[Federal Register Volume 84, Number 138 (Thursday, July 18, 2019)]
[Notices]
[Pages 34445-34451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15254]



[[Page 34445]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86363; File No. SR-PEARL-2019-22]


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

July 12, 2019.
    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 June 28, 2019, 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'') to establish certain non-transaction 
fees applicable to participants and new members trading options on and/
or using services provided by MIAX PEARL.
    MIAX PEARL commenced operations as a national securities exchange 
registered under Section 6 of the Act \3\ on February 6, 2017.\4\ The 
Exchange adopted its transaction fees and certain of its non-
transaction fees in its filing SR-PEARL-2017-10.\5\
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    \3\ 15 U.S.C. 78f.
    \4\ See Securities Exchange Act Release No. 79543 (December 13, 
2016), 81 FR 92901 (December 20, 2016) (File No. 10-227) (order 
approving application of MIAX PEARL, LLC for registration as a 
national securities exchange).
    \5\ See Securities Exchange Act Release No. 80061 (February 17, 
2017), 82 FR 11676 (February 24, 2017) (SR-PEARL-2017-10).
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    While changes to the Fee Schedule pursuant to this proposal are 
effective upon filing, the Exchange has designated these changes to be 
operative on July 1, 2019.
    The Exchange initially filed the proposal on March 27, 2019 (SR-
PEARL-2019-12).\6\ That filing was withdrawn on May 20, 2019. It is 
replaced with the current filing (SR-PEARL-2019-22).
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    \6\ See Securities Exchange Act Release No. 85541 (April 8, 
2019), 84 FR 14983 (April 12, 2019) (SR-PEARL-2019-12) (the ``First 
Proposed Rule Change'').
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    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
Proposal
    The Exchange proposes to amend the Fee Schedule to establish 
certain non-transaction fees applicable to participants and new members 
trading options on and/or using services provided by MIAX PEARL. The 
Exchange initially filed the proposal on March 27, 2019, designating 
the proposed fees effective April 1, 2019.\7\ The First Proposed Rule 
Change was published for comment in the Federal Register on April 12, 
2019.\8\ The proposed fee changes remained in effect until the Exchange 
withdrew the First Proposed Rule Change on May 20, 2019.\9\ The 
Exchange is now re-filing the proposal to establish certain non-
transaction fees applicable to market participants and new members 
trading options on and/or using certain services provided by the 
Exchange, to include additional information.
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    \7\ See id.
    \8\ See id.
    \9\ See Letter from Gregory P. Ziegler, AVP and Senior Associate 
Counsel, MIAX PEARL, LLC, to Vanessa Countryman, Acting Secretary, 
Commission, dated May 17, 2019.
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    The Exchange introduced the structure of certain non-transaction 
fees in its filing SR-PEARL-2017-10 \10\ (without proposing actual fee 
amounts), but also explicitly waived the assessment of any such fees 
for the period of time which the Exchange defined as the ``Waiver 
Period.'' \11\ The Exchange now proposes to adopt certain non-
transaction fees as described below, and thereby terminate the Waiver 
Period applicable to such non-transaction fees. In general, the 
Exchange proposes to amend the Fee Schedule to establish a one-time 
membership application fee for MIAX PEARL Members; \12\ Application 
Programming Interface (``API'') Testing and Certification fees; and 
MIAX PEARL Member Participant Identifier (``MPID'') \13\ fees.
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    \10\ See supra note 5.
    \11\ ``Waiver Period'' means, for each applicable fee, the 
period of time from the initial effective date of the MIAX PEARL Fee 
Schedule until such time that the Exchange has an effective fee 
filing establishing the applicable fee. The Exchange will issue a 
Regulatory Circular announcing the establishment of an applicable 
fee that was subject to a Waiver Period at least fifteen (15) days 
prior to the termination of the Waiver Period and effective date of 
any such applicable fee. See the Definitions Section of the Fee 
Schedule.
    \12\ ``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 Exchange Rule 100.
    \13\ An MPID is a code used in the MIAX PEARL system to identify 
the participant to MIAX PEARL and to the participant's Clearing 
Member respecting trades executed on MIAX PEARL. Participants may 
use more than one MPID.
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    The Exchange also proposes to amend the Fee Schedule to remove the 
text and application of the three-month New Member Non-Transaction Fee 
Waiver.\14\ The Exchange adopted the three-month New Member Non-
Transaction Fee Waiver in its filing SR-PEARL-2018-07.\15\
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    \14\ ``New Member Non-Transaction Fee Waiver'' means the waiver 
of certain non-transaction fees, as explicitly set forth in specific 
sections of the Fee Schedule, for a new Member of the Exchange, for 
the waiver period. For purposes of this definition, the waiver 
period consists of the calendar month the new Member is credentialed 
to use the System in the production environment following approval 
as a new Member of the Exchange and the two (2) subsequent calendar 
months thereafter. For purposes of this definition, a new Member 
shall mean any Member who has not previously been approved as a 
Member of the Exchange. See the Definitions Section of the Fee 
Schedule.
    \15\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
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    The Exchange proposes to remove the New Member Non-Transaction Fee 
Waiver as described below, and thereby terminate the New Member Non-
Transaction Fee Waiver as it applies to all relevant fees, which would 
include the Monthly Trading Permit fee; Port fees; and MIAX PEARL Top 
of Market (``ToM'') and MIAX PEARL Liquidity Feed (``PLF'') market data 
fees. The Exchange also proposes to amend the Definitions section of 
the Fee Schedule to delete the definitions of ``New Member Non-
Transaction Fee Waiver''

[[Page 34446]]

and ``Waiver Period'' as those definitions would no longer be 
applicable in accordance with this proposal to remove the Waiver Period 
for all remaining waived non-transaction fees, as described below, 
including the three-month fee waiver applicable to certain non-
transaction fees for new Members of the Exchange.
MIAX PEARL Membership Application Fee
    The Exchange proposes to assess a one-time membership application 
fee based upon the applicant's status as either an Electronic Exchange 
Member \16\ (``EEM'') or as a Market Maker.\17\ The Exchange proposes 
that applicants for MIAX PEARL Membership as an EEM will be assessed a 
one-time application fee of $500. The Exchange proposes that applicants 
for MIAX PEARL Membership as a Market Maker will be assessed a one-time 
application fee of $1,500. The difference in the proposed membership 
application fee to be charged to EEMs and Market Makers reflects the 
additional review and processing costs and effort needed for Market 
Maker applications. MIAX PEARL's proposed one-time membership 
application fees are similar to and generally lower than one-time 
application fees in place at the Cboe Exchange, Inc. (``Cboe'') ($3,000 
for an individual applicant and $5,000 for an applicant organization) 
\18\ and at Nasdaq ISE, LLC (``Nasdaq ISE'') ($7,500 per firm for a 
primary market maker, $5,500 per firm for a competitive market maker, 
and $3,500 per firm for an electronic market maker).\19\ Below is the 
table for the proposed one-time membership application fee for MIAX 
PEARL:
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    \16\ ``Electronic Exchange Member'' or ``EEM'' means the holder 
of a Trading Permit who is a Member representing as agent Public 
Customer Orders or Non-Customer Orders on the Exchange and those 
non-Market Maker Members conducting proprietary trading. Electronic 
Exchange Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100. See the Definitions Section of the Fee Schedule.
    \17\ ``Market Maker'' means a Member registered with the 
Exchange for the purpose of making markets in options contracts 
traded on the Exchange and that is vested with the rights and 
responsibilities specified in Chapter VI of Exchange Rules. See 
Exchange Rule 100. See the Definitions Section of the Fee Schedule.
    \18\ See Cboe Fees Schedule, p. 12, Cboe Trading Permit Holder 
Application Fees.
    \19\ See Nasdaq ISE, Options Rules, Options 7, Pricing Schedule, 
Section 9. Legal and Regulatory A. Application.

------------------------------------------------------------------------
                                                            Application
                   Type of membership                           fee
------------------------------------------------------------------------
Electronic Exchange Member..............................         $500.00
Market Maker............................................        1,500.00
------------------------------------------------------------------------
MIAX PEARL will assess a one-time Membership Application Fee on the
  earlier of (i) the date the applicant is certified in the membership
  system, or (ii) once an application for MIAX PEARL membership is
  finally denied.

Member API Testing and Certification Fee
    Next, the Exchange proposes to assess an API Testing and 
Certification fee to Members. An API makes it possible for Member 
software to communicate with MIAX PEARL software applications, and is 
subject to Member testing with, and certification by, MIAX PEARL. API 
testing and certification includes, for EEMs, testing all available 
order types, new order entry, order management, order throughput and 
mass order cancellation. For Market Makers, API testing and 
certification also includes testing of all available quote types, quote 
throughput, quote management and cancellation, Aggregate Risk Manager 
settings and triggers, and confirmation of quotes within the trading 
engines.
    The API Testing and Certification fees for Members are based upon 
the type of interface that the Member has been credentialed to use. The 
Exchange proposes to assess an API testing and certification fee for 
Members (i) initially per API for FIX,\20\ MEO,\21\ FXD\22\ and CTD\23\ 
in the month the Member has been credentialed to use one or more ports 
in the production environment for the tested API, and (ii) each time a 
Member initiates a change to its system that requires testing and 
certification. The Exchange also proposes that API Testing and 
Certification fees will not be assessed in situations where the 
Exchange initiates a mandatory change to the Exchange's System \24\ 
that requires testing and certification.
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    \20\ ``FIX Interface'' means the Financial Information Exchange 
interface for certain order types as set forth in Exchange Rule 516. 
See Exchange Rule 100. See the Definitions Section of the Fee 
Schedule.
    \21\ ``MEO Interface'' means a binary order interface for 
certain order types as set forth in Rule 516 into the MIAX PEARL 
System. See Exchange Rule 100. See the Definitions Section of the 
Fee Schedule.
    \22\ ``FXD Interface'' or ``FIX Drop Copy Port'' means a 
messaging interface that provides a copy of real-time trade 
execution, trade correction and trade cancellation information to 
FIX Drop Copy Port users who subscribe to the service. FXD Port 
users are those users who are designated by an EEM to receive the 
information and the information is restricted for use by the EEM 
only. See the Definitions Section of the Fee Schedule.
    \23\ ``CTD Port'' or ``Clearing Trade Drop Port'' provides an 
Exchange Member with a real-time clearing trade updates. The updates 
include the Member's clearing trade messages on a low latency, real-
time basis. The trade messages are routed to a Member's connection 
containing certain information. The information includes, among 
other things, the following: (i) Trade date and time; (ii) symbol 
information; (iii) trade price/size information; (iv) Member type 
(for example, and without limitation, Market Maker, Electronic 
Exchange Member, Broker-Dealer); and (v) Exchange MPID for each side 
of the transaction, including Clearing Member MPID. See the 
Definitions Section of the Fee Schedule.
    \24\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
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    Any Member can select any type of interface (FIX Interface, MEO 
Interface, FXD Interface, and/or the CTD Port) to test and certify. The 
Exchange proposes the following fees: Each Member who uses the FIX 
Interface to connect to the System will be assessed an API Testing and 
Certification fee of $1,000; each Member who uses the MEO Interface to 
connect to the System will be assessed an API Testing and Certification 
fee of $1,500; each Member who uses the FXD Interface to connect to the 
system will be assessed an API Testing and Certification fee of $500; 
and each Member who uses the CTD Port to connect to the system will be 
assessed an API Testing and Certification fee of $500.
    Below is the proposed fee table for API Testing and Certification 
fees for Members:

------------------------------------------------------------------------
                                                   API testing and
             Type of interface                    certification fee
------------------------------------------------------------------------
FIX.......................................                     $1,000.00
MEO.......................................                      1,500.00
FXD.......................................                        500.00
CTD.......................................                        500.00
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API Testing and Certification Fees will be assessed (i) initially per
  API for FIX, MEO, FXD and CTD in the month the Member has been
  credentialed to use one or more ports in the production environment
  for the tested API, and (ii) each time a Member initiates a change to
  its system that requires testing and certification. API Testing and
  Certification Fees will not be assessed in situations where the
  Exchange initiates a mandatory change to the Exchange's system that
  requires testing and certification.


[[Page 34447]]

Non-Member API Testing and Certification Fee
    The Exchange proposes to assess an API Testing and Certification 
fee for Third Party Vendors,\25\ Service Bureaus \26\ and other non-
Members (i) initially per API for FIX, MEO, FXD, and CTD in the month 
the non-Member has been credentialed to use one or more ports in the 
production environment for the tested API, and (ii) each time a Third 
Party Vendor, Service Bureau, or other non-Member initiates a change to 
its system that requires testing and certification. The Exchange also 
proposes that API Testing and Certification fees will not be assessed 
in situations where the Exchange initiates a mandatory change to the 
Exchange's System that requires testing and certification.
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    \25\ Third party vendors are subscribers of MIAX's market and 
other data feeds, which they in turn use for redistribution 
purposes. Third party vendors do not provide connectivity and 
therefore are not subject to Network testing and certification. See 
the Definitions Section of the Fee Schedule.
    \26\ ``Service Bureau'' means a technology provider that offers 
and supplies technology and technology services to a trading firm 
that does not have its own proprietary system. See the Definitions 
Section of the Fee Schedule.
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    The Exchange's proposed API Testing and Certification fees for non-
Members are based upon the type of interface used by the non-Member to 
connect to the Exchange--the FIX Interface, the MEO Interface, the FXD 
Interface, and/or the CTD Port. Any non-Member can select any type of 
interface (FIX Interface, MEO Interface, FXD Interface, and/or the CTD 
Port) to test and certify. As with Members, an API makes it possible 
for third party vendors' and Service Bureaus' software to communicate 
with MIAX PEARL software applications, and is subject to testing with, 
and certification by, MIAX PEARL. The higher proposed fee charged to 
non-Members reflects the greater amount of time spent by MIAX PEARL 
employees testing and certifying non-Members. It has been MIAX PEARL's 
experience that Member testing takes less time than non-Member testing 
because Members have more experience testing these systems with 
exchanges; generally fewer questions and issues arise during the 
testing and certification process. Also, because Third Party Vendors 
and Service Bureaus are redistributing data and reselling services to 
other Members and market participants, the number and types of 
scenarios that need to be tested are more numerous and complex than 
those tested and certified for a single Member.
    The Exchange proposes the following fees: Each non-Member who uses 
the FIX Interface to connect to the System will be assessed an API 
Testing and Certification fee of $1,200; each non-Member who uses the 
MEO Interface to connect to the System will be assessed an API Testing 
and Certification fee of $2,000; each non-Member who uses the FXD 
Interface to connect to the system will be assessed an API Testing and 
Certification fee of $600; and each non-Member who uses the CTD Port to 
connect to the system will be assessed an API Testing and Certification 
fee of $600.
    Below is the proposed fee table for API Testing and Certification 
fees for non-Members:

------------------------------------------------------------------------
                                                   API testing and
             Type of interface                    certification fee
------------------------------------------------------------------------
FIX.......................................                     $1,200.00
MEO.......................................                      2,000.00
FXD.......................................                        600.00
CTD.......................................                        600.00
------------------------------------------------------------------------
API Testing and Certification Fees for Third Party Vendors, Service
  Bureaus and other non-Members will be assessed (i) initially per API
  for FIX, MEO, FXD, and CTD in the month the non-Member has been
  credentialed to use one or more ports in the production environment
  for the tested API, and (ii) each time a Third Party Vendor, Service
  Bureau, or other non-Member initiates a change to its system that
  requires testing and certification. API Testing and Certification Fees
  will not be assessed in situations where the Exchange initiates a
  mandatory change to the Exchange's system that requires testing and
  certification.

MPID Fees
    The Exchange proposes to assess monthly MPID fees to Members based 
upon the type of MPID. MPID fees are assessed for assigning and 
managing these identifiers for each Member. The Exchange proposes that 
Members will be assessed a monthly MPID fee of $125 for each FIX MPID 
and Members will be assessed a monthly MPID fee of $125 for each MEO 
MPID. MPIDs allow the Exchange to provide additional services to its 
Members, including customer reporting, monitoring and risk protection 
services, down at the MPID level. MPIDs provide Members the ability to 
segment their business operations in a manner that can be tailored to 
their business needs, as well as receive certain additional 
administrative and operational services provided by the Exchange.
    The Exchange also proposes to introduce a cap on the amount of MPID 
fees that can be assessed by the Exchange to a Member of $500 per 
month, regardless of the actual number of EEM or MEO MPIDs assigned to 
such Member. The Exchange believes that establishing a monthly cap on 
MPID fees will provide Members greater flexibility to accommodate their 
varying business models and customer configurations, as many Members 
often request multiple MPIDs from the Exchange, and the Exchange does 
not want MPID costs to serve as a barrier for requesting multiple 
MPIDs. The Exchange notes that this fee cap is similar to the MPID fee 
cap assessed by the Exchange's affiliate, Miami International 
Securities Exchange, LLC (``MIAX'').\27\
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    \27\ See Securities Exchange Act Release No. 82823 (March 7, 
2018), 83 FR 10935 (March 13, 2018) (SR-MIAX-2018-09).
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    Below is the proposed MPID fee table:

------------------------------------------------------------------------
                                                               Monthly
                        Type of MPID                          MPID fees
------------------------------------------------------------------------
FIX MPID...................................................      $125.00
MEO MPID...................................................       125.00
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MPID fees are capped at $500.00 per month per Member.

New Member Non-Transaction Fee Waiver
    The Exchange proposes to remove the New Member Non-Transaction Fee 
Waiver from the Fee Schedule. The New Member Non-Transaction Fee Waiver 
waived the assessment of a fee for a Trading Permit, Port, ToM or PLF 
market data feed for a new Member of the Exchange for the first 
calendar month during which the new Member was approved as a Member and 
was credentialed to use the System in the production environment, and 
for the two (2) subsequent calendar months thereafter.

[[Page 34448]]

    The Exchange initially waived certain non-transaction fees for new 
Members in order to attract new business and encourage Members to use 
the Exchange. The Exchange now believes that the New Member Non-
Transaction Fee Waiver is no longer necessary since the MIAX PEARL 
market is established and MIAX PEARL no longer needs to rely on such 
waivers to attract market participants.
    The Exchange notes that any Member who began receiving the New 
Member Non-Transaction Fee Waiver prior to the filing of this proposal, 
will continue to receive that benefit for the first calendar month 
during which they were approved as a Member and were credentialed to 
use the System in the production environment, and for the two (2) 
subsequent calendar months thereafter.
Applicability to and Impact on Participants \28\
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    \28\ On May 21, 2019, the SEC Division of Trading and Markets 
(the ``Division'') issued fee filing guidance titled ``Staff 
Guidance on SRO Rule Filings Relating to Fees'' (``Guidance''). 
Within the Guidance, the Division noted, among other things, that 
the purpose discussion should address ``how the fee may apply 
differently (e.g., additional cost vs. additional discount) to 
different types of market participants (e.g., market makers, 
institutional brokers, retail brokers, vendors, etc.) and different 
sizes of market participants.'' See Guidance (available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees). The Guidance 
also suggests that the purpose discussion should include numerical 
examples. Where possible, the Exchange is including numerical 
examples. In addition, the Exchange is providing data to the 
Commission in support of its arguments herein. The Guidance covers 
all aspects of a fee filing, which the Exchange has addressed 
throughout this filing.
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    The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. In Regulation NMS, 
the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \29\
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    \29\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
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    There are currently 16 registered options exchanges competing for 
order flow. Based on publicly-available information, and excluding 
index-based options, no single exchange has more than approximately 16% 
market share.\30\ Therefore, no exchange possesses significant pricing 
power. More specifically, as of June 2019, the Exchange has less than 
5% market share of executed volume of multiply-listed equity & ETF 
options trades.\31\ The Exchange believes that the ever-shifting market 
share among the exchanges from month to month demonstrates that market 
participants can discontinue or reduce use of certain categories of 
products, or shift order flow, in response to fee changes. Accordingly, 
competitive forces constrain the Exchange's ability to set its fees for 
various products, services and transactions.
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    \30\ The Options Clearing Corporation (``OCC'') publishes 
options and futures volume in a variety of formats, including daily 
and monthly volume by exchange, available here: https://www.theocc.com/market-data/volume/default.jsp.
    \31\ See id.
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    The proposed adoption of certain non-transaction fees would be 
applied uniformly to all market participants. Further, as there are 
currently 16 registered options exchanges competing for order flow with 
no single exchange accounting for more than approximately 16% of market 
share, the Exchange cannot predict with certainty whether any 
participant is planning to become a Member or utilize any of the 
services that the Exchange is planning to establish fees for and thus 
would be subject to the proposed fees.
    The Exchange has issued a Regulatory Circular announcing the 
establishment of the aforementioned fees that were subject to the 
Waiver Period at least 15 days prior to the termination of the Waiver 
Period and effective date of the applicable fee.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \32\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \33\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees and other charges among its members and issuers and other persons 
using its facilities. The Exchange also believes the proposal furthers 
the objectives of Section 6(b)(5) of the Act 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 
customers, issuers, brokers and dealers. Moreover, the Exchange 
believes that its proposal complies with Commission guidance on SRO fee 
filings that the Commission Staff issued on May 21, 2019.\34\
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    \32\ 15 U.S.C. 78f(b).
    \33\ 15 U.S.C. 78f(b)(4) and (5).
    \34\ See Guidance, supra note 28.
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    The Exchange believes that the proposed change to eliminate the 
waiver of the non-transaction fees described above is reasonable in 
several respects. As a threshold matter, the Exchange is subject to 
significant competitive forces in the market for options transaction 
and non-transaction services that constrain its pricing determinations 
in that market. The fact that this market is competitive has long been 
recognized by the courts. In NetCoalition v. Securities and Exchange 
Commission, the D.C. Circuit stated as follows: ``[n]o one disputes 
that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .'' \35\
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    \35\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
options transaction services. The Exchange is one of several options 
venues to which market participants may direct their order flow, and it 
represents a small percentage of the overall market. Competing options 
exchanges offer complex order functionality, with varying pricing 
schedules. The Exchange believes its proposed fees are reasonable and 
well within the range of non-transaction fees assessed among other 
exchanges, including the Exchange's affiliate, MIAX.\36\
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    \36\ See the MIAX Fee Schedule.
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    Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules.\37\
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    \37\ While MIAX PEARL has not charged certain non-transaction 
fees as described above, to date, the Exchange perceives no 
regulatory, structure, or cost impediments to market participants 
shifting order flow away from it as a result of this rule change. 
See Guidance, supra note 28. In particular, the Exchange notes that 
these examples of shifts in liquidity and market share, along with 
many others, have occurred within the context of market 
participants' existing duties of Best Execution and obligations 
under the Order Protection Rule under Regulation NMS.

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[[Page 34449]]

    There are currently 16 registered options exchanges competing for 
order flow. Based on publicly-available information, and excluding 
index-based options, no single exchange has more than approximately 16% 
of the market share of executed volume of multiply-listed equity and 
ETF options trades.\38\ Therefore, no exchange possesses significant 
pricing power. More specifically, as of June 2019, the Exchange had 
less than 5% market share of executed volume of multiply-listed equity 
& ETF options trades.\39\ The Exchange believes that the ever-shifting 
market share among the exchanges from month to month demonstrates that 
market participants can discontinue or reduce use of certain categories 
of products, or shift order flow, in response to fee changes. 
Accordingly, competitive forces constrain the Exchange's ability to set 
its fees for various products, services and transactions.
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    \38\ The Options Clearing Corporation (``OCC'') publishes 
options and futures volume in a variety of formats, including daily 
and monthly volume by exchange, available here: https://www.theocc.com/market-data/volume/default.jsp.
    \39\ See id.
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    Further, the Exchange no longer believes it is necessary to waive 
these fees to attract market participants to the MIAX PEARL market 
since this market is now established and MIAX PEARL no longer needs to 
rely on such waivers to attract market participants. The Exchange 
believes that the proposed changes are equitable and not unfairly 
discriminatory because the elimination of the non-transaction fees will 
uniformly apply to all Exchange participants based on market 
participant type.
    The Exchange believes its one-time membership application fees are 
reasonable, equitable and not unfairly discriminatory. As described 
above, the one-time application fees are similar and generally lower 
than application fees in place at other options exchanges,\40\ and are 
designed to recover costs associated with the processing of such 
applications. The Exchange believes that it is reasonable, equitable, 
and not unfairly discriminatory that Market Maker applicants are 
charged slightly more than EEM applicants because of the additional 
costs involved in processing a Market Maker's application.
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    \40\ See supra notes 18 and 19.
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    The Exchange believes it is reasonable, equitable, and not unfairly 
discriminatory to begin to assess API Testing and Certification fees 
for both Members and non-Members. The Exchange believes the proposed 
API Testing and Certification fees are a reasonable allocation of its 
costs and expenses among its Members and non-Members using its 
facilities since it is recovering the costs associated with providing 
such infrastructure testing and certification services.
    MIAX PEARL believes it is reasonable, equitable and not unfairly 
discriminatory to assess different API Testing and Certification fees 
to Members and non-Members. The higher fee charged to non-Members 
reflects the greater amount of time spent by MIAX PEARL employees 
testing and certifying non-Members. It has been MIAX PEARL's experience 
that Member testing takes less time than non-Member testing because 
Members have more experience testing these systems with exchanges; 
generally fewer questions and issues arise during the testing and 
certification process. Also, with respect to API testing and 
certification, because Third Party Vendors and Service Bureaus are 
redistributing data and reselling services to other Members and market 
participants the number and types of scenarios that need to be tested 
are more numerous and complex than those tested and certified for 
Members.
    The Exchange believes its proposal to assess monthly MPID fees to 
Members based upon the type of MPID is reasonable, equitable and not 
unfairly discriminatory because the proposed fees apply to all Members 
assigned MPIDs equally and will allow the Exchange to assess fees for 
assigning and maintaining such services. The Exchange believes its 
proposal is a reasonable allocation of fees because MPIDs provide 
Members the ability to segment their business operations in a manner 
that can be tailored to their business needs, as well as receive 
certain additional administrative and operational services provided by 
the Exchange. The proposed monthly MPID fees are equitable and not 
unfairly discriminatory because the proposed MPID fees will allow the 
Exchange to continue to maintain and enhance value-added services, 
including reporting of relevant trade information through enhanced 
reporting tools and provide ongoing services to customers that are 
assigned each MPID. The Exchange also notes that Members are not 
required to purchase multiple MPIDs. As of June 2019, the Exchange had 
41 Members (including affiliates of Members) that have at least 1 MPID 
each. Of those 41 Members, 20 Members have multiple MPIDs. Further, of 
the 20 Members with multiple MPIDs, only 8 of those Members have more 
than 4 MPIDs each. Accordingly, with the proposed fee cap of $500, 
those 8 Members with the greatest number of MPIDs would benefit from 
the proposed fee cap.
    The Exchange also believes that its proposal to establish a fee cap 
for Members on MPID fees is reasonable, equitable, and not unfairly 
discriminatory. The proposal to cap the total amount of MPID fees that 
can be assessed upon a Member to a maximum of $500 per month is 
designed to promote just and equitable principles of trade by 
encouraging Members to configure their MPID assignments with greater 
granularity and for MPID costs to not serve as a barrier for requesting 
multiple MPIDs. Because any Member is eligible to take advantage of the 
fee cap, the Exchange believes the fee cap is fair and equitable and 
not unreasonably discriminatory because it applies equally to all 
Members, and access to such fee cap is offered on terms that are not 
unfairly discriminatory.
    The Exchange believes that the proposal to remove the New Member 
Non-Transaction Fee Waiver is reasonable, equitable, and not unfairly 
discriminatory because the removal of the New Member Non-Transaction 
Fee Waiver applies equally to all new Members of the Exchange. The 
Exchange initially waived certain non-transaction fees for new Members 
in order to attract new business and encourage Members to join the 
Exchange. The Exchange believes that the New Member Non-Transaction Fee 
Waiver is no longer necessary since the MIAX PEARL market is 
established and MIAX PEARL no longer relies on such waivers to attract 
market participants. Further, the proposed rule change will not apply 
to any new Member who began receiving the New Member Non-Transaction 
Fee Waiver prior to the filing of this proposal and will continue to 
receive that benefit for the first calendar month during which they 
were approved as a Member and were credentialed to use the System in 
the production environment, and for the two (2) subsequent calendar 
months thereafter.
    Finally, 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 for services and products, in addition to order flow, to 
remain competitive with other exchanges. The Exchange believes that the 
proposed changes reflect this competitive environment.

[[Page 34450]]

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.
Intra-Market Competition
    The Exchange does not believe that the proposed rule change would 
place certain market participants at the Exchange at a relative 
disadvantage compared to other market participants or affect the 
ability of such market participants to compete. Unilateral action by 
MIAX PEARL in the assessment of certain non-transaction fees for 
services provided to its Members and others using its facilities will 
not have an impact on competition. As a more recent entrant in the 
already highly competitive environment for equity options trading, MIAX 
PEARL does not have the market power necessary to set prices for 
services that are unreasonable or unfairly discriminatory in violation 
of the Act. MIAX PEARL's proposed non-transaction fee levels, as 
described herein, are comparable to fee levels charged by other options 
exchanges for the same or similar services, including those fees 
assessed by its affiliate, MIAX.
    The Exchange believes that the proposed non-transaction fees do not 
place certain market participants at a relative disadvantage to other 
market participants because the pricing is associated with costs to the 
Exchange of the relevant fee being proposed. The proposed non-
transaction fees do not apply unequally to different size market 
participants, but instead would allow the Exchange to recoup some of 
its costs in reviewing and processing Market Maker and EEM membership 
applications; costs for API testing and certification for Members and 
non-Members to ensure proper functioning of all available order types, 
new order entry, order management, order throughput and mass order 
cancellation (as well as, for Market Makers, all available quote types, 
quote throughput, quote management and cancellation, Aggregate Risk 
Manager settings and triggers, and confirmation of quotes within the 
trading engines); and costs associated with assigning and managing 
MPIDs for Members to ensure proper reporting, monitoring and risk 
protection services for customers. Accordingly, the proposed non-
transaction fees do not favor certain categories of market participants 
in a manner that would impose a burden on competition.
    Further, the Exchange believes that the proposed rule change will 
promote transparency by making it clear to Members and non-Members the 
fees that MIAX PEARL will assess for Membership application to MIAX 
PEARL, API testing and certification, and MPID fees, as well as the cap 
on MPID fees for EEMs. This will permit Members and non-Members to more 
accurately anticipate and account for non-transactional costs, which 
promotes consistency.
Inter-Market Competition
    The Exchange believes the proposed non-transaction fees do not 
place an undue burden on competition on other SROs that is not 
necessary or appropriate. The Exchange operates in a highly competitive 
market in which market participants can readily favor one of the 16 
competing options venues if they deem fee levels at a particular venue 
to be excessive. Based on publicly-available information, and excluding 
index-based options, no single exchange has more than 16% market share. 
Therefore, no exchange possesses significant pricing power in the 
execution of multiply-listed and ETF options order flow. As of June 
2019, to date, the Exchange had less than 5% market share and the 
Exchange believes that the ever-shifting market share among exchanges 
from month to month demonstrates that market participants can 
discontinue or reduce use of certain categories of products, or shift 
order flow, in response to fee changes. In such an environment, the 
Exchange must continually adjust its fees and fee waivers to remain 
competitive with other exchanges and to attract 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,\41\ and Rule 19b-4(f)(2) \42\ 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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    \41\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \42\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-PEARL-2019-22 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-2019-22. 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

[[Page 34451]]

submissions should refer to File Number SR-PEARL-2019-22 and should be 
submitted on or before August 8, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15254 Filed 7-17-19; 8:45 am]
 BILLING CODE 8011-01-P


