[Federal Register Volume 83, Number 72 (Friday, April 13, 2018)]
[Notices]
[Pages 16163-16168]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-07669]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83012; File No. SR-PEARL-2018-08]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Implement an 
Equity Rights Program

April 9, 2018.
    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, 2018, 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 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 implement an equity rights 
program.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl 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 implement an equity rights program 
(``Program'') pursuant to which units representing the right to acquire 
equity in the Exchange's parent holding company, Miami International 
Holdings, Inc. (``MIH'') would be issued to a participating Member in 
exchange for payment of an initial purchase price or the prepayment of 
certain ERP Exchange Fees \3\ and the achievement of certain liquidity 
volume thresholds on the Exchange over a 32-month period. The purpose 
of the Program is to promote the long-term interests of MIAX PEARL by 
providing incentives designed to encourage future MIH owners and MIAX 
PEARL market participants to contribute to the growth and success of 
MIAX PEARL, by being active liquidity providers and takers to provide 
enhanced levels of trading volume to MIAX PEARL's market, through an 
opportunity to increase their proprietary interests in MIAX PEARL's 
enterprise value.
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    \3\ The ERP Exchange fees consist of: (a) Transaction fees as 
set forth in Section 1)a of the MIAX PEARL Exchange Fee Schedule; 
(b) membership fees as set forth in Section 3 of the MIAX PEARL 
Exchange Fee Schedule; (c) system connectivity fees as set forth in 
Section 5 of the MIAX PEARL Exchange Fee Schedule; and (d) market 
data fees as set forth in Section 6 of the MIAX PEARL Exchange Fee 
Schedule (collectively, the ``ERP Exchange Fees'').
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    Members that participate in the Program will have two options to 
choose from: (i) An offering of I-Units; and/or (ii) an offering of J-
Units.\4\
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    \4\ The Program which provides equity-like consideration in 
exchange for market making or the provision of liquidity, order flow 
or volume is open to market participants generally. All MIAX PEARL 
Members may participate subject to their satisfaction of eligibility 
requirements. To be designated as a participant Member, an applicant 
must: (i) Be a Member in good standing of MIAX PEARL; (ii) qualify 
as an ``accredited investor'' as such term is defined in Regulation 
D of the Securities Act of 1933; and (iii) have executed all 
required documentation for Program participation. Members may elect 
to participate in either or both of the options. If either the I-
Unit or the J-Unit option is oversubscribed, the units in the 
oversubscribed option will be allocated on a pro-rata basis that may 
result in a fractional allocation.
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I-Units Option
    Members that participate in the I-Unit option of the Program will 
be issued for each unit (i) 31,870 shares of MIH common stock and (ii) 
warrants to purchase 384,474 shares of common stock of MIH in exchange 
for such participant Member's initial cash capital contribution of 
$215,122.50, and with such warrants being exercisable upon the 
achievement by the participating Member of certain volume thresholds on 
the Exchange during a 32-month measurement period commencing May 1, 
2018. A total of 2 I-Units will be offered. The total equity ownership 
of MIH common stock held by any one

[[Page 16164]]

participant Member will be subject to a cap of 19.9%.\5\
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    \5\ See Ninth Article (b)(i)(B), Amended and Restated 
Certificate of Incorporation of Miami International Holdings, Inc., 
effective October 16, 2015 (providing that no Exchange Member, 
either alone or together with its Related Persons, may own, directly 
or indirectly, of record or beneficially, shares constituting more 
than twenty percent (20%) of any class of capital stock of the 
Corporation). See also Ninth Article (b)(i)(C), Amended and Restated 
Certificate of Incorporation of Miami International Holdings, Inc., 
effective October 16, 2015 (providing that no Person, either alone 
or together with its Related Persons, at any time may, directly, 
indirectly or pursuant to any voting trust, agreement, plan or other 
arrangement, vote or cause the voting of shares of the capital stock 
of the Corporation or give any consent or proxy with respect to 
shares representing more than twenty percent (20%) of the voting 
power of the then issued and outstanding capital stock of the 
Corporation, nor may any Person, either alone or together with its 
Related Persons, enter into any agreement, plan or other arrangement 
with any other Person, either alone or together with its Related 
Persons, under circumstances that would result in the shares of 
capital stock of the Corporation that are subject to such agreement, 
plan or other arrangement not being voted on any matter or matters 
or any proxy relating thereto being withheld, where the effect of 
such agreement, plan or other arrangement would be to enable any 
Person, either alone or together with its Related Persons, to vote, 
possess the right to vote or cause the voting of shares of the 
capital stock of the Corporation which would represent more than 
twenty percent (20%) of said voting power.). Any purported transfer 
of shares or ownership of shares in violation of the ownership cap 
by a stockholder would be subject to the limitations of the 
Certificate of Incorporation, including the non-recognition of 
voting rights of shares in excess of the cap and a redemption right 
by MIH for excess shares. See also Ninth Article (d) and (e), 
Amended and Restated Certificate of Incorporation of Miami 
International Holdings, Inc., effective October 16, 2015.
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    The warrants will vest in seven (7) tranches: (i) One (1) tranche, 
upon initial investment; and (ii) six (6) tranches during a measurement 
period of months 1-32 of the Program. In addition, the participant 
Members may earn or lose the right to exercise warrants on a pro-rata 
basis based upon meeting volume commitments during the measurement 
periods, as detailed below.
    Upon the initial investment, the participant Member would receive 
common shares equal to 31,870 shares of the common stock and 10% of the 
warrants will vest. A participant Member will be eligible to earn the 
remaining warrants during measurement periods provided that the 
participant has achieved a specified percentage of the total national 
average daily volume of options contracts reported to The Options 
Clearing Corporation (``OCC'') (``OCC ADV'') on MIAX PEARL of all 
option classes listed on MIAX PEARL.\6\
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    \6\ If an options class is not listed on MIAX PEARL, then the 
trading volume in that options class will be omitted from the 
calculation of % OCC ADV. Priority Customer-to-Priority Customer 
Crossing transactions where no fees are paid to the Exchange, 
special strategies, and contracts as to which a Member acts solely 
as clearing agent will not be counted in the number of option 
contracts executed on the Exchange by any Member. (Incidental 
Priority Customer-to-Priority Customer transactions, that are not 
crossing transactions, will be counted in the number of options 
contracts executed on the Exchange by a Member.) Special strategies 
for the purpose of calculating trading volume include: (i) Dividend 
strategy; (ii) merger strategy; (iii) short stock interest strategy; 
(iv) reversal and conversion strategies; (v) jelly roll strategy; 
and (vi) similar strategies offered by an options exchange that are 
subject to a fee cap. Trading in special strategies currently is not 
available on MIAX PEARL. Special strategies will be omitted from the 
calculation of % OCC ADV to the extent it is possible to identify 
such transactions.
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    The remaining six (6) tranches, of 90% of the warrants, will vest 
during the following measurement periods: (i) 5.63% of the warrants 
resulting from months 1-2, with a volume commitment of 0.400% of OCC 
ADV on MIAX PEARL per I-Unit; \7\ (ii) 16.87% of the warrants resulting 
from months 3-8, with a volume commitment of 0.400% of OCC ADV on MIAX 
PEARL per I-Unit; (iii) 16.87% of the warrants resulting from months 9-
14, with a volume commitment of 0.400% of OCC ADV on MIAX PEARL per I-
Unit; (iv) 16.87% of the warrants resulting from months 15-20, with a 
volume commitment of 0.400% of OCC ADV on MIAX PEARL per I-Unit; (v) 
16.88% of the warrants resulting from months 21-26, with a volume 
commitment of 0.400% of OCC ADV on MIAX PEARL per I-Unit; and (vi) 
16.88% of the warrants resulting from months 27-32, with a volume 
commitment of 0.400% of OCC ADV on MIAX PEARL per I-Unit. If a 
participant Member reaches 100% of the volume commitment during a 
tranche's measurement period, the Member will earn 100% of the warrants 
applicable to such measurement period. If a participant Member reaches 
less than 100% but at least 70% of the volume commitment during a 
tranche's measurement period, the Member will earn a reduced amount of 
warrants on a pro-rata basis applicable to such measurement period. If 
a participant Member fails to reach a minimum of 70% of the volume 
commitment during a tranche's measurement period, the Member will lose 
all right to that tranche of warrants. Notwithstanding, in the event a 
participant Member has not satisfied the volume commitment for any one 
measurement period (other than measurement period 6), the participant 
Member will have an opportunity to vest those warrants if such 
participant Member applies a portion of the Member's over-performance 
from the measurement period immediately following the prior measurement 
period to ensure a minimum of 70% of the volume commitment in the prior 
period and in addition has satisfied the volume commitment for the 
measurement period immediately following. If a participant Member 
exceeds 100% of the volume commitment during a tranche's measurement 
period, the Member is able to earn, on a pro-rata basis, warrants not 
earned by other participant Members.
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    \7\ The first measurement period will begin on May 1, 2018 and 
end June 30, 2018. Therefore, May 1, 2018 through June 30, 2018 will 
count as months 1-2 for purposes of the measurement period.
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J-Units Option
    Members that participate in the J-Unit option of the Program will 
be issued for each unit warrants to purchase 416,344 shares of common 
stock of MIH in exchange for the prepayment of ERP Exchange Fees in the 
amount of $250,000 for the 32-month period commencing May 1, 2018, and 
with such warrants being exercisable upon the achievement by the 
participating Member of certain volume thresholds on the Exchange 
during a 32-month measurement period commencing May 1, 2018. A total of 
25 J-Units will be offered. The total equity ownership of MIH common 
stock held by any one participant Member will be subject to a cap of 
19.9%.
    The warrants will vest in six (6) tranches during the following 
measurement periods: (i) 6.25% of the warrants resulting from months 1-
2, with a volume commitment of 0.400% of OCC ADV on MIAX PEARL per J-
Unit; \8\ (ii) 18.75% of the warrants resulting from months 3-8, with a 
volume commitment of 0.400% of OCC ADV on MIAX PEARL per J-Unit; (iii) 
18.75% of the warrants resulting from months 9-14, with a volume 
commitment of 0.400% of OCC ADV on MIAX PEARL per J-Unit; (iv) 18.75% 
of the warrants resulting from months 15-20, with a volume commitment 
of 0.400% of OCC ADV on MIAX PEARL per J-Unit; (v) 18.75% of the 
warrants resulting from months 21-26, with a volume commitment of 
0.400% of OCC ADV on MIAX PEARL per J-Unit; and (vi) 18.75% of the 
warrants resulting from months 27-32, with a volume commitment of 
0.400% of OCC ADV on MIAX PEARL per J-Unit. If a participant Member 
reaches 100% of the volume commitment during any one tranche's 
measurement period, the Member will earn 100% of the warrants 
applicable to

[[Page 16165]]

such measurement period. If a participant Member reaches less than 100% 
but at least 70% of the volume commitment during a tranche's 
measurement period, the Member will earn a reduced amount of warrants 
on a pro-rata basis applicable to such measurement period. If a 
participant Member fails to reach a minimum of 70% of the volume 
commitment during the measurement period, the Member will lose all 
right to that tranche of warrants. Notwithstanding, in the event a 
participant Member has not satisfied the volume commitment for any one 
measurement period (other than measurement period 6), the participant 
Member will have an opportunity to vest those warrants if such 
participant Member applies a portion of the Member's over-performance 
from the measurement period immediately following the prior measurement 
period to ensure a minimum of 70% of the volume commitment in the prior 
period, and in addition has satisfied the volume commitment for the 
measurement periods immediately following. If a participant Member 
exceeds 100% of the volume commitment during any one tranche's 
measurement period, the Member is able to earn, on a pro-rata basis, 
warrants not earned by other participant Members.
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    \8\ The first measurement period will begin on May 1, 2018 and 
end June 30, 2018. Therefore, May 1, 2018 through June 30, 2018 will 
count as months 1-2 for purposes of the measurement period.
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    A participant Member will prepay the ERP Exchange Fees. Once a 
participant Member has prepaid ERP Exchange Fees for the 32-month 
period, each month the participant Member may execute contracts and 
accumulate such ERP Exchange Fees based on the prevailing MIAX PEARL 
Fee Schedule in effect at the time. Once a J-Unit participant Member 
has incurred ERP Exchange Fees whereby the total accumulated ERP 
Exchange Fees equal the prepaid amount of such ERP Exchange Fees, all 
subsequently incurred ERP Exchange Fees will be billed and collected at 
the appropriate rates as defined in the MIAX PEARL Fee Schedule.
Provisions Applicable to Both I-Units and J-Units
    A Member of the Exchange and its Affiliate as defined in the Fee 
Schedule of MIAX PEARL \9\ may together participate in the Program as 
follows. In order to participate in the Program with a participant 
Member an Appointed Market Maker or Appointed EEM must be designated as 
such as of April 27, 2018 pursuant to the procedure for appointing an 
Appointed Market Maker or Appointed EEM set forth in the MIAX PEARL Fee 
Schedule. An Appointed Market Maker or Appointed EEM may not otherwise 
be a participant Member of the Program. Notwithstanding the ability to 
change the designation of an Appointed Market Maker or Appointed EEM as 
set forth in the Fee Schedule of MIAX PEARL for MIAX PEARL Fee Schedule 
purposes, no such change in designation may be made for purposes of the 
Program and any designation of an Appointed Market Maker or Appointed 
EEM as of April 27, 2018 shall remain in effect for purposes of the 
Program for the duration of the Program.\10\ An Affiliate of a Member 
with at least 75% common ownership between the firms as reflected on 
each firm's Form BD, Schedule A (a ``Corporate Affiliate''), is not 
required to follow the procedure set forth on the MIAX PEARL Fee 
Schedule for designation of an Appointed Market Maker or Appointed EEM 
and will together be deemed a participant Member in the Program for so 
long as it maintains such corporate affiliation with the other Member. 
Alternatively, a Corporate Affiliate of a Member may directly join the 
Program and be a separate participant Member of the Program. Volume 
thresholds and other aspects of the Program may be met by the Member 
and its Affiliate who will together constitute a participant Member in 
the Program. In the case where a Member and its Corporate Affiliate 
separately joined the Program as participant Members volume thresholds 
and other aspects of the Program must be met separately by the Member 
and its Corporate Affiliate.
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    \9\ For purposes of the MIAX PEARL Fee Schedule, 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, (``Affiliate''), 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 
[email protected] 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 MIAX PEARL Fee Schedule Definitions.
    \10\ A participant Member who changes a designation of an 
Appointed Market Maker or Appointed EEM during the Program will be 
effective with respect to transactions on the Exchange other than 
the Program.
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    Each participant Member will have a standard piggyback registration 
right to include the common shares and the common shares issuable upon 
exercise of the warrants should MIH file a Registration Statement under 
the Securities Act of 1933. Each participant Member will also have the 
right to participate pro rata in all future offerings of MIH securities 
for so long as the participant Member holds at least 51% of the common 
shares purchased by the participating Member directly or issuable upon 
the exercise of warrants included in at least one J-Unit. MIH will have 
the right of first refusal to purchase any common shares or warrant 
shares that a participant Member decides to transfer or sell. Other 
participant Members will have the secondary right of first refusal to 
purchase any common shares or warrant shares that a participant Member 
decides to transfer or sell.
    All applicants will be subject to the same eligibility and 
designation criteria, and all participant Members will participate in 
the Program on the same terms, conditions and restrictions. To be 
designated as a participant Member, an applicant must: (i) Be a Member 
in good standing of MIAX PEARL; (ii) qualify as an ``accredited 
investor'' as such term is defined in Regulation D of the Securities 
Act of 1933; \11\ and (iii) have executed all required documentation 
for Program participation. Participant Members must have executed the 
definitive documentation, satisfied the eligibility criteria required 
of Program participants enumerated above, and tendered the minimum cash 
investment or prepayment of fees by April 27, 2018, with a closing to 
occur on April 30, 2018.
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    \11\ The purpose of this criterion relates to the ability of MIH 
to sell shares of common stock pursuant to an exemption from 
registration under the Securities Act of 1933. The definition of 
``accredited investor'' under Rule 501(a)(1) of the Securities Act 
of 1933 includes any broker or dealer registered pursuant to Section 
15 of the Act. MIAX PEARL Rule 200(b) requires a Member to be 
registered as a broker or dealer pursuant to Section 15 of the Act, 
therefore all MIAX PEARL Members will satisfy this criterion.
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    As discussed above, the purpose of the Program is to encourage 
Members to direct greater trade volume to MIAX

[[Page 16166]]

PEARL to enhance trading volume in MIAX PEARL's market. Increased 
volume will provide for greater liquidity and enhanced price discovery, 
which benefits all market participants. Other exchanges have engaged in 
the practice of incentivizing increased order flow in order to attract 
liquidity providers through equity sharing arrangements.\12\ In 
addition, Miami International Securities Exchange, LLC (``MIAX 
Options''), an affiliate of the Exchange, previously adopted 
substantially similar programs to incentivize increased order flow in 
order to attract liquidity providers through an equity sharing 
arrangement.\13\ The Program similarly intends to attract order flow, 
which will increase liquidity, thereby providing greater trading 
opportunities and tighter spreads for other market participants and 
causing a corresponding increase in order flow from these other market 
participants. The Program will similarly reward the liquidity providers 
that provide this additional volume with a potential proprietary 
interest in MIAX PEARL.
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    \12\ See, e.g., Securities Exchange Act Release Nos. 62358 (June 
22, 2010), 75 FR 37861 (June 30, 2010) (SR-NSX-2010-06); 64742 (June 
24, 2011), 76 FR 38436 (June 30, 2011) (SR-NYSEAmex-2011-018); 69200 
(March 21, 2013), 78 FR 18657 (March 27, 2013) (SR-CBOE-2013-31); 
74114 (January 22, 2015), 80 FR 4611 (January 28, 2015) (SR-BOX-
2015-03); and 74576 (March 25, 2015), 80 FR 17122 (March 31, 2015) 
(SR-BOX-2015-16).
    \13\ See Securities Exchange Act Release Nos. 70498 (September 
25, 2013), 78 FR 60348 (October 1, 2013) (SR-MIAX-2013-43); 74095 
(January 20, 2015), 80 FR 4011 (January 26, 2015) (SR-MIAX-2015-02); 
74225 (February 12 [sic], 2015), 80 FR 7897 (February 12, 2015) (SR-
MIAX-2015-05); and 80909 (June 12, 2017), 82 FR 27743 (June 16, 
2017) (SR-MIAX-2017-28).
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    The specific volume thresholds of the Program's measurement periods 
were set based upon business determinations and analysis of current 
volume levels. The volume thresholds are intended to incentivize firms 
to increase the number of orders that are sent to MIAX PEARL to achieve 
the next threshold. Increasing the number of orders that are sent to 
MIAX PEARL will in turn provide tighter and more liquid markets, and 
therefore attract more business as well.
    The Exchange's proposal to include certain non-transaction fees 
within the definition of ERP Exchange Fees and thus render them 
eligible for prepayment under the Program is designed to offer broader 
Member participation in the Program. Since the Exchange operates with a 
maker-taker pricing structure, Members that are only ``makers'' on the 
Exchange could receive significant transaction rebates on a monthly 
basis, which could obviate the need to pre-pay transaction fees under 
the Program. However, by including certain regular, monthly recurring 
non-transaction fees as eligible for prepayment under the Program, the 
Exchange believes that it is creating an incentive for Members that 
conduct this type of business on the Exchange to participate in the 
Program, thereby broadening the number of Members that could 
potentially participate in the Program.
    Finally, the Exchange notes that it is not proposing to offer 
participant Members the right to appoint a director or an observer to 
the MIH Board and/or the MIAX PEARL Board when a participating Member 
acquires a certain number of units, which is different than the 
programs that MIAX Options has offered its Members in the past.\14\ The 
Exchange believes that, for business reasons, such a right is not a 
relevant component for this Program, and thus has determined not to 
include such a right.
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    \14\ Id.
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    MIAX PEARL will initiate the measurement period on May 1, 2018. The 
Exchange will notify Members of the implementation of the Program and 
the dates of the enrollment period by Regulatory Circular, and will 
post a copy of this rule filing on its website. Any MIAX PEARL Member 
that is interested in participating in the Program may contact MIAX 
PEARL for more information and legal documentation and will be required 
to enter into a nondisclosure agreement regarding this additional 
Program information.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \15\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \16\ in particular, 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) of the Act \17\ requirement that the rules of an 
exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. The Exchange also believes the 
proposed rule change is consistent with Section 6(b)(4) of the Act,\18\ 
which requires that Exchange rules provide for the equitable allocation 
of reasonable dues, fees, and other charges among its members and other 
persons using its facilities.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 15 U.S.C. 78f(b)(4).
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    In particular, the proposed rule change is equitable and not 
unfairly discriminatory, because all Members may elect to participate 
(or elect to not participate) in the Program and earn units on the same 
terms and conditions, assuming they satisfy the same eligibility 
criteria as described above. The eligibility criteria are objective; 
thus, all Members have the ability to satisfy them. The Board also has 
authorized MIAX PEARL to offer common shares in MIH to any Member that 
requests designation to participate in the Program and otherwise 
satisfies the eligibility criteria to ensure that all Members will have 
the opportunity to own common shares and thus participate in the 
Program if they so choose. In addition, participant Members will earn 
warrants on a pro-rata basis upon meeting fixed volume threshold 
amounts during the measurement periods that will apply to all 
participant Members.
    The Exchange believes that the methodology used to calculate the 
volume thresholds is fair, reasonable and not unfairly discriminatory 
because it is based on objective criteria that are designed to omit 
from the calculation functionality that is not available on the 
Exchange and types of transactions that are subject to little or no 
transaction fees. Specifically, the Exchange believes excluding 
Priority Customer-to-Priority Customer Crossing transactions where no 
fees are paid to the Exchange, special strategies, and contracts as to 
which a Member acts solely as clearing agent from the number of option 
contracts executed on the Exchange by any Member is reasonable and not 
unfairly discriminatory because participating Members could otherwise 
game the volume thresholds by executing excess volumes in these types 
of transactions in which either no transaction fees are charged on the 
Exchange, or the transaction is subject to a fee cap. The Program is 
designed to reward participating Members for bringing their orders and 
quotes to the Exchange to be executed on the Exchange. The Exchange 
believes it is appropriate to exclude special strategies from the OCC 
volume calculation since those transactions are not executed on the 
Exchange. The Exchange believes that omitting clearing only 
transactions from

[[Page 16167]]

the calculation to be fair and reasonable because the fact that a 
Member is clearing a trade is coincidental to the choice of where to 
execute that trade. And, because clearing only transactions are not 
executed on MIAX PEARL, they do not fall within the intended 
transactions that qualify for the Program. In addition, if the Exchange 
were to reward the party clearing a trade, the Exchange would possibly 
be double counting that trade--once for the executing party and once 
for the clearing party. Furthermore, the Exchange believes that 
counting incidental Priority Customer-to-Priority Customer 
transactions, which are not crossing transactions, in the number of 
options contracts executed on the Exchange by a Member is fair and 
reasonable because in these situations the Priority Customer is not 
necessarily choosing to execute against another Priority Customer in 
order to avoid a transaction fee.
    The Exchange believes that its proposal to allow Affiliates to 
participate in the Program is fair, reasonable and not unfairly 
discriminatory because it is being offered to all Members of the 
Exchange on the same terms and conditions. The Exchange believes that 
allowing both traditional Corporate Affiliates and also Appointed 
Market Makers and Appointed EEMs to participate in the Program is 
reasonable and appropriate because it will provide those participants 
with a potentially greater opportunity to achieve the volume thresholds 
in the Program. Also, the Exchange believes that allowing Appointed 
Market Makers and Appointed EEMs to participate in the Program expands 
access to the Program to Members that might not otherwise, individually 
on their own, participate in the Program, which will benefit all market 
participants by providing greater liquidity on the Exchange, all of 
which perfects the mechanism for a free and open market and national 
market system.
    The Exchange believes the Program is equitable and reasonable 
because an increase in volume and liquidity would benefit all market 
participants by providing more trading opportunities and tighter 
spreads, even to those market participants that do not participate in 
the Program. Additionally, the Exchange believes the proposed rule 
change is consistent with the Act because, as described above, the 
Program is designed to bring greater volume and liquidity to the 
Exchange, which will benefit all market participants by providing 
tighter quoting and better prices, all of which perfects the mechanism 
for a free and open market and national market system.

B. Self-Regulatory Organization's Statement on Burden on Competition

    MIAX PEARL does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that the 
proposed rule change will improve competition by providing market 
participants with another option when determining where to execute 
orders and post liquidity.
    The Exchange believes that the proposed change would increase both 
intermarket and intramarket competition by incenting participant 
Members to direct their orders to the Exchange, which will enhance the 
quality of quoting and increase the volume of contracts traded here. To 
the extent that there is an additional competitive burden on non-
participant Members, the Exchange believes that this is appropriate 
because the Program should incent Members to direct additional order 
flow to the Exchange and thus provide additional liquidity that 
enhances the quality of its markets and increases the volume of 
contracts traded here. To the extent that this purpose is achieved, all 
of the Exchange's market participants should benefit from the improved 
market liquidity. Enhanced market quality and increased transaction 
volume that results from the anticipated increase in order flow 
directed to the Exchange will benefit all market participants and 
improve competition on the Exchange.
    Given the robust competition for volume among options markets, many 
of which offer the same products, implementing a program to attract 
order flow like the one being proposed in this filing is consistent 
with the above-mentioned goals of the Act. This is especially true for 
the smaller options markets, such as MIAX PEARL, which is competing for 
volume with much larger exchanges that dominate the options trading 
industry. MIAX PEARL has a modest percentage of the average daily 
trading volume in options, so it is unlikely that the Program could 
cause any competitive harm to the options market or to market 
participants. Rather, the Program is an attempt by a small options 
market to attract order volume away from larger competitors by adopting 
an innovative pricing strategy, as evidenced by the volume thresholds 
of the Program that represent fractions of 1% of OCC ADV. The Exchange 
notes that if the Program resulted in a modest percentage increase in 
the average daily trading volume in options executing on MIAX PEARL, 
while such percentage would represent a large volume increase for MIAX 
PEARL, it would represent a minimal reduction in volume of its larger 
competitors in the industry. The Exchange believes that the Program 
will help further competition, because market participants will have 
yet another option in determining where to execute orders and post 
liquidity if they factor the benefits of MIAX PEARL equity 
participation into the determination. The Exchange notes that other 
exchanges have engaged in the practice of incentivizing increased order 
flow in order to attract liquidity providers through equity sharing 
arrangements.\19\ In addition, MIAX Options previously adopted 
substantially similar programs to incentivize increased order flow in 
order to attract liquidity providers through an equity sharing 
arrangement.\20\
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    \19\ See supra note 12.
    \20\ See supra note 13.
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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,\21\ and Rule 19b-4(f)(2) \22\ 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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    \21\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \22\ 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:

[[Page 16168]]

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-PEARL-2018-08 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-2018-08. 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 (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 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 10:00 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-PEARL-2018-08 and should be submitted on 
or before May 4, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\

Eduardo A. Aleman,
Assistant Secretary.
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    \23\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-07669 Filed 4-12-18; 8:45 am]
 BILLING CODE P


