[Federal Register Volume 83, Number 224 (Tuesday, November 20, 2018)]
[Notices]
[Pages 58630-58633]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25247]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84591; File No. SR-PEARL-2018-22]


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

November 14, 2018.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4

[[Page 58631]]

thereunder,\2\ notice is hereby given that on October 31, 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 amend the MIAX PEARL Fee 
Schedule (the ``Fee Schedule'').
    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 amend the Add/Remove Tiered Rebates/Fees 
set forth in Section 1(a) of the Fee Schedule to decrease the ``Taker'' 
fee in Tiers 1-3 assessable to Priority Customers \3\ orders for 
options transactions in Non-Penny classes.
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    \3\ ``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 account(s). See Exchange Rule 
100, including Interpretations and Policies .01.
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    The Exchange currently assesses transaction rebates and fees to all 
market participants which are based upon the total monthly volume 
executed by the Member \4\ on MIAX PEARL in the relevant, respective 
origin type (not including Excluded Contracts) \5\ expressed as a 
percentage of TCV.\6\ In addition, the per contract transaction rebates 
and fees are applied retroactively to all eligible volume for that 
origin type once the respective threshold tier (``Tier'') has been 
reached by the Member. The Exchange aggregates the volume of Members 
and their Affiliates.\7\ Members that place resting liquidity, i.e., 
orders resting on the book of the MIAX PEARL System,\8\ are paid the 
specified ``maker'' rebate (each a ``Maker''), and Members that execute 
against resting liquidity are assessed the specified ``taker'' fee 
(each a ``Taker''). For opening transactions and ABBO uncrossing 
transactions, per contract transaction rebates and fees are waived for 
all market participants. Finally, Members are assessed lower 
transaction fees and receive lower rebates for order executions in 
standard option classes in the Penny Pilot Program \9\ (``Penny 
classes'') than for order executions in standard option classes which 
are not in the Penny Pilot Program (``Non-Penny classes''), where 
Members are assessed higher transaction fees and receive higher 
rebates. Transaction rebates and fees in Section 1(a) of the Fee 
Schedule are currently assessed for Priority Customer orders according 
to the following table:
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    \4\ ``Member'' means an individual or organization that is 
registered with the Exchange pursuant to Chapter II of the Exchange 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See the Definitions Section of 
the Fee Schedule and Exchange Rule 100.
    \5\ ``Excluded Contracts'' means any contracts routed to an away 
market for execution. See the Definitions Section of the Fee 
Schedule.
    \6\ ``TCV'' means total consolidated volume calculated as the 
total national volume in those classes listed on MIAX PEARL for the 
month for which the fees apply, excluding consolidated volume 
executed during the period time in which the Exchange experiences an 
``Exchange System Disruption'' (solely in the option classes of the 
affected Matching Engine (as defined below)). The term Exchange 
System Disruption, which is defined in the Definitions section of 
the Fee Schedule, means an outage of a Matching Engine or collective 
Matching Engines for a period of two consecutive hours or more, 
during trading hours. The term Matching Engine, which is also 
defined in the Definitions section of the Fee Schedule, 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. The Exchange believes that it is reasonable and appropriate 
to select two consecutive hours as the amount of time necessary to 
constitute an Exchange System Disruption, as two hours equates to 
approximately 1.4% of available trading time per month. The Exchange 
notes that the term ``Exchange System Disruption'' and its meaning 
have no applicability outside of the Fee Schedule, as it is used 
solely for purposes of calculating volume for the threshold tiers in 
the Fee Schedule. See the Definitions Section of the Fee Schedule.
    \7\ ``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 process described in the Fee Schedule. See the 
Definitions Section of the Fee Schedule.
    \8\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \9\ See Securities Exchange Act Release No. 79778 (January 12, 
2017), 82 FR 6662 (January 19, 2017) (SR-PEARL-2016-01).

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                                                                                    Per contract rebates/fees for Penny classes    Per contract rebates/
                                                                                 ------------------------------------------------   fees for Non-Penny
                  Origin                     Tier          Volume criteria                                                                classes
                                                                                     Maker      Taker *    SPY taker   QQQ, IWM, -----------------------
                                                                                                                       VXX taker     Maker       Taker
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Priority Customer.........................      1   0.00%-0.10%.................     ($0.25)       $0.48       $0.43       $0.47     ($0.85)       $0.87
                                                2   Above 0.10%-0.35%...........      (0.40)        0.46        0.43        0.46      (0.95)        0.86
                                                3   Above 0.35%-0.50%...........      (0.45)        0.44        0.42        0.44      (1.00)        0.85
                                                4   Above 0.50%-0.75%...........      (0.52)        0.44        0.41        0.43      (1.03)        0.84
                                                5   Above 0.75%-1.25%...........      (0.53)        0.44        0.40        0.42      (1.04)        0.84
                                                6   Above 1.25%.................      (0.53)        0.43        0.38        0.40      (1.04)        0.84
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* For all Penny Classes other than SPY, QQQ, IWM, and VXX.


[[Page 58632]]

    The Exchange proposes to decrease the Taker fee for Priority 
Customer orders for options in Non-Penny classes in Tier 1 from $0.87 
to $0.84, in Tier 2 from $0.86 to $0.84 and in Tier 3 from $0.85 to 
$0.84. The purpose of decreasing the specified Taker fees for Priority 
Customer orders for options in Non-Penny classes is for business and 
competitive reasons to attract greater Priority Customer order flow to 
the Exchange. The Exchange believes that reducing the Taker fees for 
Priority Customer orders for options in Non-Penny classes in Tiers 1-3 
to a $0.84 per contract fee, will incentivize Members to send greater 
Priority Customer order flow to the Exchange due to favorable pricing 
for this liquidity type.
    With all proposed changes, Section (a) of the Fee Schedule for 
Priority Customer orders shall be the following:

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                                                                                    Per contract rebates/fees for Penny classes    Per contract rebates/
                                                                                 ------------------------------------------------   fees for Non-Penny
                  Origin                     Tier          Volume criteria                                                                classes
                                                                                     Maker      Taker *    SPY taker   QQQ, IWM, -----------------------
                                                                                                                       VXX taker     Maker       Taker
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Priority Customer.........................      1   0.00%-0.10%.................     ($0.25)       $0.48       $0.43       $0.47     ($0.85)       $0.84
                                                2   Above 0.10%-0.35%...........      (0.40)        0.46        0.43        0.46      (0.95)        0.84
                                                3   Above 0.35%-0.50%...........      (0.45)        0.44        0.42        0.44      (1.00)        0.84
                                                4   Above 0.50%-0.75%...........      (0.52)        0.44        0.41        0.43      (1.03)        0.84
                                                5   Above 0.75%-1.25%...........      (0.53)        0.44        0.40        0.42      (1.04)        0.84
                                                6   Above 1.25%.................      (0.53)        0.43        0.38        0.40      (1.04)        0.84
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* For all Penny Classes other than SPY, QQQ, IWM, and VXX.

    The proposed change is scheduled to become operative November 1, 
2018.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \10\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act,\11\ in that it 
is an equitable allocation of reasonable dues, fees and other charges 
among Exchange members and issuers and other persons using its 
facilities, and 6(b)(5) of the Act,\12\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ 15 U.S.C. 78f(b)(1) and (b)(5).
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    The proposed Taker fee decrease for Priority Customer orders for 
options in Non-Penny classes in Tiers 1-3 is reasonable, equitable, and 
not unfairly discriminatory, because all Priority Customer orders are 
subject to the same Taker fees and access to the Exchange is offered on 
terms that are not unfairly discriminatory. The Exchange initially set 
its Taker fees at the various volume levels based upon business 
determinations and an analysis of current Taker fees and volume levels 
at other exchanges. For competitive and business reasons, the Exchange 
believes that lower Taker fees assessable to Priority Customer 
transactions in Non-Penny classes in Tiers 1-3 will encourage Members 
to execute more volume in Non-Penny classes on behalf of Priority 
Customers since they will be assessed reduced fees. The Exchange 
believes for these reasons that offering the reduced Taker fees for 
Priority Customer transactions in Non-Penny classes in Tiers 1-3 is 
equitable, reasonable and not unfairly discriminatory, and thus 
consistent with the Act.
    The Exchange believes that its proposal to reduce Taker fees 
assessable to transactions in options in Non-Penny classes and not to 
reduce Taker fees for transactions in options in Penny classes is 
consistent with other options markets that also assess different 
transaction fees for options in Non-Penny classes as compared to Penny 
classes. The Exchange believes that establishing different pricing for 
options in Non-Penny classes and Penny classes is reasonable, 
equitable, and not unfairly discriminatory because options in Penny 
classes are generally more liquid as compared to Non-Penny classes. 
Additionally, other competing options exchanges differentiate pricing 
in a similar manner today.\13\
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    \13\ See Nasdaq PHLX LLC Pricing Schedule, Section II; NYSE 
American Options Fee Schedule, Section I; Cboe Exchange, Inc., Fee 
Schedule, p. 1.
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    Further, the Exchange believes that it is equitable and not 
unfairly discriminatory to assess lower fees to Priority Customer 
orders than to orders from origin types that are not Priority Customer. 
A Priority Customer is by definition not a broker or dealer in 
securities, and does not place more than 390 orders in listed options 
per day on average during a calendar month for its own beneficial 
account(s). This limitation does not apply to participants on the 
Exchange whose behavior is substantially similar to that of market 
professionals, including non-Priority Customers, MIAX PEARL Market 
Makers, Firms, and Broker-Dealers, who will generally submit a higher 
number of orders (many of which do not result in executions) than 
Priority Customers.
    Furthermore, the proposed decrease to the Taker fees in Non-Penny 
classes for Priority Customer transactions in Tiers 1-3 promotes just 
and equitable principles of trade, fosters cooperation and coordination 
with persons engaged in facilitating transactions in securities, and 
protects investors and the public interest because the proposed 
decrease in the fees will encourage Members to send more orders to the 
Exchange even if it is an order which takes liquidity since they will 
be assessed a reduced Taker fee in Tiers 1-3. To the extent that 
Priority Customer order flow in Non-Penny classes is increased by the 
proposal, market participants will increasingly compete for the 
opportunity to trade on the Exchange, including sending more orders 
which will have the potential to be assessed lower fees and higher 
rebates. The resulting increased volume and liquidity will benefit all 
Exchange participants by providing more trading opportunities and 
tighter spreads.

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 proposed Taker fee 
decreases are intended to encourage liquidity. The proposed Taker fees 
should enable the

[[Page 58633]]

Exchange to attract and compete for order flow with other exchanges 
which do assess higher Taker fees, thereby adding liquidity.\14\
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    \14\ See Nasdaq Stock Market LLC, Chapter XV Options Pricing, 
Sec. 2; Cboe C2 Exchange, Inc., Fees Schedule, p. 1.
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    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 rebates and fees 
to remain competitive with other exchanges and to attract order flow. 
The Exchange believes that the proposed rule change reflects this 
competitive environment because it modifies the Exchange's fees in a 
manner that encourages market participants to continue to provide 
liquidity and to send order flow to the Exchange.

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

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\15\ and Rule 19b-4(f)(2) \16\ 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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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 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 [email protected]. Please include 
File Number SR-PEARL-2018-22 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-2018-22. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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-2018-22 and should be submitted on 
or before December 11, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-25247 Filed 11-19-18; 8:45 am]
 BILLING CODE 8011-01-P


