[Federal Register Volume 83, Number 224 (Tuesday, November 20, 2018)]
[Notices]
[Pages 58646-58649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25248]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84592; File No. SR-PEARL-2018-23]


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 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 (a) of the Fee Schedule that apply to MIAX PEARL 
Market Makers \3\ to (i) add a new, alternative Volume Criteria to Tier 
2 based upon the total monthly volume executed by a MIAX PEARL Market 
Maker in SPY, QQQ, and IWM options (``SPY/QQQ/IWM options'') volume on 
MIAX PEARL, expressed as a percentage of total consolidated national 
volume in SPY/QQQ/IWM options; (ii) amend the ``Definitions'' section 
of the Fee Schedule to add the following definition, ``SPY/QQQ/IWM 
TCV'' and (iii) amend the explanatory paragraph beneath the tables in 
Section (a) of the Fee Schedule, as described below.
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    \3\ ``Market Maker'' means a Member registered with the Exchange 
for the purpose of making markets in options contracts traded on the 
Exchange. See the Definitions Section of the Fee Schedule and 
Exchange Rule 100.
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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 generally assessed lower 
transaction fees and generally 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 generally are assessed higher transaction 
fees and generally receive higher rebates.
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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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[[Page 58647]]

    Transaction rebates and fees in Section (a) of the Fee Schedule are 
currently assessed for MIAX PEARL Market Makers according to the 
following table:

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                                                                                           Per contract rebates/fees for   Per contract rebates/fees for
                                                                                                   penny classes                 non-penny classes
                   Origin                       Tier             Volume criteria         ---------------------------------------------------------------
                                                                                               Maker           Taker         Maker **        Taker **
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All MIAX PEARL Market Makers...............          1   0.00%-0.15%....................         ($0.25)           $0.50         ($0.30)           $1.10
                                                     2   Above 0.15%-0.40%..............          (0.40)            0.50          (0.30)            1.10
                                                     3   Above 0.40%-0.65%..............          (0.40)            0.48          (0.60)            1.09
                                                     4   Above 0.65%-1.00% or Above               (0.47)            0.47          (0.65)            1.08
                                                          2.25% in SPY.
                                                     5   Above 1.00%-1.40%..............          (0.48)            0.45          (0.70)            1.07
                                                     6   Above 1.40%....................          (0.48)            0.44          (0.85)            1.06
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    The Exchange proposes to add a new, alternative Volume Criteria to 
Tier 2 based upon the total monthly volume executed by a MIAX PEARL 
Market Maker collectively in SPY/QQQ/IWM options on MIAX PEARL, 
expressed as a percentage of total consolidated national volume in SPY/
QQQ/IWM options. Pursuant to this alternative Volume Criteria, a Market 
Maker can now reach the Tier 2 threshold if the Market Maker's total 
executed monthly volume, not including Excluded Contracts, in SPY/QQQ/
IWM options on MIAX PEARL is above 0.45% of total consolidated national 
monthly volume in SPY/QQQ/IWM options. To be clear, volume that is from 
resting liquidity (Maker) and taking liquidity (Taker) in SPY/QQQ/IWM 
options is counted towards this alternative Volume Criteria, and the 
0.45% threshold does not have to be reached individually in each of the 
three symbols. Accordingly, a Market Maker could now qualify for Tier 2 
rebates and fees which will then be applicable to all volume executed 
by the MIAX PEARL Market Maker on MIAX PEARL. The two Volume Criteria 
available for Tier 2 are now based upon either: (a) The total monthly 
volume executed by the Market Maker in all options classes on MIAX 
PEARL, not including Excluded Contracts, (as the numerator), expressed 
as a percentage of (divided by) TCV (as the denominator); or (b) the 
total monthly volume executed by the MIAX PEARL Market Maker 
collectively in SPY/QQQ/IWM options on MIAX PEARL, not including 
Excluded Contracts, (as the numerator), expressed as a percentage of 
(divided by) SPY/QQQ/IWM TCV (as the denominator). Once either Volume 
Criteria threshold in Tier 2 is reached by the Market Maker, the Tier 2 
per contract rebates and fees will apply to all volume in all options 
classes executed by that MIAX PEARL Market Maker on MIAX PEARL. The 
Exchange does not propose to make any changes to the currently existing 
Tier 2 Volume Criteria threshold of above 0.15% to 0.40% or to the 
corresponding Maker rebates or Taker fees. Instead, the Exchange is 
simply adding an alternative method by which a MIAX PEARL Market Maker 
can reach Tier 2.
    With the proposed changes, Section (a) of the Fee Schedule for 
Market Maker orders shall be the following:

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                                                                                           Per contract rebates/fees for   Per contract rebates/fees for
                                                                                                   penny classes                 non-penny classes
                   Origin                       Tier             Volume criteria         ---------------------------------------------------------------
                                                                                               Maker           Taker         Maker **        Taker **
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All MIAX PEARL Market Makers...............          1   0.00%-0.15%....................         ($0.25)           $0.50         ($0.30)           $1.10
                                                     2   Above 0.15%-0.40% or Above               (0.40)            0.50          (0.30)            1.10
                                                          0.45% in SPY/QQQ/IWM.
                                                     3   Above 0.40%-0.65%..............          (0.40)            0.48          (0.60)            1.09
                                                     4   Above 0.65%-1.00% or Above               (0.47)            0.47          (0.65)            1.08
                                                          2.25% in SPY.
                                                     5   Above 1.00%-1.40%..............          (0.48)            0.45          (0.70)            1.07
                                                     6   Above 1.40%....................          (0.48)            0.44          (0.85)            1.06
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    In addition to modifying the MIAX PEARL Market Maker table to 
insert the new, alternative Volume Criteria threshold in Tier 2, and in 
order to provide a clear explanation of the requirements for achieving 
that alternative Volume Criteria threshold in Tier 2, the Exchange is 
proposing to (i) amend the explanatory paragraph beneath the tables in 
Section 1(a) of the Fee Schedule, and (ii) add a new definition of 
``SPY/QQQ/IWM TCV'' to the Definitions Section of the Fee Schedule. The 
amended explanatory paragraph will clarify that (except as otherwise 
set forth in the Fee Schedule) the new, alternative Volume Criteria 
threshold in Tier 2 for MIAX PEARL Market Makers measures volume in 
SPY/QQQ/IWM options on MIAX PEARL not including Excluded Contracts, as 
the numerator, and the SPY/QQQ/IWM TCV as the denominator. The new 
definition of SPY/QQQ/IWM TCV in the Definitions Section shall provide 
the following: ``SPY/QQQ/IWM TCV'' means total consolidated volume in 
SPY, QQQ, and IWM calculated as the total national volume in SPY, QQQ, 
and IWM for the month for which the fees apply, excluding consolidated 
volume executed during the period of time in which the Exchange 
experiences an Exchange System Disruption (solely in SPY, QQQ, or IWM 
options).
    The Exchange believes that the proposed alternative Volume Criteria 
threshold in Tier 2 for MIAX PEARL Market Makers will provide another 
opportunity for those Market Makers that concentrate their trading 
activity in

[[Page 58648]]

specific options classes such as SPY/QQQ/IWM options to reach a higher 
tier. The Exchange believes that creating this alternative Volume 
Criteria will extend the Tier 2 fee incentives to Market Makers that 
concentrate their trading activity by sending significant volume in 
SPY/QQQ/IWM options as compared to other Market Makers that do trade in 
the broad range of products listed on the Exchange.
    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 Exchange's proposal to adopt the new, alternative Volume 
Criteria for Tier 2 based on SPY, QQQ, and IWM volume executed on the 
Exchange is reasonable, equitable, and not unfairly discriminatory, as 
it is a form of pricing based upon trading activity in a select group 
of symbols, which is a common practice on many U.S. options exchanges 
as a means to incentivize order flow to be sent to an exchange for 
execution in actively traded options classes. The Exchange's affiliate, 
Miami International Securities Exchange, LLC (``MIAX Options''), offers 
differentiated pricing for transactions in options underlying certain 
select symbols.\13\ Other options exchanges' fee schedules distinguish 
by symbol and specifically assess different fees and rebates for 
transactions in select symbols for the same market participants.\14\
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    \13\ See MIAX Options Fee Schedule, Section 1(a)(iii).
    \14\ See Cboe Options Exchange Fee Schedule; see also Nasdaq 
PHLX LLC Pricing Schedule, Chapter B, Section I; see further Nasdaq 
ISE, LLC Fee Schedule, Sections I and II.
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    The Exchange is offering an alternative Tier 2 Volume Criteria 
threshold based on SPY/QQQ/IWM options volume in Tier 2 because the 
Exchange believes that incentivizing Market Makers that concentrate 
their trading activity in SPY/QQQ/IWM options will consequently 
increase order flow sent to the Exchange, which will benefit all market 
participants through increased liquidity, tighter markets and order 
interaction.
    The Exchange believes that the proposed non-substantive changes to 
(i) amend the ``Definitions'' section of the Fee Schedule and (ii) 
amend the explanatory paragraph beneath the tables in Section 1(a) of 
the Fee Schedule, will promote just and equitable principles of trade, 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because it will add more detail and 
clarity to the Fee Schedule with respect to the application of the 
proposed method to reach the alternative Tier 2 Volume Criteria 
threshold. As such, the proposed change would foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities and would remove impediments to and perfect the mechanism of 
a free and open market and a national market system. In particular, the 
Exchange believes that the proposed rule change will provide greater 
clarity to Members and the public regarding the Exchange's Rules, and 
it is in the public interest for rules to be accurate and concise so as 
to eliminate the potential for confusion.

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 rule change should 
enable the Exchange to attract and compete for order flow with other 
exchanges and will encourage Market Makers to submit more volume.
    Further, the Exchange believes that the proposed alternative Volume 
Criteria threshold in Tier 2 based on SPY/QQQ/IWM options volume 
applicable to MIAX PEARL Market Makers will continue to provide 
incentives to those Market Makers that concentrate their trading 
activity in SPY/QQQ/IWM options to send additional SPY, QQQ, and IWM 
orders and creates more opportunity for additional liquidity to the 
market.
    The Exchange does not believe that the proposed rule change to make 
non-substantive clarifications to its rules will impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act. The proposed clarification to the rule text is not designed 
to address any competitive issues but rather is designed to add 
additional clarity to Members and the public regarding the Exchange's 
Rules, and it is in the public interest for rules to be accurate and 
concise so as to eliminate the potential for confusion.
    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:

[[Page 58649]]

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-2018-23 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-2018-23. 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-2018-23 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. 2018-25248 Filed 11-19-18; 8:45 am]
BILLING CODE 8011-01-P


