[Federal Register Volume 86, Number 133 (Thursday, July 15, 2021)]
[Notices]
[Pages 37388-37391]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15037]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92367; File No. SR-PEARL-2021-31]


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

July 9, 2021.
    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 July 1, 2021, 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 Options 
Fee Schedule (the ``Fee Schedule'').
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
Pearl's principal office, and at the Commission's Public Reference 
Room.

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

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

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

1. Purpose
    The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees 
set forth in Section 1)a) of the Fee Schedule that apply to the MIAX 
Pearl Market Maker \3\ Origin, to modify the volume threshold for the 
alternative Volume Criteria in Tier 3.
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    \3\ ``Market Maker'' means a Member registered with the Exchange 
for the purpose of making markets in options contracts traded on the 
Exchange and that is vested with the rights and responsibilities 
specified in Chapter VI of Exchange Rules. See the Definitions 
Section of the Fee Schedule.
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Background
    The Exchange currently assesses transaction rebates and fees to all 
market participants which are based upon the total monthly volume

[[Page 37389]]

executed by the Member \4\ on MIAX Pearl in the relevant, respective 
origin type (not including Excluded Contracts) \5\ (as the numerator) 
expressed as a percentage of (divided by) TCV \6\ (as the denominator). 
In addition, the per contract transaction rebates and fees are applied 
retroactively to all eligible volume for that origin type once the 
respective threshold tier (``Tier'') has been reached by the Member. 
The Exchange aggregates the volume of Members and their Affiliates.\7\ 
Members that place resting liquidity, i.e., orders resting on the book 
of the MIAX Pearl System,\8\ are paid the specified ``maker'' rebate 
(each a ``Maker''), and Members that execute against resting liquidity 
are assessed the specified ``taker'' fee (each a ``Taker''). For 
opening transactions and ABBO \9\ uncrossing transactions, per contract 
transaction rebates and fees are waived for all market participants. 
Finally, Members are assessed lower transaction fees and receive lower 
rebates for order executions in standard option classes in the Penny 
Interval Program \10\ (``Penny Classes'') than for order executions in 
standard option classes which are not in the Penny Interval Program 
(``Non-Penny Classes''), where Members are assessed higher transaction 
fees and receive higher rebates.
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    \4\ ``Member'' means an individual or organization that is 
registered with the Exchange pursuant to Chapter II of the Exchange 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See the Definitions Section of 
the Fee Schedule and Exchange Rule 100.
    \5\ ``Excluded Contracts'' means any contracts routed to an away 
market for execution. See the Definitions Section of the Fee 
Schedule.
    \6\ ``TCV'' means total consolidated volume calculated as the 
total national volume in those classes listed on MIAX Pearl for the 
month for which the fees apply, excluding consolidated volume 
executed during the period time in which the Exchange experiences an 
``Exchange System Disruption'' (solely in the option classes of the 
affected Matching Engine (as defined below)). The term Exchange 
System Disruption, which is defined in the Definitions section of 
the Fee Schedule, means an outage of a Matching Engine or collective 
Matching Engines for a period of two consecutive hours or more, 
during trading hours. The term Matching Engine, which is also 
defined in the Definitions section of the Fee Schedule, is a part of 
the MIAX Pearl electronic system that processes options orders and 
trades on a symbol-by-symbol basis. Some Matching Engines will 
process option classes with multiple root symbols, and other 
Matching Engines may be dedicated to one single option root symbol 
(for example, options on SPY may be processed by one single Matching 
Engine that is dedicated only to SPY). A particular root symbol may 
only be assigned to a single designated Matching Engine. A 
particular root symbol may not be assigned to multiple Matching 
Engines. The Exchange believes that it is reasonable and appropriate 
to select two consecutive hours as the amount of time necessary to 
constitute an Exchange System Disruption, as two hours equates to 
approximately 1.4% of available trading time per month. The Exchange 
notes that the term ``Exchange System Disruption'' and its meaning 
have no applicability outside of the Fee Schedule, as it is used 
solely for purposes of calculating volume for the threshold tiers in 
the Fee Schedule. See the Definitions Section of the Fee Schedule.
    \7\ ``Affiliate'' means (i) an affiliate of a Member of at least 
75% common ownership between the firms as reflected on each firm's 
Form BD, Schedule A, or (ii) the Appointed Market Maker of an 
Appointed EEM (or, conversely, the Appointed EEM of an Appointed 
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market 
Maker (who does not otherwise have a corporate affiliation based 
upon common ownership with an EEM) that has been appointed by an EEM 
and an ``Appointed EEM'' is an EEM (who does not otherwise have a 
corporate affiliation based upon common ownership with a MIAX PEARL 
Market Maker) that has been appointed by a MIAX Pearl Market Maker, 
pursuant to the process described in the Fee Schedule. See the 
Definitions Section of the Fee Schedule.
    \8\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \9\ ``ABBO'' means the best bid(s) or offer(s) disseminated by 
other Eligible Exchanges (defined in Exchange Rule 1400(g) and 
calculated by the Exchange based on market information received by 
the Exchange from OPRA. See the Definitions Section of the Fee 
Schedule and Exchange Rule 100.
    \10\ See Securities Exchange Act Release No. 88992 (June 2, 
2020), 85 FR 35142 (June 8, 2020) (SR-PEARL-2020-06).
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Alternative Volume Criteria Threshold Change in Tier 3
    The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees 
set forth in Section 1)a) of the Fee Schedule that apply to the MIAX 
Pearl Market Maker Origin, to modify the volume threshold for the 
alternative Volume Criteria in Tier 3. The MIAX Pearl Market Maker 
Origin currently provides an alternative Volume Criteria in Tier 3, 
which is based upon the total monthly volume executed in SPY options on 
MIAX Pearl by a Market Maker when adding liquidity. Pursuant to this 
alternative Volume Criteria, Market Makers will qualify for: (i) Maker 
rebates of ($0.44) in SPY, QQQ and IWM options for their Market Maker 
Origin when trading against Origins not Priority Customer, and (ii) 
Maker rebates of ($0.42) in SPY, QQQ and IWM options for their Market 
Maker Origin when trading against Priority Customer Origins, if the 
Market Maker executes at least 1.10% [sic] in SPY options when adding 
liquidity as a percent of SPY TCV. The alternative Volume Criteria in 
Tier 3 is denoted by footnote ``[lozf]'' following the Origin tables in 
Section 1)a) of the Fee Schedule.
    The Exchange proposes to modify the threshold for the alternative 
Volume Criteria in Tier 3 of the Market Maker Origin from 1.20% to 
1.10%. Accordingly, with the proposed change to the alternative Volume 
Criteria in Tier 3, Maker Makers will qualify for: (i) Maker rebates of 
($0.44) in SPY, QQQ and IWM options for their Market Maker Origin when 
trading against Origins not Priority Customer, and (ii) Maker rebates 
of ($0.42) in SPY, QQQ and IWM options for their Market Maker Origin 
when trading against Priority Customer Origins, if the Market Maker 
executes at least 1.10% in SPY options when adding liquidity as a 
percent of SPY TCV. Other Penny classes and Non-Penny classes will 
receive the Tier 3 rates in the Market Maker Origin table. The Exchange 
will continue to calculate the alternative Volume Criteria in Tier 3 
(above 1.10% in SPY when Adding Liquidity), based on the total monthly 
volume that added liquidity that is executed by the Market Maker solely 
in SPY options on MIAX Pearl, not including Excluded Contracts, (as the 
numerator) expressed as a percentage of (divided by) SPY TCV \11\ (as 
the denominator). The Exchange notes that Market Makers that achieve 
the standard Tier 3 volume percentage but do not qualify for the 
alternative Volume Criteria in that Tier, will continue to receive the 
Tier 3 rates in the Market Maker Origin table in Penny Classes and Non-
Penny Classes. Members will continue to receive the highest tier based 
on the thresholds achieved. The Exchange proposes to make the 
corresponding change to the volume threshold percentage described in 
the explanatory paragraph in footnote ``[lozf]'' for the alternative 
Volume Criteria for Tier 3 that is below the tables in Section (1)(a) 
of the Fee Schedule.
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    \11\ ``SPY TCV'' means total consolidated volume in SPY 
calculated as the total national volume in SPY for the month for 
which the fees apply, excluding consolidated volume executed during 
the period of time in which the Exchange experiences an Exchange 
System Disruption (solely in SPY options). See the Definitions 
Section of the Fee Schedule.
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    The purpose of this proposed change is for business and competitive 
reasons. With the proposed change, Members should more easily qualify 
for the Alternative Volume criteria in Tier 3 in order to receive the 
higher Maker rebates associated with SPY, QQQ and IWM options. The 
Exchange believes the proposed change should incentivize Market Makers 
to improve their posted liquidity to the benefit of the entire market, 
which should increase order flow sent to the Exchange, benefiting all 
market participants through increased liquidity, tighter markets and 
order interaction. Additionally, as the amount and type of volume that 
is executed on the Exchange has shifted since it first established the 
alternative Volume Criteria in Tier 3, the Exchange has

[[Page 37390]]

determined to level-set this threshold amount so that it is more 
reflective of the current type and amount of volume executed on the 
Exchange.
    The Exchange cannot predict with certainty how many Market Makers 
would achieve the alternative Tier 3 Volume Criteria with the decreased 
threshold percentage, but anticipates that each Market Maker that is 
currently in Tier 3 with that alternative method will likely continue 
to reach that Tier due to that change.
    The Exchange has designated these changes to be operative on July 
1, 2021.
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)(4) of the Act,\13\ in that it 
is an equitable allocation of reasonable dues, fees and other charges 
among Exchange members and issuers and other persons using its 
facilities, and 6(b)(5) of the Act,\14\ in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanisms of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
    \14\ 15 U.S.C. 78f(b)(1) and (b)(5).
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    The Exchange believes its proposal to modify the volume threshold 
for the alternative Volume Criteria in Tier 3 provides for the 
equitable allocation of reasonable dues and fees and is not unfairly 
discriminatory for the following reasons. The Exchange operates in a 
highly competitive market. 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.'' \15\ 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 15% of the market share of 
executed volume of multiply-listed equity and ETF options trades as of 
June 29, 2021, for the month of June 2021.\16\ Therefore, no exchange 
possesses significant pricing power in the execution of multiply-listed 
equity and ETF options order flow. More specifically, as of June 29, 
2021, the Exchange had an approximately 5.32% market share of executed 
volume of multiply-listed equity and ETF options for the month of June 
2021.\17\
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    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
    \16\ See https://www.cboe.com/us/options/market_share/.
    \17\ See id.
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    The Exchange believes that the ever-shifting market shares among 
the exchanges from month to month demonstrates that market participants 
can shift order flow, or discontinue or reduce use of certain 
categories of products, in response to transaction and/or non-
transaction fee changes. For example, on February 28, 2019, the 
Exchange filed with the Commission a proposal to increase Taker fees in 
certain Tiers for options transactions in certain Penny classes for 
Priority Customers and decrease Maker rebates in certain Tiers for 
options transactions in Penny classes for Priority Customers (which fee 
was to be effective March 1, 2019).\18\ The Exchange experienced a 
decrease in total market share between the months of February and March 
of 2019, after the fees were in effect. Accordingly, the Exchange 
believes that the March 1, 2019 fee change may have contributed to the 
decrease in the Exchange's market share and, as such, the Exchange 
believes competitive forces constrain options exchange transaction fees 
and market participants can shift order flow based on fee changes 
instituted by the exchanges.
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    \18\ See Securities Exchange Act Release No. 85304 (March 13, 
2019), 84 FR 10144 (March 19, 2019) (SR-PEARL-2019-07).
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    The Exchange believes its proposal to modify the volume threshold 
for the alternative Volume Criteria in Tier 3 is reasonable, equitable, 
and not unfairly discriminatory because Members should more easily 
qualify for the Alternative Volume criteria in Tier 3, receiving higher 
Maker rebates associated with SPY, QQQ and IWM options. The Exchange 
believes the proposed change is reasonable because it should 
incentivize Market Makers to improve their posted liquidity to the 
benefit of the entire market, which should increase order flow sent to 
the Exchange, benefiting all market participants through increased 
liquidity, tighter markets and order interaction. Additionally, as the 
amount and type of volume that is executed on the Exchange has shifted 
since it first established the alternative Volume Criteria in Tier 3, 
the Exchange has determined to level-set this threshold amount so that 
it is more reflective of the current type and amount of volume executed 
on the Exchange.
    The Exchange believes the alternative Volume Criteria in Tier 3 is 
reasonable, equitable, and not unfairly discriminatory because it is a 
form of pricing already adopted by the Exchange \19\ and a form of 
pricing based upon trading activity in a select group of symbols, which 
is a common practice on many U.S. options exchanges as a means to 
incentivize order flow to be sent to an exchange for execution in 
actively traded options classes. The Exchange's affiliate, Miami 
International Securities Exchange, LLC (``MIAX''), offers 
differentiated pricing for transactions in options underlying certain 
select symbols.\20\ Other options exchanges' fee schedules distinguish 
by symbol and specifically assess different fees and rebates for 
transactions in select symbols for the same market participants.\21\
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    \19\ See generally, Section (1)(a) of the Fee Schedule for 
Market Maker Origin.
    \20\ See MIAX Options Fee Schedule, Section (1)(a)(iii).
    \21\ See Nasdaq ISE, LLC (``ISE'') Fee Schedule, Section 3, 
Regular Order Fees and Rebates. The ISE Fee Schedule provides for a 
``Market Maker Plus'' program for Select and Non-Select Symbols, 
with tiered incentives for Market Makers. Further, the ISE Fee 
Schedule provides for a linked maker rebate for SPY, QQQ and IWM, in 
which the linked maker rebate applies to executions in SPY, QQQ, and 
IWM if the ISE Market Maker does not achieve the applicable tier in 
that symbol but achieves the tier (i.e., any of the Market Maker 
Plus Tiers 2-4) for any badge/suffix combination in the other linked 
symbol, in which case the higher tier achieved applies to both 
symbols.
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    The Exchange also believes that its proposal is not unfairly 
discriminatory as all Market Makers can continue to qualify for the 
alternative Volume Criteria in Tier 3 by meeting the lowered threshold 
amount, which is designed to incentivize Market Makers to maintain 
quality markets. In addition, the Exchange continues to believe that it 
is not unfairly discriminatory to offer rebates pursuant to this 
proposal to only Market Makers because Market Makers add value through 
continuous quoting and are subject to additional requirements and 
obligations (such as quoting obligations) that other market 
participants are not.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
impose

[[Page 37391]]

any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act.
    The Exchange believes its proposal will not impose any burden on 
intra-market competition because the Exchange believes that its 
proposal will not place any category of Exchange market participant at 
a competitive disadvantage. The proposal to modify the volume threshold 
for the alternative Volume Criteria in Tier 3 is intended to improve 
market quality. The Exchange believes that its proposal will encourage 
Market Makers to improve market quality by providing the additional 
incentive to Market Makers in SPY, QQQ and IWM options for Market 
Makers that send additional SPY orders, which results in narrower bid-
ask spreads and increased depth of liquidity. This in turn will attract 
additional order flow to the Exchange. Accordingly, the Exchange 
believes that the proposed changes will continue to attract order flow 
to the Exchange, thereby encouraging additional volume and liquidity to 
the benefit of all market participants.
    The Exchange believes its proposal will not impose any burden on 
inter-market competition because 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, or rebate opportunities available at other venues to be 
more favorable. In such an environment, the Exchange must continually 
adjust its fees to remain competitive with other options exchanges. 
Because competitors are free to modify their own fees in response, and 
because market participants may readily adjust their order routing 
practices, the Exchange believes that the degree to which fee changes 
in this market may impose any burden on competition is extremely 
limited. The Exchange believes that the proposed rule changes reflect 
this competitive environment because they modify the Exchange's fees in 
a manner that encourages market participants to continue to provide 
liquidity and to send order flow to the Exchange.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\22\ and Rule 19b-4(f)(2) \23\ 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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    \22\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \23\ 17 CFR 240.19-4(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-2021-31 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-2021-31. 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-2021-31, and should be submitted 
on or before August 5, 2021.
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    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15037 Filed 7-14-21; 8:45 am]
BILLING CODE 8011-01-P


