[Federal Register Volume 85, Number 177 (Friday, September 11, 2020)]
[Notices]
[Pages 56281-56284]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20022]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89774; File No. SR-PEARL-2020-12]


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

September 4, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 25, 2020, 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 increase the number of additional 
Limited Service MIAX Express Order Interface (``MEO'') Ports available 
to Market Makers.\3\ The Exchange does not propose to amend the fees 
for additional Limited Service MEO Ports.
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    \3\ The term ``Market Maker'' or ``MM'' 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 the 
Exchange's Rules. See Exchange Rule 100.
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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.

[[Page 56282]]

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 Fee Schedule to offer two (2) 
additional Limited Service MEO Ports to Market Makers. The Exchange 
does not propose to amend the fees charged for the additional Limited 
Service MEO Ports.
    The Exchange initially filed the proposal to increase the number of 
Limited Service MEO Ports available to Market Makers on June 30, 2020, 
with no change to the actual fee amounts being charged.\4\ The First 
Proposed Rule Change was published for comment in the Federal Register 
on July 20, 2020.\5\ On August 25, 2020, the Exchange withdrew the 
First Proposed Rule Change.\6\
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    \4\ See Securities Exchange Act Release No. 89316 (July 14, 
2020), 85 FR 43898 (July 20, 2020) (SR-PEARL-2020-09) (the ``First 
Proposed Rule Change'').
    \5\ Id.
    \6\ See Comment Letter from Christopher Solgan, VP, Senior 
Counsel, the Exchange, dated August 24, 2020, notifying the 
Commission that the Exchange will withdraw the First Proposed Rule 
Change.
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    The Exchange notes that the First Proposed Rule Change did not 
receive any comment letters; however, the Exchange has determined to 
refile its proposal to increase the number of Limited Service MEO Ports 
available to Market Makers (without increasing the actual fee amounts) 
to provide further clarification regarding the Exchange's annual cost 
for providing additional Limited Service MEO Ports.
    The Exchange currently offers different options of MEO Ports 
depending on the services required by an Exchange Member,\7\ including 
a Full Service MEO Port-Bulk,\8\ a Full Service MEO Port-Single,\9\ and 
a Limited Service MEO Port.\10\ Currently, a Member may be allocated 
two (2) Full-Service MEO Ports of either type, Bulk and/or Single, per 
Matching Engine, and up to eight (8) Limited Service MEO Ports, per 
Matching Engine. The two (2) Full-Service MEO Ports that may be 
allocated per Matching Engine to a Member currently may consist of: (a) 
Two (2) Full Service MEO Ports--Bulk; or (b) two (2) Full Service MEO 
Ports--Single. The Exchange also has a third option, option (c), which 
permits a Member to have one (1) Full Service MEO Port--Bulk, and one 
(1) Full Service MEO Port--Single.
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    \7\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of these 
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.
    \8\ ``Full Service MEO Port--Bulk'' means an MEO port that 
supports all MEO input message types and binary bulk order entry. 
See the Definitions Section of the Fee Schedule.
    \9\ ``Full Service MEO Port--Single'' means an MEO port that 
supports all MEO input message types and binary order entry on a 
single order-by-order basis, but not bulk orders. See the 
Definitions Section of the Fee Schedule.
    \10\ ``Limited Service MEO Port'' means an MEO port that 
supports all MEO input message types, but does not support bulk 
order entry and only supports limited order types, as specified by 
the Exchange via Regulatory Circular. See the Definitions Section of 
the Fee Schedule.
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    The Exchange currently provides Market Makers the first two (2) 
requested Limited Service MEO Ports free of charge and charges $200 per 
month for Limited Service MEO Ports three (3) and four (4), $300 per 
month for Limited Service MEO Ports five (5) and six (6), and $400 per 
month for Limited Service MEO Ports seven (7) and eight (8). These fees 
have been unchanged since they were adopted in 2018.\11\
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    \11\ See Securities Exchange Act Release No. 83867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
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    The Exchange originally added the Limited Service MEO Ports to 
enhance the MEO Port connectivity made available to Market Makers. 
Limited Service MEO Ports have been well received by Market Makers 
since their addition. The Exchange now proposes to offer to Market 
Makers the ability to purchase an additional two (2) Limited Service 
MEO Ports per matching engine over and above the current six (6) 
additional Limited Service MEO Ports per matching engine that are 
available for purchase by Market Makers. The Exchange proposes making a 
corresponding change to the text in the Port Fee table and to the text 
below the Port Fee table in Section 5(d) of the Fee Schedule to specify 
that Market Makers will now be limited to purchasing eight (8) 
additional Limited Service MEO Ports per matching engine, for a total 
of ten (10) per matching engine. All fees related to MEO Ports shall 
remain unchanged and Market Makers that voluntarily purchase the 
additional ninth or tenth Limited Service MEO Ports will be subject to 
the existing $400 monthly fee per port that is charged to Market Makers 
that request a seventh or eighth Limited Service MEO Port.
    The Exchange is increasing the number of additional Limited Service 
MEO Ports because the Exchange is expanding its network. This network 
expansion is necessary due to increased customer demand and increased 
volatility in the marketplace, both of which have translated into 
increased message traffic rates across the network. Consequently, this 
network expansion, which increases the number of switches supporting 
customer facing systems, is necessary in order to provide sufficient 
access to new and existing Members, to maintain a sufficient amount of 
network capacity head-room, and to continue to provide the same level 
of service across the Exchange's low-latency, high-throughput 
technology environment.
    Currently, the Exchange has 8 network switches that support the 
entire customer base of MIAX PEARL. The Exchange plans to increase this 
to 10 switches, which will increase the number of available customer 
ports by 25%. This increase in the number of available customer ports 
will enable the Exchange to continue to provide sufficient and equal 
access to the MIAX PEARL System to all Members. Absent the proposed 
increase in available MEO Ports, the Exchange projects that its current 
inventory will be depleted and it will lack sufficient capacity to 
continue to meet Members' access needs.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \12\ in general, and 
furthers the objectives of Section 6(b)(5) of the Act \13\ 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal is consistent with the 
objectives of Section 6(b)(5) of the Act \14\ because the proposed 
additional Limited Service MEO Ports will be

[[Page 56283]]

available to all Market Makers and the current fees for the additional 
Limited Service MEO Ports apply equally to all Market Makers regardless 
of type, and access to the Exchange is offered on terms that are not 
unfairly discriminatory. The Exchange is proposing to increase the 
number of available Limited Service MEO Ports because the Exchange is 
expanding its network. This network expansion is necessary due to 
increased customer demand and increased volatility in the marketplace, 
both of which have translated into increased message traffic rates 
across the network. Consequently, this network expansion, which 
increases the number of switches supporting customer facing systems, is 
necessary in order to provide sufficient and equal access to new and 
existing Members, to maintain a sufficient amount of network capacity 
head-room, and to continue to provide the same level of service across 
the Exchange's low-latency, high-throughput technology environment.
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    \14\ 15 U.S.C. 78f(b)(5).
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    Currently, the Exchange has 8 network switches that support the 
entire customer base of MIAX PEARL. The Exchange plans to increase this 
to 10 switches, which will increase the number of available customer 
ports by 25%. This increase in the number of available customer ports 
will enable the Exchange to continue to provide sufficient and equal 
access to MIAX PEARL Systems for all Members. Absent the proposed 
increase in available MEO Ports, the Exchange projects that its current 
inventory will be depleted and it will lack sufficient capacity to 
continue to meet Members' access needs. Further, the Exchange notes 
that decision of whether to purchase two additional Limited Service MEO 
Ports is completely optional and it is a business decision for each 
Market Maker to determine whether the additional Limited Service MEO 
Ports are necessary to meet their business requirements.
    The Exchange further believes that the availability of the 
additional Limited Service MEO Ports is equitable and not unfairly 
discriminatory because it will enable Market Makers to maintain 
uninterrupted access to the MIAX PEARL System and consequently enhance 
the marketplace by helping Market Makers to better manage risk, thus 
preserving the integrity of the MIAX markets, all to the benefit of and 
protection of investors and the public as a whole.
    The Exchange also believes that its proposal is consistent with 
Section 6(b)(4) of the Act because only Market Makers that voluntarily 
purchase the two additional Limited Service MEO Ports will be charged 
the existing $400 monthly fee per port applicable to ports seven (7) 
and eight (8), which has been unchanged since adopted 2018.\15\ The 
Exchange does not propose to amend the fees applicable to additional 
Limited Service MEO Ports which have been previously filed with the 
Commission and become effective after notice and public comment.\16\ As 
stated above, the Exchange proposes to expand its network by making 
available two additional Limit Service MEO Ports due to increased 
customer demand and increased volatility in the marketplace, both of 
which have translated into increased message traffic rates across the 
network. The cost to expand the network in this manner is greater than 
the revenue the Exchange anticipates the additional Limited Service MEO 
Ports will generate. Specifically, the Exchange estimates it will incur 
a one-time cost of approximately $175,000 in capital expenditures on 
hardware, software, and other items to expand the network to make 
available the two additional Limited Service MEO Ports. This estimated 
cost also includes expense associated with providing the necessary 
engineering and support personnel to transition those Market Makers who 
wish to acquire the two additional Limited Service MEO Ports.
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    \15\ See supra note 11.
    \16\ Id.
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    The Exchange projects that approximately six or seven Market Makers 
will elect to purchase the additional Limited Service MEO Ports, which 
will be subject to the existing monthly fee of $400 per port applicable 
to ports seven (7) and eight (8). Accordingly, the Exchange projects 
that the annualized revenue from the two additional Limited Service MEO 
Ports will be approximately $67,200 (assuming that seven Market Makers 
purchase the two additional Limited Service MEO Ports). Therefore, the 
Exchange's cost in expanding its network to provide its Members with 
the two additional Limited Service MEO Ports--approximately $175,000--
is clearly greater than the anticipated annualized revenue the Exchange 
expects to bring in from the two additional Limited Service MEO Ports--
approximately $67,200. Further, the Exchange anticipates it will incur 
approximately $88,636 in annual ongoing operating expense in order to 
support the expanded network and the two additional Limited Service MEO 
Ports. Thus, the Exchange is not generating a supra-competitive profit 
from the provision of these two additional Limited Service MEO Ports. 
In fact, even excluding the one-time capital expenditure cost of 
$175,000, the Exchange anticipates generating an annual loss from the 
provision of these two additional Limited Service MEO Ports of 
($26,136)--that is, $67,200 in revenue minus $88,636 in expense equates 
to a loss of ($26,136) to support the additional ports annually.
    Subjecting the two additional Limited Service MEO Ports to the 
existing $400 monthly fee per port applicable to ports seven (7) and 
eight (8) is also designed to encourage Market Makers to be efficient 
with their port usage, thereby resulting in a corresponding increase in 
the efficiency that the Exchange would be able to realize in managing 
its aggregate costs for providing the two additional ports. There is no 
requirement that any Market Maker maintain a specific number of Limited 
Service MEO Ports and a Market Maker may choose to maintain as many or 
as few of such ports as each Market Maker deems appropriate.
    Finally, subjecting the two additional Limited Service MEO Ports to 
the existing $400 monthly fee applicable to ports seven (7) and eight 
(8) will help to encourage Limited Service MEO Port usage in a way that 
aligns with the Exchange's regulatory obligations. As a national 
securities exchange, the Exchange is subject to Regulation Systems 
Compliance and Integrity (``Reg. SCI'').\17\ Reg. SCI Rule 1001(a) 
requires that the Exchange establish, maintain, and enforce written 
policies and procedures reasonably designed to ensure (among other 
things) that its Reg. SCI systems have levels of capacity adequate to 
maintain the Exchange's operational capability and promote the 
maintenance of fair and orderly markets.\18\ By encouraging Members to 
be efficient with their usage of Limited MEO Ports, the current fee 
that will continue to apply to the proposed two (2) additional Limited 
Service MEO Ports will support the Exchange's Reg. SCI obligations in 
this regard by ensuring that unused ports are available to be allocated 
based on individual Members needs and as the Exchange's overall order 
and trade volumes increase.
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    \17\ 17 CFR 242.1000-1007.
    \18\ 17 CFR 242.1001(a).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    MIAX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

[[Page 56284]]

The proposed rule change will not impose a burden on competition but 
will benefit competition by enhancing the Exchange's ability to compete 
by providing additional services to market participants. It is not 
intended to address a competitive issue. Rather, the proposed increase 
in the number of additional Limited Service MEO Ports available per 
Market Maker is intended to allow the Exchange to increase its 
inventory of MEO Ports to meet increased Member demand. The Exchange is 
increasing the number of available additional Limited Service MEO Ports 
in response to Market Maker demand for increased connectivity to the 
MIAX PEARL System. The Exchange's current inventory may soon be 
insufficient to meet those needs. Again, the Exchange is not proposing 
to amend the fees for MEO Ports, just to increase the number of MEO 
Ports available per Market Maker. The Exchange also does not believe 
that the proposed rule change will impose a burden on intramarket 
competition because the two additional Limited Service MEO Ports will 
be available to all Market Makers on an equal basis. It is a business 
decision of each Market Maker whether to pay for the additional Limited 
Service MEO Ports.

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,\19\ and Rule 19b-4(f)(2) \20\ 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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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \20\ 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-2020-12 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-2020-12. 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-2020-12 and should be submitted on 
or before October 2, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-20022 Filed 9-10-20; 8:45 am]
BILLING CODE 8011-01-P


