 
currently able to achieve such tiers to potentially achieve a higher 
tier, thus qualifying for higher rebates or lower fees. The Exchange 
believes these proposed changes would incentivize Members to direct 
their order flow to the Exchange. Specifically, the proposed changes 
would enable any MIAX PEARL Market Maker (except for those MIAX PEARL 
Market Makers who otherwise have a corporate affiliation based upon 
common ownership with an EEM) to qualify its Appointed EEM for purposes 
of potential tiered pricing incentives. Moreover, the proposed change 
would allow any EEM (except for those EEMs who otherwise have a 
corporate affiliation based upon common ownership with a MIAX Market 
Maker), by virtue of designating an Appointed Market Maker, to 
establish an execution relationship with a MIAX Market Maker that may 
potentially provide greater liquidity to trade with its own volume, 
including Priority Customer volume. The Exchange believes these 
proposed changes would incentivize Appointed EEMs with an Appointed 
Market Maker to direct their order flow to the Exchange, which would 
result in an increase in orders routed to the Exchange which in turn 
would benefit all market participants by expanding liquidity and 
providing more trading opportunities on the Exchange. Similarly, the 
Exchange believes these proposed changes would incentivize Appointed 
Market Makers with an Appointed EEM to increase their participation on 
the Exchange, which would increase capital commitment and liquidity and 
decrease spreads on the Exchange to the benefit of all market 
participants. The Exchange believes that, similar to volume-based tiers 
offered by the Exchange, the benefits of the proposal extend to all 
market participants based on the increased quality of liquidity on the 
Exchange, including those market participants that opt not to become an 
Appointed EEM or Appointed Market Maker.
    Further, the Exchange believes that the proposal is reasonable and 
equitably allocated because it is beneficial to all Exchange 
participants based on the fact that it enables parties to rely upon 
each other's transaction volumes executed on the Exchange, and 
potentially increase such volumes. In turn, as above, the potential 
increase in order flow, capital commitment and resulting liquidity on 
the Exchange would benefit all market participants by expanding 
liquidity, providing more trading opportunities and tighter spreads. 
The proposal is also reasonable, equitable and not unfairly 
discriminatory because the Exchange would only recognize one such 
designation for each party once every 12 months (from the date of its 
most recent designation), which requirement would impose a measure of 
exclusivity while allowing both parties to rely upon each other's 
transaction volumes executed on the Exchange, and potentially increase 
such volumes, again, to the benefit of all market participants. 
Finally, the Exchange believes the proposal is reasonable, equitable 
and not unfairly discriminatory and facilitates trading as it may 
encourage an increase in orders routed to the Exchange, which would 
expand liquidity and provide more trading opportunities and tighter 
spreads to the benefit of all market participants, even to those market 
participants that are either currently affiliated by virtue of their 
common ownership or that opt not to become an Appointed EEM or 
Appointed Market Maker under this proposal. Other exchanges have 
adopted similar concepts.\16\
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    \16\ See supra note 12.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed amendments to its 
fee schedule will impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
believes that the proposed changes are pro-competitive as they would 
increase opportunities for MIAX PEARL Market Makers and EEMs (who do 
not otherwise have a corporate affiliation based upon common ownership 
with an EEM, and MIAX PEARL Market Maker, respectively) to potentially 
qualify for tiered pricing incentives on the Exchange, which may 
increase intermarket and intramarket competition by incentivizing 
participants to direct their orders to the Exchange thereby increasing 
the volume of contracts traded on the Exchange. Enhanced market quality 
and increased transaction volume that results from the anticipated 
increase in order flow directed to the Exchange would benefit all 
market participants and improve competition on the Exchange. The 
Exchange notes that it operates in a highly competitive market in which 
market participants can readily favor competing venues. In such an 
environment, the Exchange must continually review, and consider 
adjusting, its fees and rebates to remain competitive with other 
exchanges. For the reasons described above, the Exchange believes that 
the proposed rule change reflects this competitive environment.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\17\ and Rule 19b-4(f)(2) \18\ thereunder. 
At any time

[[Page 18795]]

within 60 days of the filing of the proposed rule change, the 
Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-PEARL-2017-18 on the subject line.

Paper Comments

     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-2017-18. 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 Web site (http://www.sec.gov/rules/sro.shtml). 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 Web site 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 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-PEARL-2017-18, and should be 
submitted on or before May 12, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2017-08058 Filed 4-20-17; 8:45 am]
BILLING CODE 8011-01-P


