[Federal Register Volume 83, Number 196 (Wednesday, October 10, 2018)]
[Notices]
[Pages 51022-51026]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21922]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84358; File No. SR-PEARL-2018-19


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
of a Proposed Rule Change To Amend the Fee Schedule Regarding 
Connectivity Fees for Members and Non-Members; Suspension of and Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove 
the Proposed Rule Change

October 3, 2018.
    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 18, 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 and II 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 and is, pursuant to Section 19(b)(3)(C) of the Act, hereby: (i) 
Temporarily suspending the proposed rule change; and (ii) instituting 
proceedings to determine whether to approve or disapprove the proposed 
rule change.
---------------------------------------------------------------------------

    \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 Fee 
Schedule (the ``Fee Schedule'') to modify certain of the Exchange's 
system connectivity fees.
    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 Description of 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 the Fee Schedule regarding 
connectivity to the Exchange. Specifically, the Exchange proposes to 
amend Sections 5(a) and (b) of the Fee Schedule to increase the network 
connectivity fees for the 1 Gigabit (``Gb'') fiber connection, the 10Gb 
fiber connection, and the 10Gb ultra-low latency (``ULL'') fiber 
connection, which are charged to both Members \3\ and non-Members of 
the Exchange for connectivity to the Exchange's primary/secondary 
facility. The Exchange also proposes to increase the network 
connectivity fees for the 1Gb and 10Gb fiber connections for 
connectivity to the Exchange's disaster recovery facility. These 
proposed fee increases are collectively referred to herein as the 
``Proposed Fee Increases.''
---------------------------------------------------------------------------

    \3\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of the 
Exchange's 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 Exchange Rule 100.
---------------------------------------------------------------------------

    The Exchange initially filed the Proposed Fee Increases on July 31, 
2018, designating the Proposed Fee Increases effective August 1, 
2018.\4\ The proposed rule change was published for comment in the 
Federal Register on August 13, 2018.\5\ The Commission received one 
comment letter on the proposal.\6\ The Proposed Fee Increases remained 
in effect until they were temporarily suspended pursuant to a 
suspension order (the ``Suspension Order'') issued by the 
Commission.\7\ The Suspension Order also instituted proceedings to 
determine whether to approve or disapprove the proposed rule change.\8\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 83785 (August 7, 
2018), 83 FR 40101 (August 13, 2018)(SR-PEARL-2018-16).
    \5\ Id.
    \6\ See Letter from Tyler Gellasch, Executive Director, The 
Healthy Markets Association, to Brent J. Fields, Secretary, 
Commission, dated September 4, 2018 (``Healthy Markets Letter'').
    \7\ See Securities Exchange Act Release No. 34-84177 (September 
17, 2018).
    \8\ Id.
---------------------------------------------------------------------------

    The Healthy Markets Letter argued that the Exchange did not provide 
sufficient information in its filing to support a finding that the 
proposal is consistent with the Act. Specifically, the Healthy Markets 
Letter objected to the Exchange's reliance on the fees of other 
exchanges to demonstrate that its fee increases are consistent with the 
Act. In addition, the Healthy Markets Letter argued that the Exchange 
did not offer any details to support its basis for asserting that the 
proposed fee increases are consistent with the Act. The Exchange is now 
re-filing the Proposed Fee Increases, and is also providing additional 
detail regarding the basis for the Proposed Fee Increases. The proposed 
rule change is immediately effective upon filing with the Commission 
pursuant to Section 19(b)(3)(A) of the Act.
    The Exchange currently offers various bandwidth alternatives for 
connectivity to the Exchange, consisting of a 1Gb fiber connection, a 
10Gb fiber connection, and a 10Gb ULL fiber connection. The 10Gb ULL 
offering uses an ultra-low latency switch, which provides faster 
processing of messages sent to it in comparison to the switch used for 
the other types of connectivity. The Exchange currently assesses the 
following monthly network connectivity fees to both Members and non-
Members for connectivity to the Exchange's primary/secondary facility: 
(a) $1,100 for the 1Gb connection; (b) $5,500 for the 10Gb connection; 
and (c) $8,500.00 for the 10Gb ULL connection. The Exchange also 
assesses to both Members and non-Members a monthly per connection 
network connectivity fee of $500 for each 1Gb connection to the 
disaster recovery facility and a monthly per connection network 
connectivity fee of $2,500 for each 10Gb connection to the disaster 
recovery facility.
    The Exchange's MIAX Express Network Interconnect (``MENI'') can be 
configured to provide Members and non-Members of the Exchange network 
connectivity to the trading platforms,

[[Page 51023]]

market data systems, test systems, and disaster recovery facilities of 
both the Exchange and its affiliate, Miami International Securities 
Exchange (``MIAX Options''), via a single, shared connection. Members 
and non-Members utilizing the MENI to connect to the trading platforms, 
market data systems, test systems and disaster recovery facilities of 
the Exchange and MIAX Options via a single, shared connection are 
assessed only one monthly network connectivity fee per connection, 
regardless of the trading platforms, market data systems, test systems, 
and disaster recovery facilities accessed via such connection.
    The Exchange proposes to increase the monthly network connectivity 
fees for such connections for both Members and non-Members. The network 
connectivity fees for connectivity to the Exchange's primary/secondary 
facility will be increased as follows: (a) From $1,100 to $1,400 for 
the 1Gb connection; (b) from $5,500 to $6,100 for the 10Gb connection; 
and (c) from $8,500 to $9,300 for the 10Gb ULL connection. The network 
connectivity fees for connectivity to the Exchange's disaster recovery 
facility will be increased as follows: (a) From $500 to $550 for the 
1Gb connection; and (b) from $2,500 to $2,750 for the 10Gb connection.
    The Exchange believes that it is reasonable and appropriate to 
increase its fees charged for use of its connectivity to partially 
offset increased costs associated with maintaining and enhancing a 
state-of-the-art exchange network infrastructure in the U.S. options 
industry. The Exchange notes that other exchanges have similar 
connectivity alternatives for their participants, including similar 
low-latency connectivity. For example, Nasdaq PHLX LLC (``Phlx''), NYSE 
Arca, Inc. (``Arca''), NYSE American LLC (``NYSE American'') and Nasdaq 
ISE, LLC (``ISE'') all offer a 1Gb, 10Gb and 10Gb low latency ethernet 
connectivity alternatives to each of their participants.\9\ The 
Exchange further notes that Phlx, ISE, Arca and NYSE American each 
charge higher rates for such similar connectivity to primary and 
secondary facilities.\10\ Additionally, the Exchange's proposed 
connectivity fees to its disaster recovery facility are within the 
range of the fees charged by other exchanges for similar connectivity 
alternatives.\11\ The Exchange believes that it is reasonable and 
appropriate to increase its fees charged for use of its connectivity to 
partially offset increased costs associated with maintaining and 
enhancing a state-of-the-art exchange network infrastructure in the 
U.S. options industry.
---------------------------------------------------------------------------

    \9\ See Phlx and ISE Rules, General Equity and Options Rules, 
General 8, Section 1(b). Phlx and ISE each charge a monthly fee of 
$2,500 for each 1Gb connection, $10,000 for each 10Gb connection and 
$15,000 for each 10Gb Ultra connection, which the equivalent of the 
Exchange's 10Gb ULL connection. See also NYSE American Fee Schedule, 
Section V.B, and Arca Fees and Charges, Co-Location Fees. NYSE 
American and Arca each charge a monthly fee of $5,000 for each 1Gb 
circuit, $14,000 for each 10Gb circuit and $22,000 for each 10Gb LX 
circuit, which the equivalent of the Exchange's 10Gb ULL connection.
    \10\ Id.
    \11\ See Nasdaq ISE Schedule of Fees, IX(D) (charging $3,000 for 
disaster recovery testing & relocation services); see also Cboe 
Exchange, Inc. (``CBOE'') Fees Schedule, p. 14, Cboe Command 
Connectivity Charges (charging a monthly fee of $2,000 for a 1Gb 
disaster recovery network access port and a monthly fee of $6,000 
for a 10Gb disaster recovery network access port).
---------------------------------------------------------------------------

    In particular, the Exchange's increased costs associated with 
supporting its network are due to several factors, including increased 
costs associated with maintaining and expanding a team of highly-
skilled network engineers, increasing fees charged by the Exchange's 
third-party data center operator, and costs associated with projects 
and initiatives designed to improve overall network performance and 
stability, through the Exchange's R&D efforts. For example, the 
Exchange has had to hire additional network engineering staff in the 
last year, and plans to hire additional staff in the coming months. 
Further, the Exchange contracts with a third-party data center provider 
for its data center space. The Exchange does not operate its own data 
centers. Other exchange operators do operate their own data centers. 
Thus, they can better control data center costs. They also operate them 
as profit centers. Conversely, the Exchange is subject to fee increases 
from its data center provider, which the Exchange experienced in the 
last year. Further, the Exchange invests significant resources in 
network R&D to improve the overall performance and stability of its 
network. For example, the Exchange has a number of network monitoring 
tools (some of which were developed in-house, and some of which are 
licensed from third-parties), that continually monitor, detect, and 
report network performance, many of which serve as significant value-
adds to the Exchange's Members and enable the Exchange to provide a 
high level of customer service. These tools detect and report 
performance issues, and thus enable the Exchange to proactively notify 
a Member (and the SIPs) when the Exchange detects a problem with a 
Member's connectivity. The costs associated with the maintenance and 
improvement of existing tools and the development of new tools resulted 
in increased cost to the Exchange. Certain recently developed network 
aggregation and monitoring tools provide the Exchange with the ability 
to measure network traffic with a much more granular level of 
variability. This is important as Exchange Members demand a higher 
level of network determinism and the ability to measure variability in 
terms of single digit nanoseconds. Also, the Exchange routinely 
conducts R&D projects to improve the performance of the network's 
hardware infrastructure. As an example, in the last year, the 
Exchange's R&D efforts resulted in a performance improvement in its 
network switches, requiring the purchase of new switching equipment, 
and thus resulting in increased costs. In sum, the costs associated 
with maintaining and enhancing a state-of-the-art exchange network 
infrastructure in the U.S. options industry is a significant expense 
for the Exchange that continues to increase, and thus the Exchange 
believes that it is reasonable to offset some of those increased costs 
by increasing its network connectivity fees, as proposed herein. 
Overall, the Proposed Fee Increases are projected to offset only a 
portion of the Exchange's increased network connectivity costs.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \12\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \13\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among Exchange Members and 
issuers and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposal 
furthers the objectives of Section 6(b)(5) of the Act \14\ in that it 
is designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general to protect 
investors and the public interest and is not designed to permit unfair 
discrimination between customer, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that its proposal is consistent with Section 
6(b)(4) of the Act because the fees assessed for connectivity allow the

[[Page 51024]]

Exchange to cover the costs associated with providing and maintaining 
the necessary hardware and other infrastructure to support this 
technology. The Exchange believes that the proposal to increase the 
fees for connectivity alternatives is fair, equitable and not 
unreasonably discriminatory because the increased fees are assessed 
equally among all users of the applicable connections.
    As discussed above, Phlx and ISE each offer different connections 
with respect to latency, and Arca and NYSE American both offer similar 
connectivity alternatives.\15\ Despite this, Phlx, ISE, Arca and NYSE 
American charge a higher fee than the Exchange currently charges for 
similar connections to primary and secondary facilities.\16\ 
Furthermore, the connectivity fees for the disaster recovery facilities 
of other exchanges are within the range of the proposed fees of the 
Exchange.\17\ For these reasons, the Exchange believes the proposed 
increase in the fees for the fiber connectivity to the Exchange is 
reasonable and not unfairly discriminatory.
---------------------------------------------------------------------------

    \15\ See supra note 9.
    \16\ Id.
    \17\ See supra note 11.
---------------------------------------------------------------------------

    The Exchange believes that the proposal to increase the fees for 
connectivity alternatives is fair, equitable and not unreasonably 
discriminatory because the increased fees will only partially offset 
the Exchange's increased costs associated with maintaining its network 
infrastructure. In particular, the Exchange's increased costs 
associated with supporting its network are due to several factors, 
including increased costs associated with maintaining and expanding a 
team of highly-skilled network engineers, increasing fees charged by 
the Exchange's third-party data center operator, and costs associated 
with projects and initiatives designed to improve overall network 
performance and stability, through the Exchange's R&D efforts. For 
example, the Exchange has had to hire additional network engineering 
staff in the last year, and plans to hire additional staff in the 
coming months. Further, the Exchange contracts with a third-party data 
center provider for its data center space. The Exchange does not 
operate its own data centers. Other exchange operators do operate their 
own data centers. Thus, they can better control data center costs. They 
also operate their data centers as profit centers. Conversely, the 
Exchange is subject to fee increases from its data center provider, 
which the Exchange experienced in the last year. Further, the Exchange 
invests significant resources in network R&D to improve the overall 
performance and stability of its network. For example, the Exchange has 
a number of network monitoring tools (some of which were developed in-
house, and some of which are licensed from third-parties), that 
continually monitor, detect, and report network performance, many of 
which serve as significant value-adds to the Exchange's Members and 
enable the Exchange to provide a high level of customer service. These 
tools detect and report performance issues, and thus enable the 
Exchange to proactively notify a Member (and the SIPs) when the 
Exchange detects a problem with a Member's connectivity. The costs 
associated with the maintenance and improvement of existing tools and 
the development of new tools resulted in increased cost to the 
Exchange. Certain recently developed network aggregation and monitoring 
tools provide the Exchange with the ability to measure network traffic 
with a much more granular level of variability. This is important as 
Exchange Members demand a higher level of network determinism and the 
ability to measure variability in terms of single digit nanoseconds. 
Also, the Exchange routinely conducts R&D projects to improve the 
performance of the network's hardware infrastructure. As an example, in 
the last year, the Exchange's R&D efforts resulted in a performance 
improvement in its network switches, requiring the purchase of new 
switching equipment, and thus resulting in increased costs. In sum, the 
costs associated with maintaining and enhancing a state-of-the-art 
exchange network infrastructure in the U.S. options industry is a 
significant expense for the Exchange that continues to increase, and 
thus the Exchange believes that it is fair, equitable, and not 
unreasonably discriminatory to offset some of those increased costs by 
increasing its network connectivity fees, as proposed herein. Overall, 
the Proposed Fee Increases are projected to offset only a portion of 
the Exchange's increased network connectivity costs.
    The Exchange also believes that its proposal is consistent with 
Section 6(b)(5) of the Act \18\ because all MIAX PEARL participants 
have the opportunity to subscribe to the Exchange's connections. There 
is also no differentiation among MIAX PEARL participants with regard to 
the fees charged for these services.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    MIAX PEARL 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. On the contrary, the Exchange 
believes that the proposed changes should increase both intermarket and 
intramarket competition. Specifically, the Exchange believes that the 
changes will promote competition by increasing the connectivity fees to 
become more within the range of comparable fees assessed by other 
competing exchanges.\19\
---------------------------------------------------------------------------

    \19\ See supra note 9.
---------------------------------------------------------------------------

    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. In such an 
environment, the Exchange must continually adjust its fees to remain 
competitive with other exchanges. The Exchange believes that the 
proposed changes reflect this competitive environment. To the extent 
that this purpose is achieved, all the Exchange's market participants 
should benefit from the improved market liquidity.

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. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\20\ at any time within 
60 days of the date of filing of a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\21\ the Commission summarily may 
temporarily suspend the change in the rules of a self-regulatory 
organization (``SRO'') 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. 
As discussed below, the Commission believes a temporary suspension of 
the proposed rule change is necessary and appropriate to allow for 
additional analysis of the proposed rule change's consistency with the 
Act and the rules thereunder.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(3)(C).
    \21\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    Identical fee increases to those proposed herein were originally 
filed on

[[Page 51025]]

July 31, 2018, and designated effective August 1, 2018.\22\ That 
proposal, PEARL-2018-16, was published for comment in the Federal 
Register on August 13, 2018.\23\ The Commission received one comment 
letter on that proposal.\24\ On September 17, 2018, pursuant to Section 
19(b)(3)(C) of the Act, the Commission: (1) Temporarily suspended the 
proposed rule change; and (2) instituted proceedings to determine 
whether to approve or disapprove the proposal.\25\ The instant filing 
proposes identical fees and raises similar concerns as to whether they 
are consistent with the Act.\26\
---------------------------------------------------------------------------

    \22\ See supra note 4, and accompanying text.
    \23\ See supra note 5, and accompanying text.
    \24\ See supra note 6.
    \25\ See Securities Exchange Act Release No. 84177, 83 FR 47953 
(September 21, 2018).
    \26\ See id.
---------------------------------------------------------------------------

    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\27\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements.'' \28\
---------------------------------------------------------------------------

    \27\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \28\ Id.
---------------------------------------------------------------------------

    Among other things, exchange proposed rule changes are subject to 
Section 6 of the Act, including Sections 6(b)(4), (5), and (8), which 
requires the rules of an exchange to (1) provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \29\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \30\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\31\
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78f(b)(4).
    \30\ 15 U.S.C. 78f(b)(5).
    \31\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In temporarily suspending the Exchange's fee change, the Commission 
intends to further consider whether increasing certain connectivity 
fees to the Exchange is consistent with the statutory requirements 
applicable to a national securities exchange under the Act. In 
particular, the Commission will consider whether the proposed rule 
change satisfies the standards under the Act and the rules thereunder 
requiring, among other things, that an exchange's rules provide for the 
equitable allocation of reasonable fees among members, issuers, and 
other persons using its facilities; not permit unfair discrimination 
between customers, issuers, brokers or dealers; and do not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\32\
---------------------------------------------------------------------------

    \32\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------

    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule changes.\33\
---------------------------------------------------------------------------

    \33\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    The Commission is instituting proceedings pursuant to Sections 
19(b)(3)(C) \34\ and 19(b)(2)(B) of the Act \35\ to determine whether 
the proposed rule change should be approved or disapproved. Institution 
of proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, the 
Commission seeks and encourages interested persons to provide 
additional comment on the proposed rule change to inform the 
Commission's analysis of whether to disapprove the proposed rule 
change.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \35\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\36\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

     Section 6(b)(4) of the Act, which requires that the rules 
of a national securities exchange ``provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities,'' \37\
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

     Section 6(b)(5) of the Act, which requires, among other 
things, that the rules of a national securities exchange be ``designed 
to perfect the operation of a free and open market and a national 
market system'' and ``protect investors and the public interest,'' and 
not be ``designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers,'' \38\ and
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

     Section 6(b)(8) of the Act, which requires that the rules 
of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of [the Act].'' \39\
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    As noted above, the proposal increases connectivity fees for 
physical connections to the Exchange. The Exchange states that this fee 
increase would partially offset costs associated with providing and 
maintaining this technology.\40\ In the instant filing the Exchange 
states that its increased costs relate to maintaining and expanding a 
team of highly-skilled network engineers, increasing fees charged by 
the Exchange's third-party data center operator, and costs associated 
with projects and initiatives designed to improve overall network 
performance and stability.\41\
---------------------------------------------------------------------------

    \40\ See supra Section II.A.1.
    \41\ See id.
---------------------------------------------------------------------------

    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule change.'' \42\ The description of a proposed 
rule change, its purpose and operation, its effect, and a legal 
analysis of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative Commission 
finding,\43\ and any failure of an SRO to provide this information may 
result in the Commission not having a sufficient basis to make an 
affirmative finding that a proposed rule change is consistent with the 
Act and the applicable rules and regulations.\44\
---------------------------------------------------------------------------

    \42\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \43\ See id.
    \44\ See id.
---------------------------------------------------------------------------

    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposed fees are consistent with the Act, and 
specifically, with its requirements that exchange fees be reasonable 
and equitably allocated; be designed to perfect the mechanism of a free 
and open market and the national market system, protect investors and 
the public

[[Page 51026]]

interest, and not be unfairly discriminatory; or not impose an 
unnecessary or inappropriate burden on competition.\45\
---------------------------------------------------------------------------

    \45\ See 15 U.S.C. 78f(b)(4), (5), and (8).
---------------------------------------------------------------------------

V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by October 31, 2018. 
Rebuttal comments should be submitted by November 14, 2018. Although 
there do not appear to be any issues relevant to approval or 
disapproval which would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\46\
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change. Interested persons are invited to submit written 
data, views, and arguments concerning the proposed rule change, 
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 [email protected]. Please include 
File Number SR-PEARL-2018-19 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-PEARL-2018-19. 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-2018-19 and should be submitted on 
or before October 31, 2018. Rebuttal comments should be submitted by 
November 14, 2018.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\47\ that File Number SR-PEARL-2018-19 be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78s(b)(3)(C).
    \48\ 17 CFR 200.30-3(a)(57) and (58).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\48\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21922 Filed 10-9-18; 8:45 am]
 BILLING CODE 8011-01-P


