[Federal Register Volume 86, Number 133 (Thursday, July 15, 2021)]
[Notices]
[Pages 37376-37379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15033]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92363; File No. SR-PEARL-2021-30]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Fees for 
Purge Ports

July 9, 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 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 amend the fees for MIAX Express 
Network (``MEO'') \3\ Purge Ports.\4\
---------------------------------------------------------------------------

    \3\ ``MEO Interface'' or ``MEO'' means a binary order interface 
for certain order types as set forth in Rule 516 into the MIAX Pearl 
System. See the Definitions Section of the Fee Schedule and Exchange 
Rule 100.
    \4\ See the Definitions Section of 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 currently provides Members \5\ the option to purchase 
Purge Ports to assist in their order activity. Purge Ports provide 
Members with the ability to send quote purge messages to the MIAX Pearl 
System.\6\ Purge Ports are not capable of sending or receiving any 
other type of messages or information. The use of Purge Ports is 
completely optional and no rule or regulation requires that a Member 
utilize them.
---------------------------------------------------------------------------

    \5\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of 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.
    \6\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
---------------------------------------------------------------------------

    The Exchange proposes to amend the monthly fee for Purge Ports 
under

[[Page 37377]]

Section (5)(d) of the Fee Schedule. Unlike other options exchanges that 
provide purge port functionality and charge fees on a per port 
basis,\7\ the Exchange offers Purge Ports as a package and provides 
Members with the option to receive up to two (2) Purge Ports per 
matching engine \8\ to which it connects via an MEO Purge Port. The 
Exchange currently has twelve (12) matching engines, which means 
Members may receive up to twenty-four (24) Purge Ports for a single 
monthly fee. The Exchange currently assesses Members a fee of $750 per 
month, regardless of the number of Purge Ports allocated to the Member. 
Assuming a Member connects to all twelve (12) matching engines during a 
month, with two Purge Ports per matching engine, this results in a cost 
of $31.25 per Purge Port ($750 divided by 24) for the month. This fee 
has been unchanged since the Exchange adopted Purge Port fees in 
2018.\9\ The Exchange now proposes to increase the fee to $7,500 per 
month. Members will continue to receive two (2) Purge Ports to each 
matching engine to which they are connected for the single flat monthly 
fee. Assuming a Member connects to all twelve (12) matching engines 
during the month, with two Purge Ports per matching engine, this would 
result in a cost of $312.50 per Purge Port ($7,500 divided by 24).
---------------------------------------------------------------------------

    \7\ See Cboe BXZ Exchange, Inc. (``BZX'') Options Fee Schedule, 
Options Logical Port Fees, Purge Ports ($750 per purge port per 
month); Cboe EDGX Exchange, Inc. (``EDGX'') Options Fee Schedule, 
Options Logical Port Fees, Purge Ports ($750 per purge port per 
month); Cboe Exchange, Inc. (``Cboe'') Fee Schedule ($850 per purge 
port per month). In Cboe's Purge Ports Frequently Asked Questions, 
Cboe recommends that at least two purge ports be obtained per 
exchange for redundancy purposes. See https://cdn.cboe.com/resources/features/Cboe_USO_PurgePortsFAQs.pdf. See also Nasdaq 
GEMX, Options 7, Pricing Schedule, Section 6.C.(3). Nasdaq GEMX, LLC 
(``Nasdaq GEMX'') assesses its members $1,250 per SQF Purge Port per 
month, subject to a monthly cap of $17,500 for SQF Purge Ports and 
SQF Ports, applicable to market makers.
    \8\ A ``matching engine'' is a part of the MIAX Pearl electronic 
system that processes options quotes and trades on a symbol-by-
symbol basis. Some matching engines will process option classes with 
multiple root symbols, and other matching engines will be dedicated 
to one single option root symbol. 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. See 
Fee Schedule, Section 5)d)ii), note 29.
    \9\ See Securities Exchange Act Release No. 83867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
---------------------------------------------------------------------------

    The Exchange has historically undercharged for Purge Port as 
compared to other options exchanges \10\ because the Exchange provides 
Purge Ports as a package for a single monthly fee. As described above, 
this package includes two Purge Ports for each of the Exchange's twelve 
(12) matching engines. The Exchange understands other options exchanges 
charge fees on a per port basis. The proposed monthly fee increase for 
Purge Ports would bring the Exchange's fees more in line with that of 
other options exchanges, while maintaining a competitive fee structure 
for Purge Port.
---------------------------------------------------------------------------

    \10\ See supra note 7.
---------------------------------------------------------------------------

Implementation Date
    The proposed fee changes will become effective 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 \11\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \12\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among Exchange Members and 
issuers and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposal 
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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed fees are reasonable, 
equitably allocated and not unfairly discriminatory because, for the 
flat fee, the Exchange provides each Member two (2) Purge Ports for 
each matching engine to which that Member is connected. The Exchange 
currently has twelve (12) matching engines. Accordingly, each Member 
that is connected to all twelve (12) matching engines receives a total 
of twenty-four (24) Purge Ports for the existing flat fee of $1,500 per 
month. On a per Purge Port basis, that equals $31.25 per Purge Port 
($750 divided by 24). This flat fee has remain unchanged since the 
Exchange adopted fees for Purge Ports in 2018.\14\ The Exchange 
believes that increasing the flat monthly fee for Purge Port 
(regardless of the number of matching engines to which it connects and 
consequently regardless of the number of Purge Ports allocated to the 
Member) is equitable, reasonable, and competitive with the fees charged 
by other exchanges that offer comparable purge port services. The 
Exchange believes that most such exchanges charge per port for each 
match engine. For example, BXZ charges a monthly fee of $750 per purge 
port per month, EDGX charges a monthly fee of $750 per purge port, Cboe 
charges a monthly fee of $850 per purge port,\15\ and Nasdaq GEMX 
assesses its members $1,250 per SQF Purge Port per month.\16\ When 
calculated on a per purge port basis, each of the above exchanges 
charge monthly per purge port fees that are higher than the proposed 
$7,500 per month ($312.50 per Purge Port).
---------------------------------------------------------------------------

    \14\ See supra note 9.
    \15\ See supra note 7. Cboe further recommends that at least two 
purge ports be obtained per exchange for redundancy purposes. See 
https://cdn.cboe.com/resources/features/Cboe_USO_PurgePortsFAQs.pdf. 
This guidance applies to Cboe's affiliate exchanges, BZX and EDGX.
    \16\ See supra note 7.
---------------------------------------------------------------------------

    The Exchange operates in a highly competitive environment. Indeed, 
there are currently 16 registered options exchanges that trade options. 
Based on publicly available information, no single options exchange has 
more than 15% of the market share and currently the Exchange represents 
only approximately 4.98% of the market share.\17\ The Commission has 
repeatedly expressed its preference for competition over regulatory 
intervention in determining prices, products, and services in the 
securities markets. Particularly, 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.'' \18\ The Exchange is not aware of any evidence 
that a market share of approximately 6-7% provides the Exchange with 
anti-competitive pricing power. If the Exchange were to attempt to 
establish unreasonable pricing, then no market participant would 
purchase Purge Ports, and existing market participants would cease 
paying for Purge Ports, which are optional services offered by the 
Exchange. The Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\19\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among Members and other

[[Page 37378]]

persons using any facility or system which the Exchange operates or 
controls because Purge Ports are optional functionality offered to 
Members. The Exchange further believes the proposed fees are reasonable 
as the Exchange believes that the proposed fees are lower on a per port 
basis than the fees assessed by other exchanges that provide similar 
functionality.\20\ Indeed, if the Exchange proposed fees that are 
excessively higher than established fees for similar services on other 
exchanges, then the proposed fees would simply serve to reduce demand 
for the Exchange's services, which as noted, is entirely optional. The 
Exchange notes that Members are not required by rule or regulation to 
purchase Purge Ports. It is entirely a business decision of each Member 
that determines to purchase Purge Ports.
---------------------------------------------------------------------------

    \17\ See MIAX's ``The Market at a Glance'', available at https://www.miaxoptions.com/ (last visited June 30, 2021).
    \18\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
    \19\ 15 U.S.C. 78f(b)(4).
    \20\ See supra note 7.
---------------------------------------------------------------------------

    Additionally, Members are not precluded from using the existing 
purge messages provided by either the MEO protocol or the cancel 
messages provided by the FIX protocol. Under the MEO protocol, Members 
may request that all quotations for all underlyings, or for a specific 
underlying, be removed, and that new inbound quotations for all 
underlyings, or specific underlyings, be blocked. Under the FIX 
protocol, Members may also request that all, or a subset, of orders for 
an MPID, or all Day or GTC orders for an MPID, on the requesting 
session, be canceled. As such, a dedicated Purge Port is not required 
or necessary. Rather, Purge Ports were specially developed as an 
optional service to further assist firms in effectively managing risk.
    The Exchange operates in a highly competitive market in which 
exchanges offer various types of access services as a means to 
facilitate the trading activities of Members and other participants. As 
Purge Ports provide voluntary risk management functionality, excessive 
fees would simply serve to reduce demand for this optional product. The 
Exchange also believes that the proposed Purge Port fees are not 
unfairly discriminatory because they will apply uniformly to all 
Members that choose to use dedicated Purge Ports. Purge Ports are 
completely voluntary and, as they relate solely to optional risk 
management functionality, no Member is required or under any regulatory 
obligation to utilize them. All Members that voluntarily select the 
Purge Port service will be charged the same amount for the same 
respective services.
    As Purge Ports are only available for purging and not for 
activities such as order or quote entry, the Purge Ports are not 
designed to permit unfair discrimination but rather are designed to 
enable Members to better manage their market risk, which, in turn, 
benefits all market participants. The Exchange believes the proposed 
fee increase will continue to encourage better use of dedicated Purge 
Ports. This may, concurrent with the ports that carry orders and other 
information necessary for market making activities, enable more 
efficient, as well as fair and reasonable, use of Members' resources. 
The Exchange also believes that the proposed fee increase is non-
discriminatory because the proposed Purge Port fees will apply 
uniformly to all Members. Purge Ports are completely voluntary and no 
Member is required or under any regulatory obligation to utilize them. 
All Members that voluntarily request this service will be charged the 
same amount for the same service. Separately, the Exchange is not aware 
of any reason why market participants could not simply drop their Purge 
Ports if the Exchange were to establish unreasonable prices for its 
Purge Ports that, in the determination of such market participant, did 
not make business or economic sense for such market participant. No 
options market participant is required by rule, regulation, or 
competitive forces to utilize Purge Ports. As evidence of the fact that 
market participants can and do drop their access to exchanges based on 
non-transaction fee pricing, R2G Services LLC (``R2G'') filed a comment 
letter after BOX's proposed rule changes to increase its connectivity 
fees (SR-BOX-2018-24, SR-BOX-2018-37, and SR-BOX-2019-04). The R2G 
Letter stated, ``[w]hen BOX instituted a $10,000/month price increase 
for connectivity; we had no choice but to terminate connectivity into 
them as well as terminate our market data relationship. The cost 
benefit analysis just didn't make any sense for us at those new 
levels.'' Similarly, the Exchange's affiliate, MIAX Emerald, LLC 
(``MIAX Emerald''), noted in a recent filing that once MIAX Emerald 
issued a notice that it was adopting Trading Permit fees, among other 
non-transaction fees, one Member dropped its access to the Exchange as 
a result of those fees.\21\ Accordingly, these examples show that if an 
exchange sets too high of a fee for non-transaction fees for its 
relevant marketplace, market participants can choose to no longer 
access that particular exchange.
---------------------------------------------------------------------------

    \21\ See Securities Exchange Act Release No. 91033 (February 1, 
2021), 86 FR 8455 (February 5, 2021) (SR-EMERALD-2021-03).
---------------------------------------------------------------------------

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    The Exchange believes the proposed rule change does not impose any 
burden intra-market competition because the use of Purge Ports is an 
optional service offered by the Exchange and no Member is required or 
under any regulatory obligation to utilize them. The Exchange offers 
Purge Ports as a package and provides Members with the option to 
receive up to two (2) Purge Ports per matching engine to which it 
connects via an MEO Port. The Exchange currently has twelve (12) 
matching engines which means Members may receive up to twenty-four (24) 
Purge Ports for a single monthly fee. The Exchange does not believe 
that the proposed change represents a significant departure from 
previous pricing offered by the Exchange or pricing offered by the 
Exchange's competitors. Additionally, Members may opt to disfavor the 
Exchange's pricing if they believe that alternatives offer them better 
value. Accordingly, the Exchange does not believe that the proposed 
change will impair the ability of Members or competing venues to 
maintain their competitive standing in the financial markets.
    The Exchange believes that fees for the proposed Purge Ports and 
connectivity, in general, are constrained by the robust competition for 
order flow among exchanges and non-exchange markets. Further, excessive 
fees for connectivity, including Purge Port fees, would serve to impair 
an exchange's ability to compete for order flow rather than burdening 
competition. The Exchange also does not believe the proposed rule 
change would impact intramarket competition as it would apply to all 
Members equally.
    The Exchange also does not believe that the proposed rule change 
will result in any burden on inter-market competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. The 
Exchange operates in a highly competitive environment, and as discussed 
above, its ability to price access and ports is constrained by 
competition among exchanges and third parties. There are 15 other U.S. 
options exchanges, which the Exchange must consider in its pricing 
discipline in order to compete for market participants. In this

[[Page 37379]]

competitive environment, market participants are free to choose which 
competing exchange to use to satisfy their business needs. As a result, 
the Exchange believes this proposed rule change permits fair 
competition among national securities exchanges. Accordingly, the 
Exchange does not believe its proposed fee changes impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.

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.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \23\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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-2021-30 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-2021-30. 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-2021-30 and should be submitted on 
or before August 5, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15033 Filed 7-14-21; 8:45 am]
BILLING CODE 8011-01-P


