[Federal Register Volume 86, Number 60 (Wednesday, March 31, 2021)]
[Notices]
[Pages 16795-16797]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-06562]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91406; File No. SR-EMERALD-2021-10]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the MIAX Emerald Fee Schedule To Adopt an Excessive Quoting Fee

March 25, 2021.
    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 March 12, 2021, MIAX Emerald, LLC (``MIAX Emerald'' 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 Emerald Fee 
Schedule (the ``Fee Schedule'') to adopt new Section 1)c), Excessive 
Quoting Fee.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/emerald, at MIAX's 
principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule to adopt new 
Section 1)c), Excessive Quoting Fee.
Background
    The Exchange initially filed its proposal to adopt the Excessive 
Quoting Fee on February 8, 2021.\3\ On February 22, 2021, the Exchange 
withdrew the First Proposed Rule Change and now resubmits this proposal 
to provide additional background information and make further changes 
due to business reasons.
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    \3\ See SR-EMERALD-2021-06 (the ``First Proposed Rule Change'').
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    The Exchange recently completed a significant upgrade to its 
System's \4\ network architecture, based on customer demand, which has 
resulted in the Exchange's network environment becoming more 
transparent and deterministic. This project included additional network 
development in several areas, which resulted in: (i) Minimum latency 
between multicast market data signals disseminated by the Exchange 
across the extranet switches; (ii) a reduction in the occurrence of 
message sequence inversions from Members \5\ to the Exchange quoting 
gateway processors; (iii) assurance of the optical fiber path for 
participants within extremely tight tolerances; (iv) a re-architected 
and engineered participant quoting gateway; and (v) the Exchange being 
able to better measure the performance of the network and System at 
extremely tight tolerances and the ability to provide Members with 
reporting on the performance of their own systems.
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    \4\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \5\ ``Member'' means an individual or organization approved to 
exercise the trading rights associated with a Trading Permit. 
Members are deemed ``members'' under the Exchange Act. See the 
Definitions Section of the Fee Schedule and Exchange Rule 100.
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Proposal
    The Exchange proposes to amend the Fee Schedule to adopt new 
Section 1)c), Excessive Quoting Fee. The Exchange proposes to assess an 
Excessive Quoting Fee of $10,000 per day to any Market Maker \6\ that 
exceeds 2.5 billion inbound quotes \7\ sent to the Exchange on that 
particular day. In counting the total number of quotes for the purposes 
of the Excessive Quoting Fee, the Exchange proposes to exclude messages 
that are generated as a result of sending a mass purge message to the 
Exchange. The Exchange proposes that the 2.5 billion inbound quote 
limit for the Excessive Quoting Fee will reset each trading day.
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    \6\ The term ``Market Maker'' refers to ``Lead Market Maker'' 
(``LMM''), ``Primary Lead Market Maker'' (``PLMM'') and ``Registered 
Market Maker'' (``RMM''), collectively. See the Definitions Section 
of the Fee Schedule and Exchange Rule 100.
    \7\ The term ``quote'' or ``quotation'' means a bid or offer 
entered by a Market Maker that is firm and may update the Market 
Maker's previous quote, if any. The Rules of the Exchange provide 
for the use of different types of quotes, including Standard quotes 
and eQuotes, as more fully described in Rule 517. A Market Maker 
may, at times, choose to have multiple types of quotes active in an 
individual option. See the Definitions Section of the Fee Schedule.
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    The purpose of this proposal is to ensure that Market Makers do not 
over utilize the Exchange's System by sending excessive quotes to the 
Exchange, to the detriment of all other Members of the Exchange. Market 
Makers that send an excessive number of quotes to the Exchange on any 
particular day have the potential residual effect of exhausting System 
resources, bandwidth, and capacity. In turn, this may create latency 
and impact other Members' and non-Members' ability to send messages to 
the Exchange and receive timely executions.
    The Exchange's high performance network provides unparalleled 
system throughput and the capacity to handle approximately 38 million 
messages per second. On an average day, the Exchange handles over 
approximately 11 billion total messages. These billions of messages per 
day consume the Exchange's resources, particularly storage 
capabilities. The combination of (i) Member quoting behavior, (ii) 
increased volatility in the marketplace, and (iii) increased number of 
options products quoted on the Exchange has a significant impact on the 
total number of quotes sent each trading day, resulting in additional 
storage capacity. The Exchange believes this proposal will reduce the 
potential for market participants to engage in excessive quoting 
behavior that would require the Exchange to increase its storage 
capacity and will encourage quotes to be made in good faith.
    Recognizing that orders and executions often occur in large 
numbers, the purpose of this proposal is to focus on activity that is 
truly disproportionate while fairly allocating costs. The proposal 
contemplates that a Market Maker would have to exceed the high 
threshold of 2.5 billion inbound quotes before that Market Maker would 
be charged the proposed fee on that particular trading day. The 
Exchange

[[Page 16796]]

believes that it is in the interests of all Members and market 
participants who access the Exchange to not allow other market 
participants to exhaust System resources, but to encourage efficient 
usage of network capacity.
    The Exchange believes that this concept is not new or novel.\8\ The 
Exchange notes that although prior similar proposals from other 
exchanges relating to capacity-type fees focused on flow through 
capacity, the Exchange has determined to adopt a quote cap methodology 
at this time for business reasons. The Exchange's proposal is not 
intended to raise revenue; rather, it is intended to encourage 
efficient quoting behavior so that market participants do not exhaust 
System resources.
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    \8\ See Securities Exchange Act Release No. 60117 (June 16, 
2009), 74 FR 30190 (June 24, 2009) (SR-AMEX-2009-25) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Amending 
the Schedule of Fees and Charges for Exchange Services by Adding a 
Ratio Threshold Fee); 64655 (June 13, 2011), 76 FR 35495 (June 17, 
2011) (SR-AMEX-2011-37) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change Amending the NYSE Amex Options 
Fee Schedule To Establish a New Fee Designed To Encourage Efficient 
Use of Bandwidth by ATP Firms and To Rename a Related Existing Fee); 
53522 (March 20, 2006), 71 FR 14975 (March 24, 2006) (SR-ISE-2006-
09) (Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change and Amendment No. 1 Thereto Relating to Session/API Fees); 
55941 (June 21, 2007), 72 FR 35535 (June 28, 2007) (SR-ISE-2007-36) 
(Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change as Modified by Amendment No. 1 Thereto Relating to API Fees); 
84963 (December 26, 2018), 84 FR 830 (January 31, 2019) (SR-CboeBZX-
2018-095) (Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend the BZX Equities Fee Schedule).
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    The Exchange believes adopting the proposed fee will protect the 
integrity of the MIAX Emerald market and benefit all market 
participants of MIAX Emerald by ensuring that the Exchange's System is 
not overloaded from excessive quotes being sent to it each day. The 
Exchange notes that it will provide Market Makers with daily reports, 
free of charge, which will detail their quoting activity in order for 
those firms to be fully aware of the number of quotes they are sending 
to the Exchange. This will allow firms to ensure that their quoting 
behavior does not approach the proposed 2.5 billion inbound quote 
limit.
    The Exchange notes that since the launch of MIAX Emerald in March 
of 2019, no Market Maker has reached approximately more than two thirds 
of the proposed 2.5 billion inbound quote limit threshold during peak 
trading days, including days with high volatility in the marketplace. 
Accordingly, the Exchange does not anticipate that any Market Maker 
will exceed the proposed 2.5 billion inbound quote limit and become 
subject to the proposed fee. The Exchange notes that this proposal is 
not intended to raise revenue for the Exchange; rather, it is intended 
to ensure that Market Makers are using their quoting methodologies in 
the most efficient manner possible in light of the Exchange's highly 
deterministic and transparent infrastructure.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \9\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act \10\ 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 \11\ in that it is designed to 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general protects investors and the public 
interest and is not designed to permit unfair discrimination between 
customers, issuers, brokers and dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal is designed to promote just 
and equitable principles of trade, remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general to protect investors and the public interest and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers and dealers because it will encourage efficient utilization of 
the Exchange's highly deterministic and transparent network 
architecture. The Exchange believes that unfettered usage of System 
capacity and network resource consumption can have a detrimental effect 
on all market participants who are potentially compelled to send quote 
messages to the Exchange on an unlimited basis, to the detriment of all 
other market participants who access and use the Exchange. Further, the 
proposed fee and message limit will apply equally to all Market Makers 
who send quotes to the Exchange in excess of 2.5 billion inbound quotes 
on any particular trading day.
    The Exchange believes that the proposal is not unfairly 
discriminatory due to the substantial quote limit that the proposal 
contemplates before the proposed fee kicks in, as well as the normal 
Market Maker quote traffic that the Exchange has experienced since it 
began operations in March of 2019. In addition, the Exchange believes 
that by excluding messages that are generated from a mass purge message 
sent to the Exchange from the calculation of the total quotes for the 
proposed fee is not unfairly discriminatory because it will keep from 
disadvantaging firms that choose to use mass purges on a regular basis 
for risk management reasons. The Exchange notes that since the launch 
of MIAX Emerald in March of 2019, no Market Maker has reached 
approximately more than two-thirds of the proposed 2.5 billion inbound 
quote limit threshold during peak trading days, including days with 
high volatility in the marketplace. The Exchange does not anticipate 
that any Market Maker will exceed the proposed 2.5 billion inbound 
quote limit and become subject to the proposed fee.
    The Exchange further believes that its proposal is reasonable, 
equitably allocated and not unfairly discriminatory because it is not 
intended to raise revenue for the Exchange; rather, it is intended to 
ensure that Market Makers are using their quoting methodologies in the 
most efficient manner possible in light of the Exchange's highly 
deterministic and transparent infrastructure. The Exchange believes 
that the proposed fee and quote limit is reasonable, equitably 
allocated and not unfairly discriminatory because this proposal will 
reduce the potential for market participants to engage in excessive 
quoting behavior that would require the Exchange to increase its 
storage capacity and will encourage quotes to be made in good faith. 
The Exchange notes that other exchanges have implemented similar fees 
and capacity type-limits in order to deter their firms from over-
utilizing their trading systems and exhausting system resources, while 
encouraging the efficient usage of system resources.\12\
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    \12\ See supra note 8.
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    The Exchange therefore believes that the proposed Excessive Quoting 
Fee both appropriately reflects the benefits to different firms of 
being able to send quotes into the Exchange's trading System, and 
facilitates the Commission's goal of ensuring that critical market 
infrastructure has ``levels of capacity, integrity, resiliency, 
availability, and security adequate to maintain their operational 
capability and promote the maintenance of fair and orderly markets.'' 
\13\
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    \13\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72251 (December 5, 2014) (File No. S7-01-13) 
(Regulation SCI Adopting Release).

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[[Page 16797]]

    The Exchange will also review the quoting behavior of all firms on 
a regular basis to ensure that the inbound quote limit remains 
significantly higher than the average firm quoting behavior, while 
taking into account varying market conditions. The Exchange will 
regularly monitor prevailing market conditions to ensure that the 
inbound quote limit is sufficiently flexible and could not 
inadvertently result in higher than anticipated fees being charged to 
firms that are providing liquidity in volatile, high volume markets. 
The Exchange does not want to discourage such liquidity provision and 
believes that it should be able to adjust the inbound quote limit on a 
monthly basis if need be.

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.
Intra-Market Competition
    The Exchange believes that the proposal does not put any market 
participants at a relative disadvantage compared to other market 
participants because the proposed fee and message limit will apply 
equally to all Market Makers who send quotes to the Exchange in excess 
of 2.5 billion inbound quotes on any particular trading day. The 
Exchange also believes that the proposed fee neither favors nor 
penalizes one or more categories of market participants in a manner 
that would impose an undue burden on competition. Rather, the proposal 
seeks to benefit all market participants by encouraging the efficient 
utilization of the Exchange's highly deterministic and transparent 
network architecture. Further, the Exchange notes that since the launch 
of MIAX Emerald in March of 2019, no Market Maker has reached 
approximately more than two-thirds of the proposed 2.5 billion inbound 
quote limit threshold during peak trading days, including days with 
high volatility in the marketplace. Accordingly, the Exchange does not 
anticipate that any Market Maker will exceed the proposed 2.5 billion 
inbound quote limit and become subject to the proposed fee. 
Accordingly, the Exchange believes that the proposed Excessive Quoting 
Fee does not favor certain categories of market participants in a 
manner that would impose a burden on competition.
Inter-Market Competition
    The Exchange believes the proposal does not place an undue burden 
on competition on other self-regulatory organizations that is not 
necessary or appropriate because of the availability of numerous 
substitute options exchanges. There are 15 other options exchanges 
where market participants can become members and send quotes if they 
deem the 2.5 billion inbound quote limit to be too restrictive for 
their quoting behavior. In addition, the Exchange does not believe the 
proposal will impose any burden on inter-market competition as the 
proposal does not address any competitive issues; rather, it is 
intended to protect all market participants of MIAX Emerald by ensuring 
that the Exchange's System is not overloaded from excessive quotes 
being sent to it each day.

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,\14\ and Rule 19b-4(f)(2) \15\ 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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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 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-EMERALD-2021-10 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-EMERALD-2021-10. 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-EMERALD-2021-10 and should be submitted 
on or before April 21, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-06562 Filed 3-30-21; 8:45 am]
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