[Federal Register Volume 85, Number 240 (Monday, December 14, 2020)]
[Notices]
[Pages 80860-80863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27386]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90591; File No. SR-PEARL-2020-34]


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

December 8, 2020.
    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 December 4, 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 fee schedule 
applicable for MIAX PEARL Equities, an equities trading facility of the 
Exchange (the ``Fee Schedule'').\3\ The proposed changes are scheduled 
to become operative on December 4, 2020.
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    \3\ See Exchange Rule 1901.
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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

    The purpose of the proposed rule change is to amend the Fee 
Schedule applicable to MIAX PEARL Equities to amend pricing for 
securities priced below $1.00 that are executed on MIAX PEARL Equities.
    The Exchange operates in a highly competitive market in which 
market participants can readily direct order flow to competing venues 
if they deem fee levels at a particular venue to be excessive or 
rebates/incentives to be insufficient. More specifically, the Exchange 
is only one of several equities venues (including both registered 
exchanges and various alternative trading systems) to which market 
participants may direct their order flow and execute their trades. 
Indeed, equity trading is currently dispersed across 16 exchanges,\4\ 
31 alternative trading systems,\5\ and numerous broker-dealer 
internalizers and wholesalers, all competing for order flow. Based on 
publicly available information, no single registered equities exchange 
currently has more than approximately 20% of total market share.\6\ 
Thus, in such a low-concentrated and highly competitive market, no 
single equities trading venue possesses significant pricing power in 
the execution of trades, and, the Exchange currently represents a very 
small percentage of the overall market.
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    \4\ See Cboe Global Markets, U.S Equities Market Volume Summary, 
available at https://markets.cboe.com/us/equities/market_share/.
    \5\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of 
alternative trading systems registered with the Commission is 
available at https://www.sec.gov/foia/docs/atslist.htm.
    \6\ See supra note 4.
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    The purpose of this proposed fee change is for business and 
competitive reasons. As a new entrant into the equities market, the 
Exchange initially adopted a fee structure that provided that orders in 
securities priced below $1.00 would be free that executed at MIAX PEARL 
Equities, regardless of whether they add or remove liquidity to 
encourage market participants to submit orders to the Exchange. In 
response to competitive forces,\7\ the Exchange recently adopted fees 
and rebates for securities priced below $1.00 where it charges a 
standard fee of 0.30% of the total dollar value of any transaction in 
securities priced below $1.00 that removes liquidity from MIAX PEARL 
Equities and provides a standard rebate of 0.30% of the total dollar 
value of any transaction in securities priced below $1.00 that adds 
displayed or non-displayed liquidity to MIAX PEARL Equities.\8\
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    \7\ See Securities Exchange Act Release No. 90555 (December 3, 
2020) (SR-MEMX-2020-14) (filed November 30, 2020).
    \8\ See SR-PEARL-2020-32 (filed December 2, 2020), available at 
https://www.miaxoptions.com/sites/default/files/filing-files/SR_PEARL_2020_32.
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    Again in response to competitive forces,\9\ the Exchange proposes 
herein to lower both the fee and rebate for securities priced below 
$1.00. Specifically, the Exchange now

[[Page 80861]]

proposes to charge a standard fee of 0.05% of the total dollar value of 
any transaction in securities priced below $1.00 that removes liquidity 
from MIAX PEARL Equities. The Exchange also now proposes to provide a 
standard rebate of 0.05% of the total dollar value of any transaction 
in securities priced below $1.00 that adds displayed or non-displayed 
liquidity to MIAX PEARL Equities.
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    \9\ See Members Exchange, LLC (``MEMX'') Trader Alert 20-13: Fee 
Schedule Updates Effective December 4, 2020 available at https://info.memxtrading.com/trader-alert-20-13-fee-schedule-updates-effective-december-4-2020/.
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    The rebate proposed herein for executed orders that add liquidity 
in securities priced below $1.00 continues to be intended to increase 
order flow in securities priced below $1.00 to MIAX PEARL Equities by 
incentivizing Equity Members \10\ to increase the liquidity-providing 
orders in securities priced below $1.00 they submit to MIAX PEARL 
Equities, which would support price discovery on MIAX PEARL Equities 
and provide additional liquidity for incoming orders. However, the 
Exchange now seeks to lower the fee to remove liquidity in securities 
priced below $1.00 on MIAX PEARL Equities to attract additional 
incoming orders that seek to remove liquidity with a corresponding 
change to similarly lower the rebate to add liquidity in securities 
priced below $1.00. As a result, the lower fee proposed herein for 
executed orders that remove liquidity from MIAX PEARL Equities 
continues to be intended to directly offset the newly proposed rebate 
provided for executed orders that add liquidity in securities priced 
below $1.00 so that MIAX PEARL Equities may continue to remain revenue 
neutral with respect to such transactions while attempting to compete 
with other venues to attract this order flow.
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    \10\ The term ``Equity Member'' means a Member authorized by the 
Exchange to transact business on MIAX PEARL Equities. See Exchange 
Rule 1901.
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    The proposed fee change will become effective on December 4, 2020. 
The Exchange does not propose any other changes to the MIAX PEARL 
Equities Fee Schedule.

2. Statutory Basis

    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \11\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \12\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among its members and issuers and other persons using 
its facilities. As discussed above, the Exchange operates in a highly 
fragmented and competitive market. The Commission has repeatedly 
expressed its preference for competition over regulatory intervention 
in determining prices, products, and services in the securities 
markets. Market participants can readily direct order flow to competing 
venues if they deem fee levels at a particular venue to be excessive or 
rebates/incentives to be insufficient. The Exchange believes that the 
Fee Schedule reflects a simple and competitive pricing structure, which 
is designed to incentivize market participants to add aggressively 
priced displayed liquidity and direct their order flow to the Exchange. 
The Exchange believes the proposed rebate and fee structure for orders 
that add or remove liquidity in securities priced below $1.00 would 
continue to incentivize submission of additional liquidity in 
securities priced below $1.00, thereby promoting price discovery and 
deepen liquidity, enhancing order execution opportunities for all 
Equity Members and investors.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    In particular, the Exchange believes that the proposed rebate for 
orders that add liquidity in securities priced below $1.00 is 
reasonable because it would continue to incentivize Equity Members to 
direct more order flow in securities priced below $1.00 to the 
Exchange. The Exchange notes that one other exchange provides the same 
rebate as proposed herein,\13\ and other exchanges provide rebates for 
liquidity-adding transactions in securities priced below $1.00, but 
that these are denominated in dollar amounts per share rather than a 
percentage of the total dollar amount of the transaction.\14\ The 
Exchange expects that the proposed rebate for orders that add liquidity 
in securities priced below $1.00, albeit lower than that previously in 
place, would continue to typically result in a higher overall credit 
for a given transaction than the rebates offered by other exchanges, 
although the Exchange notes that it may also result in a lower overall 
credit for such transactions depending on the number of shares traded 
and the total dollar value of the transaction. The Exchange also 
believes that the proposed lower fee for orders that remove liquidity 
in securities priced below $1.00 is reasonable because it is in line 
with the fees charged by at least one other exchange \15\ while also 
seeking to attract an increased number of liquidity-removing 
transactions in securities priced below $1.00 on MIAX PEARL Equities. 
The Exchange believes an increase in liquidity removing orders may lead 
to a corresponding increase in liquidity adding orders, thereby 
increasing the depth of the MIAX PEARL Equities' Book and improving 
price discovery.
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    \13\ See supra note 9.
    \14\ See, e.g., the Cboe EDGX equities trading fee schedule on 
its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/), which reflects a rebate of 
$0.00009 per share for liquidity-adding transactions in securities 
priced below $1.00 per share; the NYSE Arca equities trading fee 
schedule on its public website (available at https://www.nyse.com/publicdocs/nyse/markets/nysearca/NYSE_Arca_Marketplace_Fees.pdf), 
which reflects a rebate of $0.00004 per share for liquidity-adding 
transactions in securities priced below $1.00 per share.
    \15\ See supra note 9.
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    The Exchange believes that, given the competitive environment in 
which MIAX PEARL Equities currently operates, the proposed pricing 
structure, with an offsetting fee and rebate for executions of 
transactions in securities priced below $1.00 continues to be a 
reasonable attempt to increase liquidity in securities priced below 
$1.00 on MIAX PEARL Equities and improve the MIAX PEARL Equities' 
market share relative to its competitors while remaining revenue 
neutral with respect to such transactions.
    The Exchange also believes that the proposed fee and rebate 
structure applicable to executions of transactions in securities priced 
below $1.00 continues to be equitably allocated and not unfairly 
discriminatory because it applies equally to all Equity Members and is 
reasonably related to the value of MIAX PEARL Equities' market quality 
associated with higher volume. A number of Equity Members currently 
transact in securities priced below $1.00 and they, along with 
additional Equity Members that choose to direct order flow in 
securities priced below $1.00 to the Exchange, would all continue to 
qualify for the proposed fee and rebate. The Exchange believes that 
maintaining or increasing the proportion of transactions in securities 
priced below $1.00 that are executed on MIAX PEARL Equities would 
benefit all investors by deepening the MIAX PEARL Equities' liquidity 
pool, which would support price discovery, promote market transparency 
and improve investor protection, further rendering the proposed changes 
reasonable and equitable.
    Further, the Commission and the courts have repeatedly expressed 
their preference for competition over regulatory intervention in 
determining prices, products, and services in the securities markets. 
In Regulation NMS, while adopting a series of steps to improve the 
current market model, the Commission highlighted the importance of 
market forces in determining prices and SRO revenues and, also, 
recognized

[[Page 80862]]

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.'' \16\
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    \16\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (File No. S7-10-04) (``Regulation 
NMS'').
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    As the Commission itself recognized, the market for trading 
services in NMS stocks has become ``more fragmented and competitive.'' 
\17\ Indeed, equity trading is currently dispersed across 16 
exchanges,\18\ 31 alternative trading systems,\19\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow. 
Based on publicly-available information, no single exchange currently 
has more than 20% market share (whether including or excluding auction 
volume).\20\ Therefore, no exchange possesses significant pricing power 
in the execution of equity order flow. More specifically, the Exchange 
only recently launched trading operations on September 25, 2020, and 
thus has a market share of approximately less than 1% of executed 
volume of equities trading.
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    \17\ See Securities Exchange Act Release No. 82873 (March 14, 
2018), 83 FR 13008 (March 26, 2018) (File No. S7-05-18) (Transaction 
Fee Pilot for NMS Stocks).
    \18\ See supra note 4.
    \19\ See supra note 5.
    \20\ See supra note 4.
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    The Exchange has designed its proposed rates for securities priced 
below $1.00 to balance the need to attract order flow as a new exchange 
entrant with the desire to continue to provide a simple pricing 
structure to market participants. The Exchange believes its proposed 
rates for securities priced below $1.00 structure continues to enable 
the Exchange to compete for order flow. In fact, this proposal and its 
predecessor \21\ are direct competitive responses to recent changes 
made by another exchange.\22\ The Exchange believes that the ever-
shifting market share among the exchanges demonstrates that market 
participants can shift order flow, or discontinue or reduce use of 
certain categories of products, in response to fee changes. With 
respect to non-marketable orders which provide liquidity on an 
exchange, Equity Members can choose from any one of the 16 currently 
operating registered exchanges to route such order flow. Accordingly, 
competitive forces reasonably constrain exchange transaction fees that 
relate to orders that would provide displayed liquidity on an exchange. 
Stated otherwise, changes to exchange transaction fees can have a 
direct effect on the ability of an exchange to compete for order flow. 
Given this competitive environment, the Exchange's proposed rates for 
securities priced below $1.00 represents a reasonable attempt to 
attract order flow to a new exchange entrant.
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    \21\ See supra note 8.
    \22\ See supra notes 7 and 9.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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. Rather, the Exchange believes 
that the proposed change would encourage the submission of additional 
order flow to a public exchange, thereby promoting market depth, 
execution incentives and enhanced execution opportunities, as well as 
price discovery and transparency for all Equity Members and non-Equity 
Members. As a result, the Exchange believes that the proposed change 
furthers the Commission's goal in adopting Regulation NMS of fostering 
competition among orders, which promotes ``more efficient pricing of 
individual stocks for all types of orders, large and small.'' \23\
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    \23\ See supra note 16.
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    The Exchange does not believe that the proposed rates for 
securities priced below $1.00 will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. To the contrary, the Exchange believes that the 
proposed rates will continue to increase competition and they are 
intended to draw volume to the Exchange. As stated above, this proposal 
and its predecessor \24\ are direct competitive responses to recent 
changes made by another exchange.\25\ The Exchange believes that the 
ever-shifting market share among the exchanges demonstrates that market 
participants can shift order flow or discontinue to reduce use of 
certain categories of products, in response to new or different pricing 
structures being introduced into the market. Accordingly, competitive 
forces constrain the Exchange's transaction fees and rebates, and 
market participants can readily trade on competing venues if they deem 
pricing levels at those other venues to be more favorable. As a new 
exchange, the Exchange faces intense competition from existing 
exchanges and other non-exchange venues that provide markets for 
equities trading.
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    \24\ See supra note 8.
    \25\ See supra notes 7 and 9.
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    Further, while pricing incentives do cause shifts of liquidity 
between trading centers, market participants make determinations on 
where to provide liquidity or route orders to take liquidity based on 
factors other than pricing, including technology, functionality, and 
other considerations. Consequently, the Exchange believes that the 
degree to which its proposed rates for securities priced below $1.00 
could impose any burden on competition is extremely limited, and does 
not believe that such rates would burden competition of Equity Members 
or competing venues in a manner that is not necessary or appropriate in 
furtherance of the purposes of the Act.
    The Exchange does not believe that the proposed rates for 
securities priced below $1.00 will impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because the proposed rates for securities priced 
below $1.00 will continue to apply equally to all Equity Members. The 
proposed rates for securities priced below $1.00 continue to be 
intended to encourage market participants to both remove and add 
liquidity to the Exchange by providing a rates that are comparable to 
those offered by other exchanges, which the Exchange believes will help 
to encourage Equity Members to send orders to the Exchange to the 
benefit of all Exchange participants. As the proposed pricing structure 
for securities priced below $1.00 are equally applicable to all market 
participants, the Exchange does not believe there is any burden on 
intramarket competition.

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,\26\ and Rule 19b-4(f)(2) \27\ 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

[[Page 80863]]

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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    \26\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \27\ 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-2020-34 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-2020-34. 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-2020-34, and should be submitted 
on or before January 4, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27386 Filed 12-11-20; 8:45 am]
BILLING CODE 8011-01-P


