[Federal Register Volume 87, Number 106 (Thursday, June 2, 2022)]
[Notices]
[Pages 33518-33528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-11788]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94993; File No. SR-PEARL-2022-23]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX 
PEARL Options Fee Schedule To Remove Certain Credits and Increase 
Trading Permit Fees

May 26, 2022.
    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 May 17, 2022, 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'') to amend its monthly Trading Permit 
\3\ fees

[[Page 33519]]

for Members \4\ and no longer provide two monthly credits associated 
with Trading Permit and non-transaction fees.
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    \3\ The term ``Trading Permit'' means a permit issued by the 
Exchange that confers the ability to transact on the Exchange. See 
Exchange Rule 100.
    \4\ 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 Exchange Rule 100 and the 
Definitions Section of the Fee Schedule.
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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 Exchange proposes to amend the Fee Schedule to amend the 
monthly Trading Permit fees for Members and to no longer provide two 
monthly credits associated with Trading Permit and non-transaction 
fees. The proposed changes are designed to update the Exchange's 
Trading Permit fees to reflect their current value--rather than their 
value when MIAX Pearl was a new options exchange five years ago--based 
on the Exchange's ability to deliver value to its customers through 
technology, liquidity and functionality. Newly-opened exchanges often 
charge lower fees for certain services such as memberships to attract 
order flow to an exchange, and later amend their fees to reflect the 
true value of those services,\5\ absorbing all costs to provide those 
services in the meantime. Allowing newly-opened exchanges time to build 
and sustain market share before increasing non-transaction fees 
encourages market entry and promotes competition. In fact, the Exchange 
socialized the proposed fee increases with Members prior to first 
implementing the changes. During that process, some Members stated that 
they anticipated a potential increase due to the lower rates the 
Exchange historically charged. Each of these changes are described 
below.
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    \5\ See, e.g., Securities Exchange Act Release No 88211 
(February 14, 2020), 85 FR 9847 (February 20, 2020) (SR-NYSENAT-
2020-05), also available at https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rulefilings/filings/2020/SR-NYSENat-2020-05.pdf. (initiating market data fees for the NYSE National exchange 
after initially setting such fees at zero); see also Securities 
Exchange Act Release No. 93927 (January 7, 2022), 87 FR 2191 
(January 13, 2022) (SR-MEMX-2021-19) (introduction of membership 
fees by MEMX).
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    A Trading Permit confers the right to transact on the Exchange \6\ 
and are available to all Members. The Exchange notes that requiring a 
Trading Permit to trade on the Exchange and charging a monthly fee for 
such is comparable to other monthly membership requirements and 
associated fees charged by other exchanges and is described further 
below. Trading Permits, like membership fees, grant access and allow 
Members to be active on the Exchange, thus providing the ability to 
submit orders and trade on the Exchange, in the manner consistent with 
the membership type. Without a Trading Permit, or ``membership'' as 
referred to by other exchanges, a Member cannot directly trade on the 
Exchange. Therefore, a Trading Permit is a means to directly access the 
Exchange, which offers meaningful value. The Exchange has not amended 
its Trading Permit fees since the fees were first adopted in 2018.\7\
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    \6\ See Exchange Rule 200(a).
    \7\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
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    The Exchange has two types of Members, Electronic Exchange Members 
\8\ (``EEMs'') and Market Makers.\9\ The Exchange currently charges 
monthly fees for Trading Permits pursuant to Exchange Rule 200(f), 
which varies based on the interface used by the Member and the Member's 
average monthly trading volumes. The Exchange provides two interfaces 
to access the MIAX Pearl System,\10\ the FIX Interface \11\ and MEO 
Interface,\12\ and all Members are able to use either interface based 
on their business models and needs. The FIX Interface is the industry-
wide uniform message format and provides lower bandwidth, less 
capacity, and fewer Exchange resources. EEMs, who are primarily order 
flow providers, are the primary users of the FIX Interface.\13\ 
Meanwhile, the MEO Interface is the more robust interface offering 
lower latency and higher throughput. Market Makers primarily use the 
MEO Interface.\14\
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    \8\ The term ``Electronic Exchange Member'' or ``EEM'' means the 
holder of a Trading Permit who is a Member representing as agent 
Public Customer Orders or Non-Customer Orders on the Exchange and 
those non-Market Maker Members conducting proprietary trading. 
Electronic Exchange Members are deemed ``members'' under the 
Exchange Act. See the Definitions Section of the Fee Schedule and 
Exchange Rule 100.
    \9\ The term ``Market Maker'' or ``MM'' means a Member 
registered with the Exchange for the purpose of making markets in 
options contracts traded on the Exchange and that is vested with the 
rights and responsibilities specified in Chapter VI of the Exchange 
Rules. See the Definitions Section of the Fee Schedule and Exchange 
Rule 100.
    \10\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \11\ The term ``FIX Interface'' means the Financial Information 
Exchange interface for certain order types as set forth in Exchange 
Rule 516. See the Definitions Section of the Fee Schedule and 
Exchange Rule 100.
    \12\ The term ``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.
    \13\ The Exchange does not propose to amend the fees for EEM 
Clearing Firms, which is set at $250 per month and not based on the 
amount of volume conducted on the Exchange. The term ``EEM Clearing 
Firm'' means an EEM that solely clears transactions on the Exchange 
and does not connect to the Exchange via either the FIX Interface or 
MEO Interface. See the Definitions Section of the Fee Schedule.
    \14\ Today, seven Members that are EEMs and twelve Members that 
are Market Makers utilize the MEO Interface. Based on their own 
business decisions and needs, some EEMs elect to utilize the MEO 
Interface today due to its lower latency and higher throughput. 
Also, Members that act as both an EEM and Market Maker may choose to 
ulitlize only the MEO Interface for both activities as a means to 
streamline their architecture between them and the Exchange. No 
Market Maker utilizes the FIX Interface.
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    The Exchange offers three time-in-force modifiers:\15\ Day Limit 
(``Day''), Immediate-Or-Cancel (``IOC''), and Good-Till Cancel 
(``GTC'').\16\ While all order types are available for use on either 
interface, only the time-in-force modifiers of IOC and Day are 
available on the MEO Interface.\17\ Market Makers utilize the time-in-
force of Day on orders to be posted on the MIAX Pearl Options Book \18\ 
and to meet Market

[[Page 33520]]

Makers' continuous quoting obligations under Exchange Rule 605(d).\19\ 
Other Market Makers that primarily remove liquidity tend to be more 
latency sensitive and utilize the time-in-force of IOC on orders when 
looking to remove liquidity from the MIAX Pearl Options Book. The MEO 
Interface allows the submission of Cancel-Replacement orders,\20\ which 
allow for the immediate cancellation of a previously received order and 
the replacement of that order with a new order with new terms and 
conditions.\21\ Cancel-Replacement orders are primarily used by Market 
Makers as part of their continuous quoting obligation. Market Makers 
primary users of the MEO Interface due to its lower latency, higher 
throughput, and available time-in-force instructions and order types 
that assist them in satisfying their market making obligations.
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    \15\ See MIAX Pearl Options Exchange User Manual, Section 6, 
Order Types, available at https://www.miaxoptions.com/exchange-functionality/pearl (last visited May 16, 2022).
    \16\ See, e.g., Exchange Rule 516.
    \17\ See preamble to Exchange Rule 516 (noting that not all 
order types and modifiers are available for use on each of the MEO 
Interface and the FIX Interface). See also Section 4.1.1.2 of the 
MEO Interface Specification, available at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf (indicating that the time--in-force 
instructions of IOC and Day are available on the MEO interface).
    \18\ The term ``Book'' means the electronic book of buy and sell 
orders and quotes maintained by the System. See Exchange Rule 100.
    \19\ Only the time-in-force modifiers of IOC and Day are 
available on the MEO Interface. See id. (noting that not all order 
types and modifiers are available for use on each of the MEO 
Interface and the FIX Interface). See also MIAX Pearl Options 
Exchange MEO Interface Specification, Section 4.1.1.2, available at 
https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf (indicating that the time--in-force 
instructions of IOC and Day are available on the MEO interface).
    \20\ See MIAX Pearl Options Exchange User Manual, Section 6, 
Interfaces and Liquidity Types, available at https://www.miaxoptions.com/exchange-functionality/pearl (last visited May 
16, 2022).
    \21\ See Exchange Rule 516(d).
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Removal of Monthly Trading Permit Fee Credits
Monthly Volume Credit
    The Exchange proposes to amend the Definitions section of the Fee 
Schedule to delete the definition and remove the credits applicable to 
the Monthly Volume Credit for Members. The Exchange established the 
Monthly Volume Credit in 2018 \22\ to encourage Members to send 
increased Priority Customer \23\ order flow to the Exchange, which the 
Exchange applied to the assessment of non-transaction fees for that 
Member. Prior to and during periods when this proposal was not in 
effect, the Exchange applied a different Monthly Volume Credit 
depending on whether the Member connects to the Exchange via the FIX or 
MEO Interface. Prior to and during periods when this proposal was not 
in effect, the Exchange assessed the Monthly Volume Credit to each 
Member that has executed Priority Customer volume along with that of 
its affiliates,\24\ not including Excluded Contracts,\25\ of at least 
0.30% of MIAX Pearl-listed Total Consolidated Volume (``TCV''),\26\ as 
set forth in the following table:
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    \22\ See supra note 7.
    \23\ The term ``Priority Customer'' means a person or entity 
that (i) is not a broker or dealer in securities, and (ii) does not 
place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial accounts(s). The 
number of orders shall be counted in accordance with Interpretation 
and Policy .01 of Exchange Rule 100. See the Definitions Section of 
the Fee Schedule and Exchange Rule 100, including Interpretation and 
Policy .01.
    \24\ ``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 following process. A MIAX Pearl Market Maker 
appoints an EEM and an EEM appoints a MIAX Pearl Market Maker, for 
the purposes of the Fee Schedule, by each completing and sending an 
executed Volume Aggregation Request Form by email to 
[email protected] no later than 2 business days prior to 
the first business day of the month in which the designation is to 
become effective. Transmittal of a validly completed and executed 
form to the Exchange along with the Exchange's acknowledgement of 
the effective designation to each of the Market Maker and EEM will 
be viewed as acceptance of the appointment. The Exchange will only 
recognize one designation per Member. A Member may make a 
designation not more than once every 12 months (from the date of its 
most recent designation), which designation shall remain in effect 
unless or until the Exchange receives written notice submitted 2 
business days prior to the first business day of the month from 
either Member indicating that the appointment has been terminated. 
Designations will become operative on the first business day of the 
effective month and may not be terminated prior to the end of the 
month. Execution data and reports will be provided to both parties. 
See the Definitions Section of the Fee Schedule.
    \25\ ``Excluded Contracts'' means any contracts routed to an 
away market for execution. See the Definitions Section of the Fee 
Schedule.
    \26\ ``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 of time in which the Exchange experiences 
an Exchange System Disruption (solely in the option classes of the 
affected Matching Engine). See the Definitions Section of the Fee 
Schedule.

------------------------------------------------------------------------
                                                                Monthly
                  Type of member connection                      volume
                                                                 credit
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Member that connects via the FIX Interface...................       $250
Member that connects via the MEO Interface...................      1,000
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    If a Member connects via both the MEO Interface and FIX Interface 
and qualifies for the Monthly Volume Credit based upon its Priority 
Customer volume, the greater Monthly Volume Credit shall apply to such 
Member. Prior to and during periods when this proposal was not in 
effect, the Monthly Volume Credit was a single, once-per-month credit 
towards the aggregate monthly total of non-transaction fees assessable 
to a Member.
    The Exchange proposes an amendment to the Definitions section of 
the Fee Schedule to delete the definition and remove the Monthly Volume 
Credit. The Exchange established the Monthly Volume Credit when it 
first launched operations to encourage members to increase their order 
flow by providing a credit to those that exceeded a volume threshold. 
The Exchange believes that the Exchange's existing Priority Customer 
rebates and fees will continue to allow the Exchange to remain highly 
competitive and continue to attract order flow and maintain market 
share even without the Monthly Volume Credit.
Trading Permit Fee Credit
    The Exchange proposes to amend Section 3)b) of the Fee Schedule to 
remove the Trading Permit fee credit that is denoted in footnote ``*'' 
below the Trading Permit fee table. Prior to and during periods when 
this proposal was not in effect, the Trading Permit fee credit was 
applicable to Members that connected via both the MEO and FIX 
Interfaces. Members who connect via both the MEO and FIX Interfaces are 
assessed the rates for both types of Trading Permits, but these Members 
received a $100 monthly credit towards the Trading Permit fees 
applicable to the MEO Interface prior to and during periods when this 
proposal was not in effect. The Exchange proposes to remove the Trading 
Permit fee credit and delete footnote ``*'' from Section 3)b) of the 
Fee Schedule.
    The Exchange established the Trading Permit fee credit when it 
first launched operations to attract order flow and increase membership 
by lowering the costs for Members that connect via the MEO Interface 
and FIX Interface. The Trading Permit fee credit has achieved its 
purpose and the Exchange now believes that it is appropriate to remove 
this credit in light of the current operating conditions and membership 
population on the Exchange.
Amendments to Monthly Trading Permit Fees
    The Exchange proposes to amend the Fee Schedule to amend the fees 
for Trading Permits. As a self-regulatory organization, the Exchange's 
membership department reviews applicants to ensure that each 
application complies with Exchange

[[Page 33521]]

Rule 200 as well as other requirements for membership.\27\ Applicants 
must meet the Exchange's qualification criteria prior to approval. The 
new member review includes, but is not limited to, the registration and 
qualification of associated persons, financial health of the proposed 
member, the validity of the required clearing relationship, and the 
history of disciplinary matters. Approved new Members are required to 
comply with Exchange's By-Laws and Rules and are subject to regulation 
by the Exchange.
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    \27\ The Exchange's Membership Department must ensure, among 
other things, that an applicant is not statutorily disqualified.
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    The Exchange believes that there are many factors that may cause a 
market participant to decide to become a member of a particular 
exchange. Among various factors, the Exchange believes market 
participants consider: (i) An exchange's available liquidity in options 
series; (ii) trading functionality offered on a particular market; 
(iii) product offerings; (iv) customer service on an exchange; and (v) 
transactional pricing. The Exchange believes that the decision to 
become a member of an exchange, particularly as a registered market 
maker, is a complex one that is not solely based on non-transactional 
costs assessed by an exchange. Market participants weigh the tradeoff 
between where they choose to deploy liquidity versus where trading 
opportunities exist. Of course, the cost of membership may factor into 
a decision to become a member of a certain exchange, but the Exchange 
believes it is by no means the only factor when comparing exchanges.
    The Exchange assesses Trading Permit fees based upon the monthly 
total volume executed by the Member and its Affiliates on the Exchange 
across all origin types, not including Excluded Contracts, as compared 
to the total TCV in all MIAX Pearl-listed options. The Exchange adopted 
a tier-based fee structure based upon the volume-based tiers detailed 
in the definition of ``Non-Transaction Fees Volume-Based Tiers'' \28\ 
in the Definitions section of the Fee Schedule. The Exchange also 
assesses Trading Permit fees based upon the type of interface used by 
the Member to connect to the Exchange--the FIX Interface and/or the MEO 
Interface.
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    \28\ See the Definitions Section of the Fee Schedule for the 
monthly volume thresholds associated with each Tier.
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    Current Trading Permit Fees. Prior to and during periods when this 
proposal was not in effect, each Member who connected to the System via 
the FIX Interface was assessed the following monthly Trading Permit 
fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $250;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $350; and
    (iii) if its volume falls within the parameters of Tier 3 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.60%, $450.
    Each Member who connected to the System via the MEO Interface was 
assessed the following monthly Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $300;
    (ii) If its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $400; and
    (iii) if its volume falls within the parameters of Tier 3 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.60%, $500.
    Proposed Trading Permit Fees. As discussed below, the pull on 
Exchange resources associated with the review of membership 
applications and the surveillance and retention of increased message 
traffic due to increased trading volumes continue to increase since the 
Trading Permit fee was first adopted in 2018.\29\ The Exchange proposes 
to amend its Trading Permit fees as follows. Each Member who connects 
to the System via the FIX Interface will be assessed the following 
monthly Trading Permit fees:
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    \29\ See supra note 7.
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    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $500;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, $1,000; and
    (iii) if its volume falls within the parameters of Tier 3 of the 
Non-Transaction Fees Volume-Based Tiers, $1,500.
    Each Member who connects to the System via the MEO Interface will 
be assessed the following monthly Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $2,500;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, $4,000; and
    (iii) if its volume falls within the parameters of Tier 3 of the 
Non-Transaction Fees Volume-Based Tiers, $6,000.
    As discussed above, both the MEO Interface and FIX Interface are 
available to all Members and each Member may choose which interface to 
utilize based on their own business needs. The MEO Interface is 
primarily used by Market Makers due to its robustness, lower latency, 
and higher throughput and, as discussed below, utilizes greater 
Exchange resources due to the increased volume of message traffic that 
travels through the MEO interface. Trading Permit fees for Members who 
connect through the MEO Interface are, therefore, higher than the 
Trading Permit fees for Members who connect through the FIX Interface. 
The FIX Interface provides lower capacity and bandwidth and, therefore, 
utilizes less Exchange resources. The FIX Interface is primarily used 
by order flow providers, who tend to be less latency sensitive and 
submit less orders and messages than Market Makers.
    The Exchange has not amended its Trading Permit fees since the fees 
were first adopted in 2018.\30\ The Exchange notes that its affiliates, 
Miami International Securities Exchange, LLC (``MIAX'') and MIAX 
Emerald, LLC (``MIAX Emerald''), charge EEMs a similar, fixed flat 
trading permit fee of $1,500,\31\ which equals the top tier proposed 
herein for users of the FIX Interface and also primarily consists of 
EEMs. MIAX and MIAX Emerald also charge tiered trading permit fees to 
Market Makers as the Exchange proposes herein for users of the MEO 
Interface, which also primarily consists of Market Makers. However, the 
Exchange's proposed fees for users of the MEO Interface range from 
$2,500 to $6,000 while the fees on MIAX and MIAX Emerald range from 
$7,000 to $22,000. The Exchange also proposes to base its pricing on 
trading volume while MIAX and MIAX Emerald base their trading permit 
fees on number of options classes assigned to the Market Maker or the 
percentage of volume in option classes.\32\
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    \30\ Id.
    \31\ See the MIAX Fee Schedule, Section 3)b) and MIAX Emerald 
Fee Schedule, Section 3)b), available at https://www.miaxoptions.com/fees (last visited May 16, 2022).
    \32\ Both MIAX and MIAX Emerald charge Market Makers a monthly 
fee of $7,000 for up to 10 classes or up to 20% of classes assigned 
by volume, $12,000 for up to 40 classes or up to 35% of classes 
assigned by volume, $17,000 for up to 100 classes or up to 50% of 
classes assigned by volume, or $22,000 for over 100 classes or over 
50% of classes assigned by volume up to all classes listed on MIAX 
or MIAX Emerald, as applicable. Id.

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[[Page 33522]]

    As illustrated by the table below, the Exchange notes that the 
proposed fees for the Exchange's Trading Permits are in line with, or 
cheaper than, the similar trading permit and membership fees charged by 
other options exchanges. The below table also illustrates how the 
Exchange has historically undercharged for access via Trading Permits 
as compared to other options exchanges. The Exchange believes other 
exchanges' membership and trading permit fees are useful examples of 
alternative approaches to providing and charging for access and 
provides the below table for comparison purposes only to show how the 
Exchange's proposed fees compare to fees currently charged by other 
options exchanges for similar access.
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    \33\ See NYSE Arca Options Fees and Charges, OTP Trading 
Participant Rights, p.1, available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf (last visited May 16, 2022). NYSE 
Arca's Options Trading Permit fee is the analog to the Exchange's 
Trading Permit fee for Members who use the FIX interface. NYSE 
Arca's Options Trading Permit fee for Market Makers is the analog 
for the Exchange's Trading Permit fee for Members who use the MEO 
interface.
    \34\ See NYSE American Options Fee Schedule, Section III, 
Monthly Trading Permit, Rights, Floor Access and Premium Product 
Fees, p. 23-24, available at https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf 
(last visited May 16, 2022). NYSE American's ATP Trading Permit fee 
for Clearing Members and Order Flow Providers is the analog for the 
Exchange's Trading Permit fee for Members that use the FIX 
interface. NYSE American's ATP Trading Permit fee for Market Makers 
is the analog for the Exchange's Trading Permit fee for Members that 
use the MEO interface.
    \35\ See Nasdaq PHLX Options 7 Pricing Schedule, Section 8. 
Membership Fees, available at https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207 (last visited May 16, 2022). 
Nasdaq PHLX Options' SQT and RMMO fees is the analog to the 
Exchange's Trading Permit fee for Members that use the MEO 
Interface.
    \36\ See Nasdaq ISE Options 7 Pricing Schedule, Section 8.A. 
Access Services, available at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207 (last visited May 16, 2022). 
Nasdaq ISE Options' EAM Access Fee is the analog to the Exchange's 
Trading Permit fee for Members that use the FIX Interface. Nasdaq 
ISE Options' Primary and Competitive Market Maker Access Fees are 
the analog to the Exchange's Trading Permit fee for Members that use 
the MEO Interface.
    \37\ See Cboe Fee Schedule, Electronic Trading Permit Fees, 
available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf (last visited May 16, 2022). Cboe's Electronic 
Access Permit fee and Clearing TPH fee are the analog to the 
Exchange's Trading Permit fee for Members that use the FIX 
Interface. Cboe's Market Maker Permit fee is the analog to the 
Exchange's Trading Permit fee for Members that use the MEO 
Interface.
    \38\ See Cboe C2 Fee Schedule, Access Fees, available at https://www.cboe.com/us/options/membership/fee_schedule/ctwo/ (last visited 
May 16, 2022). C2's Market Maker Access Permit fee is the analog to 
the Exchange's Trading Permit fee for Members that use the MEO 
Interface. C2's Electronic Access Permit fee is the analog to the 
Exchange's Trading Permit fee for Members that use the FIX 
Interface.
    \39\ See ``Membership Fees'' section of the Cboe BZX Options Fee 
Schedule, available at https://www.cboe.com/us/options/membership/fee_schedule/bzx (last visited May 16, 2022)/. The Exchange 
understands Cboe BZX Options charges the same Membership Fee to all 
of its Options Members.
    \40\ Under the Exchange's tiered structure, a Member may trade 
approximately 106,000 more contracts on the Exchange than on Cboe 
BZX Options and continue to qualify for the Exchange's lowest tier. 
For example, a Member would qualify for Tier 1 of the Exchange's 
tiered pricing structure where that Member's total volume as a 
percentage of TCV is between 0.00% and 0.30%. Assuming an average of 
37 million contracts are traded each day during a month, that Member 
would qualify for Tier 1 where that Member traded less than 111,000 
contracts that day and be charged $500, the same fee as Cboe BZX 
Options, where that Member connects via the FIX Interface. On Cboe 
BZX Options, the Exchange understands that same member would no 
longer qualify for their lowest tier when their ADV equals or 
exceeds 5,000 contracts and be charged a fee of $1,000 for that 
month.

------------------------------------------------------------------------
                                      Monthly membership/trading permit
             Exchange                                fee
------------------------------------------------------------------------
MIAX Pearl Options (as proposed)..  Trading Permit access via FIX
                                     Interface:
                                    Tier 1: $500.
                                    Tier 2: $1,000.
                                    Tier 3: $1,500.
                                    Trading Permit access via MEO
                                     Interface:
                                    Tier 1: $2,500.
                                    Tier 2: $4,000.
                                    Tier 3: $6,000.
NYSE Arca, Inc. (``NYSE Arca'')     Options Trading Permits:
 \33\.
                                    Office and Clearing Firms: $1,000.
                                    Market Makers: $6,000 for up to 175
                                     option issues.
                                    Additional $5,000 for up to 350
                                     option issues.
                                    Additional $4,000 for up to 1,000
                                     option issues.
                                    Additional $3,000 for all option
                                     issues.
                                    Additional $1,000 for the 5th OTP
                                     and each OTP thereafter.
NYSE American, LLC (``NYSE          ATP Trading Permits:
 American'') \34\.
                                    Clearing Member: $1,000.
                                    Order Flow Provider: $1,000.
                                    Market Makers: $8,000 for up to 60
                                     plus the bottom 45% of option
                                     issues.
                                    Additional $6,000 for up to 150 plus
                                     the bottom 45% of option issues.
                                    Additional $5,000 for up to 500 plus
                                     the bottom 45% of option issues.
                                    Additional $4,000 for up to 1,100
                                     plus the bottom 45% of option
                                     issues.
                                    Additional $3,000 for all option
                                     issues.
                                    Additional $2,000 for 6th to 9th
                                     ATPs (plus additional fee for
                                     premium products).
Nasdaq PHLX LLC (``Nasdaq PHLX'')   Streaming Quote Trader (``SQT'')
 \35\.                               permit fees:
                                    Tier 1 (up to 200 option classes):
                                     $0.00.
                                    Tier 2 (up to 400 option classes):
                                     $2,200.
                                    Tier 3 (up to 600 option classes):
                                     $3,200.
                                    Tier 4 (up to 800 option classes):
                                     $4,200.
                                    Tier 5 (up to 1,000 option classes):
                                     $5,200.
                                    Tier 6 (up to 1,200 option classes):
                                     $6,200.
                                    Tier 7 (all option classes): $7,200.
                                    Remote Market Maker Organization
                                     (``RMMO'') permit fees:
                                    Tier 1 (less than 100 option
                                     classes): $5,000.
                                    Tier 2 (more than 100 and less than
                                     999 option classes): $8,000.
                                    Tier 3 (1,000 or more option
                                     classes): $11,000.
Nasdaq ISE LLC (``Nasdaq ISE'')     Access Fees:
 \36\.
                                    Electronic Access Members
                                     (``EAMs''): $500.
                                    Primary Market Maker: $5,000 per
                                     membership.
                                    Competitive Market Maker: $2,500 per
                                     membership.
Cboe Exchange, Inc. (``Cboe'')      Electronic Trading Permit Fees:
 \37\.
                                    Market Maker: $5,000.

[[Page 33523]]

 
                                    Electronic Access Permit: $3,000.
                                    Clearing TPH Permit: $2,000.
Cboe C2 Exchange, Inc. (``Cboe      Access Permit Fees for Market
 C2'') \38\.                         Makers: $5,000.
                                    Electronic Access Permits: $1,000.
Cboe BZX Exchange, Inc. (``Cboe     $500 where member has an ADV < 5,000
 BZX Options'') \39\.                contracts traded.\40\
                                    $1,000 where member has an ADV >=
                                     5,000 contracts traded.
------------------------------------------------------------------------

Implementation and Procedural History
    The proposed rule change will be immediately effective. The 
Exchange initially filed this proposal on July 1, 2021, with the 
proposed fees being immediately effective.\41\ Between August 2021 and 
February 2022, the Exchange withdrew and refiled the proposed rule 
change, each time to meaningfully attempt to provide additional 
justification for the proposed fee changes, provide enhanced details 
regarding the Exchange's cost methodology, and address questions 
contained in the Commission's suspension orders.\42\ The Commission 
received one comment letter on the filings.\43\ The Commission again 
suspended the proposed fees on February 18, 2022.\44\ The Commission 
received one comment letter on that filing.\45\ The Exchange then 
provided Trading Permits at the lower rates for the month of March 2022 
and absorbed all associated costs with the lower rates.
---------------------------------------------------------------------------

    \41\ See Securities Exchange Act Release No. 92366 (July 9, 
2021), 86 FR 37379 (SR-PEARL-2021-32).
    \42\ See Securities Exchange Act Release Nos. 92797 (August 27, 
2021), 86 FR 49399 (September 2, 2021) (SR-PEARL-2021-32) 
(``Suspension Order 1''); 93555 (November 10, 2021), 86 FR 64254 
(November 17, 2021) (SR-PEARL-2021-54); 93895 (January 4, 2022), 87 
FR 1217 (January 10, 2022) (SR-PEARL-2021-59).
    \43\ See Letter from Richard J. McDonald, Susquehanna 
International Group, LLC (``SIG''), to Vanessa Countryman, 
Secretary, Commission, dated September 28, 2021 (``SIG Letter 1'').
    \44\ See Securities Exchange Act Release No. 94287 (February 18, 
2022), 87 FR 10837 (February 25, 2022) (SR-PEARL-2022-05) 
(``Suspension Order 2'').
    \45\ See Letter from Richard J. McDonald, SIG, to Vanessa 
Countryman, Secretary, Commission, dated March 15, 2022 (``SIG 
Letter 2'').
---------------------------------------------------------------------------

    On March 30, 2022, the Exchange withdrew the proposed rule change 
that was previously suspended by the Commission on February 18, 2022. 
After providing Trading Permits at the lower rates for the month of 
March 2022, on March 30, 2022, the Exchange submitted a revised 
proposal for effectiveness beginning April 1, 2022.\46\ This revised 
proposal argued that the proposed fees were constrained by competition 
based on a similar filing for permit/membership fees by MEMX LLC 
(``MEMX'').\47\ The Commission received one comment letter on that 
filing.\48\ The Exchange withdrew this revised proposal and submitted a 
further revised filing providing additional support for its competition 
based justification on May 17, 2022.
---------------------------------------------------------------------------

    \46\ See Securities Exchange Act Release No. 94696 (April 12, 
20222), 87 FR 22987 (April 18, 2022) (SR-PEARL-2022-09).
    \47\ See Securities Exchange Act Release No. 93927 (January 7, 
2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19) (proposal to 
adopt monthly membership fees).
    \48\ See Letter from Brian Sopinsky, SIG, to Vanessa Countryman, 
Secretary, Commission, dated May 9, 2022 (``SIG Letter 3'').
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \49\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \50\ 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 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.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78f(b).
    \50\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The proposed changes to the pricing schedule are reasonable in 
several respects. As a threshold matter, the Exchange is subject to 
significant competitive forces in the market for order flow, which 
constrains its pricing determinations. The fact that the market for 
order flow is competitive has long been recognized by the courts. In 
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit 
stated, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .'' \51\
---------------------------------------------------------------------------

    \51\ See NetCoalition, 615 F.3d at 539 (D.C. Cir. 2010) (quoting 
Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 
74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention to determine 
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 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.'' \52\
---------------------------------------------------------------------------

    \52\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Congress directed the Commission to ``rely on `competition, 
whenever possible, in meeting its regulatory responsibilities for 
overseeing the SROs and the national market system.' '' \53\ As a 
result, the Commission has historically relied on competitive forces to 
determine whether a fee proposal is equitable, fair, reasonable, and 
not unreasonably or unfairly discriminatory. ``If competitive forces 
are operative, the self-interest of the exchanges themselves will work 
powerfully to constrain unreasonable or unfair behavior.'' \54\ 
Accordingly, ``the existence of significant competition provides a 
substantial basis for finding that the terms of an exchange's fee 
proposal are equitable, fair, reasonable, and not unreasonably or 
unfairly discriminatory.'' \55\ In its 2019 guidance on fee proposals, 
Commission staff indicated that they would look at factors

[[Page 33524]]

beyond the competitive environment, such as cost, only if a ``proposal 
lacks persuasive evidence that the proposed fee is constrained by 
significant competitive forces.'' \56\
---------------------------------------------------------------------------

    \53\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep. 
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that 
the national market system evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed.'').
    \54\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \55\ Id.
    \56\ See U.S. Securities and Exchange Commission, ``Staff 
Guidance on SRO Rule filings Relating to Fees,'' (May 21, 2019), 
available at https://www.sec.gov/tm/staff-guidancesro-rule-filings-fees.
---------------------------------------------------------------------------

    The Exchange believes that there are many factors that may cause a 
market participant to decide to become a member of a particular 
exchange including: (i) An exchange's available liquidity in options 
series; (ii) trading functionality offered on a particular market; 
(iii) product offerings; (iv) customer service on an exchange; and (v) 
transactional pricing. As discussed above, the Exchange believes that 
the decision to become a member of an exchange, particularly as a 
registered market maker, is a complex one that is not solely based on 
non-transactional costs assessed by an exchange. Market participants 
weigh the tradeoff between where they choose to deploy liquidity versus 
where trading opportunities exist. Of course, the cost of membership, 
ports and market data may factor into a decision to become a member of 
a certain exchange, but the Exchange believes it is by no means the 
only factor when comparing exchanges.
Market Makers
    Market makers play an important role on options exchanges as they 
provide liquidity. In options markets, registered market makers are 
assigned options series \57\ and are required to quote in those options 
series for a specified time period during the day.\58\ Typically, a 
lead or primary market maker \59\ will be required to quote for a 
longer period of time during the day as compared to other market makers 
registered on an exchange.\60\ Additionally, market makers are 
typically required to quote within a certain width on options 
markets.\61\ Greater liquidity on options markets benefits all market 
participants by providing more trading opportunities and attracting 
greater participation by market makers. An increase in the activity of 
market makers in turn facilitates tighter spreads. Market participants 
are attracted to options markets that have ample liquidity and tighter 
spreads in options series.
---------------------------------------------------------------------------

    \57\ See Exchange Rule 602, Phlx, ISE, Nasdaq GEMX, Inc. 
(``GEMX''), Nasdaq MRX, Inc. (``MRX''), Nasdaq BX, Inc. (``BX'') and 
Nasdaq Options Market (``NOM'') Options 2, Section 3; Cboe Rule 
5.50; BOX Exchange LLC (``BOX'') Rule 8030; MIAX Rule 602; and NYSE 
Arca Rule 6.35-O.
    \58\ See Exchange Rule 604, ISE, GEMX and MRX, Phlx, BX and NOM 
Options 2, Section 5; Cboe Rule 5.52; BOX Rule 8050; MIAX Rule 604; 
and NYSE Arca Rule 6.37A-O.
    \59\ Options markets refer to the primary market maker on an 
exchange in several ways.
    \60\ See Exchange Rule 604, BX Options 2, Section 4; ISE, GEMX 
and MRX, and Phlx Options 2, Section 5; BOX Rule 8055; MIAX Rule 
604; and NYSE Arca Rule 6.37A-O.
    \61\ See BX Options 2, Section 4; ISE, GEMX and MRX, Phlx and 
NOM Options 2, Section 5; and Cboe Rule 5.52; BOX Rule 8040.
---------------------------------------------------------------------------

Trading Functionality
    An exchange's trading functionality attracts market participants 
who may elect, for example, to submit an order into a price improving 
auction,\62\ enter a complex order,\63\ or utilize a particular order 
type.\64\ Different options exchanges offer different trading 
functionality to their members. For example, with respect to priority 
and allocation of an order book, some options exchanges have price/time 
allocation,\65\ some have a size pro-rata allocation,\66\ while other 
exchanges offer both allocation models.\67\ The allocation methodology 
on a particular options exchange's order book may attract certain 
market participants. Also, the manner in which some options markets 
structure their solicitation auction,\68\ or opening process,\69\ may 
be attractive to certain market participants. Finally, some exchanges 
have trading floors \70\ which may accommodate trading for certain 
market participants or trading firms.\71\
---------------------------------------------------------------------------

    \62\ See ISE, GEMX, MRX, Phlx and BX Options 3, Section 13; MIAX 
Rule 515A; Cboe Rule 5.37; and BOX Rules 7150 and 7245. The Exchange 
does not currently offer a price improving auction.
    \63\ See Phlx and ISE Options 3, Section 14; MIAX Rule 518; Cboe 
Rule 5.33; BOX Rule 7240; and NYSE Arca Rule 6.91-O. The Exchange 
does not currently offer complex order functionality.
    \64\ See Exchange Rule 516, ISE, GEMX, MRX, Phlx, BX and NOM 
Options 3, Section 7; MIAX Rule 516; Cboe Rule 5.6; BOX Rule 7110; 
and NYSE Arca Rule 6.62-O.
    \65\ See Exchange Rule 514, Cboe Rule 5.85; BOX Rule 7130; and 
NYSE Arca Rule 6.76-O.
    \66\ See Phlx, ISE, GEMX and MRX Options 3, Section 10; and BOX 
Rule 7135.
    \67\ See BX Options 3, Section 10. While BX's rule permits both 
price/time and size pro-rata allocation, all symbols on BX are 
currently designated as Price/Time. See also BOX Rules 7130 and 
7135. MIAX's rule permits both Price-Time and Pro-Rata allocation. 
See also MIAX Rule 514.
    \68\ See ISE, GEMX and MRX Options 3, Section 11; NYSE American 
Rules 971.1NY and 971.2NY; and Cboe Rule 5.39.
    \69\ See Exchange Rule 503, ISE, GEMX, MRX, Phlx, BX and NOM 
Options 3, Section 8; Cboe Rule 5.31, MIAX Rule 503, BOX Rule 7070, 
and NYSE Arca Rule 6.64-O.
    \70\ Today, Phlx, Cboe, BOX, NYSE Arca, and NYSE American LLC 
have a trading floor. Trading floors require an on-floor presence to 
execute options transactions.
    \71\ There are certain features of open outcry trading that are 
difficult to replicate in an electronic trading environment. The 
Exchange has observed, and understands from various market 
participants, that they have had difficulty executing certain 
orders, such as larger orders and high-risk and complicated 
strategies, in an all-electronic trading configuration without the 
element of human interaction to negotiate pricing for these orders.
---------------------------------------------------------------------------

Product Offerings
    Introducing new and innovative products to the marketplace designed 
to meet customer demands may attract market participants to a 
particular options venue. New products in the options industry may 
allow market participants greater trading and hedging opportunities, as 
well as new avenues to manage risks. The listing of new options 
products enhances competition among market participants by providing 
investors with additional investment vehicles, as well as competitive 
alternatives, to existing investment products. An exchange's 
proprietary product offering may attract order flow to a particular 
exchange to trade a particular options product.\72\
---------------------------------------------------------------------------

    \72\ See, e.g., options on the Nasdaq-100 Index[supreg] 
available on ISE, GEMX and Phlx and Cboe's Market Volatility 
Index[supreg]. Currently, the Exchange does not list any proprietary 
products.
---------------------------------------------------------------------------

Transaction Pricing
    The pricing available on a particular exchange may impact a market 
participant's decision to submit order flow to a particular options 
venue. The options industry is competitive. Clear substitutes to the 
Exchange exist in the market for options security transaction services; 
the Exchange is only one of sixteen options exchanges to which market 
participants may direct their order flow and memberships. Within this 
environment, market participants can freely, and often do, shift their 
order flow and memberships among the Exchange and competing venues in 
response to changes in their respective pricing schedules.
Removal of Monthly Volume Credit and Trading Permit Fee Credit
    The Exchange believes its proposal to remove the Monthly Volume 
Credit is reasonable, equitable and not unfairly discriminatory because 
all market participants will no longer be offered the ability to 
achieve the extra credits associated with the Monthly Volume Credit for 
submitting Priority Customer volume to the Exchange and access to the 
Exchange is offered on terms that are not unfairly discriminatory. The 
Exchange believes it is equitable and not unfairly discriminatory to 
remove the Monthly Volume Credit from the Fee Schedule for business and 
competitive reasons. The Exchange established the Monthly Volume Credit 
when it first launched operations to encourage members to increase 
their order flow by providing a credit to those that exceeded a volume 
threshold. The

[[Page 33525]]

Exchange believes that the Exchange's existing Priority Customer 
rebates and fees will continue to allow the Exchange to remain highly 
competitive and continue to attract order flow and maintain market 
share even without the Monthly Volume Credit.
    The Exchange believes its proposal to remove the Trading Permit fee 
credit for Members that connect via both the MEO Interface and FIX 
Interface is reasonable, equitable and not unfairly discriminatory 
because all market participants will no longer be offered the ability 
to receive the credit and access to the Exchange is offered on terms 
that are not unfairly discriminatory. The Exchange believes it is 
equitable and not unfairly discriminatory to remove the Trading Permit 
fee credit for business and competitive reasons. The Exchange 
established the Trading Permit fee credit to lower the costs for 
Members that connect via the MEO Interface and/or FIX Interface as a 
means to attract order flow and memberships after the Exchange first 
launched operations. The Exchange now believes that it is appropriate 
to remove this credit in light of the current operating conditions and 
membership on the Exchange.
Trading Permit Fee Increase
    The Exchange believes that there is value in being a Member of the 
Exchange, retaining that Membership as the Exchange's market share has 
grown, and that the proposed Trading Permit fees are reasonable 
because, as illustrated by the above table, they are in the range of 
similar types of membership fees charged to analogous categories of 
market participants by other exchanges with similar market share.\73\ 
The proposed monthly Trading Permit fees are lower than or comparable 
to the membership and trading permit fees imposed by several other 
national securities exchanges that charge such fees.\74\
---------------------------------------------------------------------------

    \73\ See supra notes 33-39 and accompanying text.
    \74\ See id.
---------------------------------------------------------------------------

    The Exchange believes that the proposed monthly Trading Permit fees 
are not unfairly discriminatory because they would be assessed equally 
across all Members or firms that seek to become Members. As discussed 
above, both the MEO Interface and FIX Interface are available to all 
Members and each Member may choose which interface to utilize based on 
their own business needs. The MEO Interface is primarily used by Market 
Makers due to its functionality, robustness, lower latency, and higher 
throughput and utilizes greater Exchange resources due to the increased 
volume of message traffic that travel through the MEO interface. 
Trading Permit fees for Members who connect through the MEO Interface 
are higher than the Trading Permit fees for Members who connect through 
the FIX Interface. The FIX Interface provides lower capacity and 
bandwidth and, therefore, utilizes less Exchange resources. The FIX 
Interface is primarily used by order flow providers, who tend to be 
less latency sensitive and submit less orders and messages than Market 
Makers.
    Over the period from April 2021 until September 2021, the Exchange 
processed 3.15 billion messages via the FIX Interface (0.43% of total 
messages received). Over that same time period, the Exchange processed 
731.4 billion messages (99.57% of total messages received) over the MEO 
Interface. This marked difference between the number of FIX and MEO 
messages processed, when mapped to servers, software, storage, and 
networking results in a much higher allocation of total capital and 
operational expense to support the MEO Interface. For one, the Exchange 
incurs greater expense in maintaining the resilience of the MEO 
Interface to ensure its ongoing operation in accordance with Regulation 
SCI. Another, the Exchange must purchase and expand its storage 
capacity to retain these increased messages in compliance with its 
record keeping obligations. The Exchange's membership application team 
reviews each new membership application for compliance with Exchange 
rules. The Exchange must also expend additional resources to surveil 
and ensure proper regulatory oversight of this increased message 
traffic. These pulls on Exchange resources have only increased since it 
first adopted the Trading Permit fee in March of 2018 \75\ when the 
Exchange's trading volume for that month averaged 3.94%.\76\ Today, the 
Exchange's average daily trading volume for May 2022 is 4.56%.\77\ This 
additional volume increases the costs to the Exchange to surveil and 
regulate its market while also procuring additional capacity to store 
and monitor those messages in compliance with its record keeping 
obligations under the Exchange Act. Therefore, the proposed monthly 
Trading Permit fees are not unfairly discriminatory because they would 
be assessed equally across all Members based on the type of interface 
and related usage of Exchange resources.
---------------------------------------------------------------------------

    \75\ See supra note 7.
    \76\ See ``Market at a Glance'', available at https://www.miaxoptions.com/ (last visited May 16, 2022).
    \77\ Id.
---------------------------------------------------------------------------

    The Exchange believes that the proposed monthly Trading Permit fees 
are not unfairly discriminatory because no broker-dealer is required to 
become a Member of the Exchange. Instead, many market participants 
awaited the Exchange growing to a certain percentage of market share 
before they would join as a Member of the Exchange. In addition, many 
market participants still have not joined the Exchange despite the 
Exchange's growth in recent years to consistently be approximately 4-5% 
of the overall equity options market share. To illustrate, the Exchange 
currently has 41 Members.\78\ However, based on publicly available 
information regarding a sample of the Exchange's competitors, NYSE 
American Options has 75 members, NYSE Arca Options has 71 members, and 
Cboe has 94 members.\79\ Accordingly, the vigorous competition among 
national securities exchanges provides many alternatives for firms to 
voluntarily decide whether membership to the Exchange is appropriate 
and worthwhile, and no broker-dealer is required to become a member of 
the Exchange. Specifically, neither the trade-through requirements 
under Regulation NMS nor broker-dealers' best execution obligations 
require a broker-dealer to become a member of every exchange.
---------------------------------------------------------------------------

    \78\ See MIAX Pearl Options Exchange Member Directory, available 
at https://www.miaxoptions.com/exchange-members/pearl.
    \79\ See NYSE American Options Membership Directory, available 
at https://www.nyse.com/markets/american-options/membership (last 
visited March 9, 2022); NYSE Arca Options Membership Directory, 
available at https://www.nyse.com/markets/arca-options/membership 
(last visited March 9, 2022); Cboe Members and Sponsored 
Participants, Form 1 Amendment dated February 17, 2022, Exhibit M, 
available at https://www.sec.gov/Archives/edgar/vprr/2200/22000797.pdf (last visited March 9, 2022).
---------------------------------------------------------------------------

    The Exchange acknowledges that competitive forces may require 
certain broker-dealers to be members of all equity options exchanges. 
However, the Exchange believes that the proposed fees are reasonable, 
equitably allocated and not unfairly discriminatory, even for a broker-
dealer that deems it necessary to join the Exchange for business 
purposes, as those business reasons should presumably result in revenue 
capable of covering the proposed fees.
    The decision to become a member of an exchange, particularly for 
registered market makers, is complex, and not solely based on the non-
transactional costs assessed by an exchange. As noted above, specific 
factors include, but are not limited to: (i) An exchange's available 
liquidity in options series; (ii)

[[Page 33526]]

trading functionality offered on a particular market; (iii) product 
offerings; (iv) customer service on an exchange; and (v) transactional 
pricing. Becoming a member of the exchange does not ``lock'' a 
potential member into a market or diminish the overall competition for 
exchange services. The decision to become a member of an exchange is 
made at the beginning of the relationship, and is no less subject to 
competition than trading fees or market data.
    In lieu of becoming a member at each options exchange, a market 
participant may join one exchange and elect to have their orders routed 
in the event that a better price is available on an away market. 
Nothing in the Order Protection Rule requires a firm to become a Member 
at the Exchange.\80\ If the Exchange is not at the NBBO, the Exchange 
will route an order to any away market that is at the NBBO to prevent a 
trade-through and also ensure that the order was executed at a superior 
price.\81\
---------------------------------------------------------------------------

    \80\ See Options Order Protection and Locked/Crossed Market Plan 
(August 14, 2009), available at https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf.
    \81\ Exchange Members may elect to not route their orders by 
marking an order as ``do-not-route.'' In this case, the order would 
not be routed.
---------------------------------------------------------------------------

    Some other broker-dealers may not deem it necessary to be a Member 
of the Exchange and may elect to access the Exchange through other 
means. In lieu of joining an exchange, a third-party may be utilized to 
execute an order on an exchange. For example, a third-party broker-
dealer Member of MRX may be utilized by a retail investor to submit 
orders into an exchange. An institutional investor may utilize a 
broker-dealer, a service bureau,\82\ or request sponsored access \83\ 
through a member of an exchange in order to submit an order directly to 
an options exchange.\84\ A market participant may either pay the costs 
associated with becoming a member of an exchange or, in the 
alternative, a market participant may elect to pay commissions to a 
broker-dealer, pay fees to a service bureau to submit trades, or pay a 
member to sponsor the market participant in order to submit trades 
directly to an exchange.\85\ Market participants may elect any of the 
above models and weigh the varying costs when determining how to submit 
trades to an exchange. Depending on the number of orders to be 
submitted, technology, ability to control submission of orders, and 
projected revenues, a market participant may determine one model is 
more cost efficient as compared to the alternatives.
---------------------------------------------------------------------------

    \82\ Service bureaus provide access to market participants to 
submit and execute orders on an exchange. On the Exchange, a Service 
Bureau may be a Member. Some Members utilize a Service Bureau for 
connectivity and that Service Bureau may not be a Member. Some 
market participants utilize a Service Bureau who is a Member to 
submit orders. As noted herein only Members may submit orders or 
quotes through ports.
    \83\ Sponsored Access is an arrangement whereby a member permits 
its customers to enter orders into an exchange's system that bypass 
the member's trading system and are routed directly to the Exchange, 
including routing through a service bureau or other third-party 
technology provider.
    \84\ This may include utilizing a Floor Broker and submitting 
the trade to one of the five options trading floors.
    \85\ The Exchange notes that it does not have insight into the 
economics of such a relationship where a broker-dealer utilizes 
another entity to access the Exchanges. It is presumed that a third-
party that provides access to an exchange does so on behalf of 
multiple broker-dealers and provides access to multiple exchanges. 
It is also presumed that any increased volume that might cause such 
third party to achieve a higher Trading Permit pricing tier maybe 
offset through achieving a higher rebate on the Exchange or other 
economic arrangement between the parties.
---------------------------------------------------------------------------

    In June 2021, the month immediately preceding the initial 
implementation of this proposed fee change, the Exchange had 20 users 
of the MEO Interface and 28 users of the FIX Interface. These numbers 
remained stagnant until August 2021, where one Member that utilized the 
MEO Interface ceased utilizing the MEO Interface and again in December 
2021 where one Member that utilized the FIX Interface ceased utilizing 
the FIX Interface. Also, the Exchange has not experienced any Member 
decreasing their trading activity on the Exchange in order to move to a 
lower tier and be charged the corresponding lower fee. In fact, between 
June 2021 and July 2021, one Member of the MEO Interface moved up from 
Tier 1 to Tier 3 due to increasing their trading volume on the Exchange 
The Exchange has not experienced a net decrease in subscribers due to 
the fee increase, because the Exchange believes numerous considerations 
are taken into account when deciding to be a member of an exchange, 
including, but not limited to: (i) An exchange's available liquidity in 
options series; (ii) trading functionality offered on a particular 
market; (iii) product offerings; (iv) customer service on an exchange; 
and (v) transactional pricing when socializing the change. Fees are not 
the sole consideration. As stated above, the Exchange socialized the 
proposed fee increase with Members prior to first implementing the 
change. During that process, some Members stated that they anticipated 
a potential increase due to the lower rates the Exchange historically 
charged.
    Lastly, the Exchange believes the proposed tiered fees provide for 
an equitable allocation of reasonable dues, fees and other charges 
because it is similar to other tiered pricing structures on other 
options exchanges. The Exchange implemented the tiered pricing 
structure based on the type of interface and trading volume when it 
first adopted Trading Permit fees in 2018 and the Exchange does not 
propose to amend the volume requirements associated with each Tier. 
Rather, the Exchange simply seeks to amend the associated fees. The 
Exchange proposes to charge users of the FIX Interface monthly fees 
ranging from $500 to $1,500 based on trading volume. Users of the FIX 
Interface are primarily EEMs, which generally consist of order flow 
providers. Cboe charges monthly electronic trading permit fees based on 
the category of participant, such as $3,000 for Electronic Access 
Permit holders and $2,000 for Clearing TPH Permit holders (the Exchange 
notes that it only charges $250 per month for EEM Clearing Firms). 
Cboe's Electronic Access Permit fee is the analog to the Exchange's 
Trading Permit fee for Members that use the FIX Interface and is higher 
than the Exchange's proposed highest tier.
    Under the Exchange's tiered structure, a Member may trade 
approximately 106,000 more contracts on the Exchange than on Cboe BZX 
Options and continue to qualify for the Exchange's lowest Tier. For 
example, a Member would qualify for Tier 1 of the Exchange's tiered 
pricing structure where that Member's total volume as a percentage of 
TCV is between 0.00% and 0.30%. Assuming an average of 37 million 
contracts are traded each day during a month, that Member would qualify 
for Tier 1 where that Member traded less than an ADV of 111,000 
contracts and be charged $500 for the month, the same fee as Cboe BZX 
Options, where that Member connects via FIX.\86\ On Cboe BZX Options, 
the Exchange understands that same member would no longer qualify for 
their lowest tier when their ADV equals or exceeds 5,000 contracts and 
be charged a fee of $1,000 for that month.\87\
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    \86\ See ``Membership Fees'' section of the Cboe BZX Options Fee 
Schedule, available at https://www.cboe.com/us/options/membership/fee_schedule/bzx (last visited April 13, 2022). The Exchange 
understands Cboe BZX Options charges the same Membership Fee to all 
of its Options Members.
    \87\ The Exchange proposes to also charge a fee of $1,000 per 
month to Members that qualify for Tier 2, the same as BZX's highest 
tier. The Exchange acknowledges that the Exchange's Trading Permit 
fee would be higher than BZX where a Member qualifies for Tier 3.

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[[Page 33527]]

    The proposed Trading Rights Fee compare favorably with those of 
other options exchanges. The Exchange's proposed monthly Trading Permit 
Fees for users of the MEO Interface, which are primarily Market Makers, 
range from $2,500 to $6,000 based on trading volume. Basing such fees 
on trading volume is analogous to other options exchanges that base 
their similar fees charged to Market Makers based on the number of 
options classes traded. For example, NYSE Arca charges Market Makers a 
base fee of $6,000 and charges additional fees ranging from $1,000 to 
$5,000 on top of the base fee and depending on the options issues 
assigned, could result in monthly options trading permit fees ranging 
from $6,000 to $19,000 (or higher), which is higher than the Exchange's 
highest proposed tier of $6,000. NYSE American charges electronic 
Market Makers a base fee of $8,000 and charges additional fees ranging 
from $500 to $6,000 on top of the base fee and depending on the options 
issues assigned, which could result in monthly options trading permit 
fees ranging from $8,000 to $28,500 (or higher), also higher than the 
Exchange's highest proposed tier of $6,000.
    Further, the tiered pricing structure does not raise any new 
competitive issues as it has been in place since 2018 \88\ and similar 
membership pricing structures are utilized at other exchanges. Basing 
membership pricing based on volume is not a new or novel concept as 
other exchanges employ similar volume requirements based on options 
classes traded or assigned.\89\ The Exchange does not propose to amend 
its volume criteria, only the associated fees. The Exchange must 
consider Members ability to discontinue their memberships when 
considering any potential changes to its tiered volume requirements and 
that Members ability to transition to another exchange they view offers 
more attractive volume thresholds and pricing.
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    \88\ See supra note 7.
    \89\ See supra notes 33-35.
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    The proposed fees, therefore, represent the equitable allocation of 
reasonable dues, fees and other charges because the fees are generally 
lower than other exchanges and the proposed tiered fees are similar to 
other tiered pricing structures on other options exchanges.\90\
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    \90\ The Exchange does not charge a separate fee to Market 
Makers for options assignments.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\91\ the Exchange 
believes that the proposed rule change would not impose any burden on 
intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.
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    \91\ 15 U.S.C. 78f(8).
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Intra-Market Competition
    The Exchange believes the removal of the Monthly Volume Credit and 
Trading Permit fee credit will not place certain market participants at 
a relative disadvantage to other market participants because, in order 
to attract order flow when the Exchange first launched operations, the 
Exchange established these credits to lower the initial fixed cost for 
Members. The Exchange now believes that it is appropriate to remove 
this credit in light of the current operating conditions, including the 
Exchange's overall membership and the current type and amount of volume 
executed on the Exchange. The Exchange believes that the Exchange's 
rebates and fees will still allow the Exchange to remain highly 
competitive such that the Exchange should continue to attract order 
flow and maintain market share.
    As described above, the Exchange's proposed Trading Permit fees are 
lower than or similar to the cost of membership and trading permits on 
other exchanges,\92\ and therefore, may stimulate intramarket 
competition by attracting additional firms to become Members on the 
Exchange or at least should not deter interested participants from 
joining the Exchange. In addition, membership and trading permit fees 
are subject to competition from other exchanges. Accordingly, if the 
changes proposed herein are unattractive to market participants, it is 
likely the Exchange will see a decline in membership as a result. As 
stated above, the number of FIX and MEO Interface users remained 
stagnant until August 2021, where one Member that utilized the MEO 
Interface ceased utilizing that interface and again in December 2021, 
where one Member that utilized the FIX Interface ceased utilizing that 
interface.
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    \92\ See supra notes 33-39.
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    The Exchange also does not believe charging different fees for MEO 
and FIX Interface users and basing the amount of such fees on trading 
volume would impose any burden on intermarket or intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. As discussed above, the FIX Interface is the 
uniform industry message protocol used by most exchanges and provides 
lower throughput and bandwidth than the MEO Interface. Users are free 
to use either interface based on their business need and the pricing 
structure is aligned with the interface used, its pull on Exchange 
resources, and the Member's monthly trading volume. The tiered pricing 
structure is based on the type of interface and trading volume in place 
on the Exchange today and the Exchange does not propose to amend the 
volume requirements associated with each Tier. Rather, it is simply 
seeking to amend the associated fees. Basing such fees on trading 
volume would may also stimulate intramarket competition because it is 
analogous to other exchanges that base like fees on options classes 
traded or assigned. A Member may cease being a Member if they believe 
the tiered structure is not appropriate or that another exchange 
presents a better value. Likewise, a market participant that is not 
already a Member may cease membership on another exchange or become a 
Member of MIAX Pearl where they deem the Exchange's Trading Permit fee 
to be a better value based on its trading activity and business needs.
Inter-Market Competition
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 15 competing options 
venues if they deem fee levels at a particular venue to be excessive. 
Based on publicly-available information, and excluding index-based 
options, no single exchange has more than approximately 16% market 
share. Therefore, no exchange possesses significant pricing power 
regarding memberships or in the execution of multiply-listed equity and 
ETF options order flow. Over the course of 2021, the Exchange's market 
share has fluctuated between approximately 3-6% of the U.S. equity 
options industry.\93\ The Exchange is not aware of any evidence that a 
market share of approximately 3-6% provides the Exchange with anti-
competitive pricing power when it comes to competition for memberships. 
The Exchange believes that the ever-shifting market share among 
exchanges from month to month demonstrates that market participants can 
discontinue memberships in response to fee changes. In such an 
environment, the Exchange must continually adjust its fees to remain 
competitive with other exchanges and to

[[Page 33528]]

attract and retain memberships on the Exchange.
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    \93\ See supra note 76.
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    The proposed fee change will not impact intermarket competition 
because it will apply to all Members equally. Also, Members are free to 
use either the FIX or MEO Interface and may choose the interface that 
better meets their business needs based on their trading models and 
behavior. The Exchange operates in a highly competitive market in which 
market participants can determine whether or not to join the Exchange 
based on the value received compared to the cost of joining and 
maintaining membership on the Exchange.

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

    As described above, the Commission initially received SIG Letter 1 
on its initial proposal.\94\ The Exchange responded to SIG Letter 1 in 
its subsequent filing. The Commission also received SIG Letter 2 on a 
later filing for the same proposal,\95\ which the Exchange responded to 
in a prior filing. The Commission then received SIG Letter 3 on a later 
filing for the same proposal.\96\ SIG Letter 3 does not raise any new 
issues regarding the proposal and simply repeats prior complaints.
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    \94\ See supra note 43.
    \95\ See supra note 45.
    \96\ See supra note 48.
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    The Exchange initially justified this proposal with cost-based 
justifications to support the proposed fee changes. In the Exchange's 
prior proposed rule changes, the Exchange determined to utilize a 
competition based approach to support the proposed fee changes. Because 
the SIG Letters are primarily focused on the Exchange's prior cost 
justifications, the Exchange believes SIG's assertions are no longer 
germane to the current filing as the Exchange no longer utilizes a cost 
justification to support the proposed fees.
    Pursuant to the Guidance, Staff may consider whether a proposed fee 
is constrained by significant competitive forces in assessing the 
reasonableness of the proposed fee.\97\ This is in line with a recent 
filing by MEMX, in which MEMX argued its proposed monthly membership 
fee was reasonable because it was constrained by competitive 
forces.\98\ MEMX's monthly membership fee filing received no comment 
letters and remains in effect today, past the Commission's 60-day 
suspension deadline. The Exchange's trading permit fees are the 
conceptual equivalent of MEMX's ``membership fee,'' BOX's ``participant 
fee'' and ``market maker trading permit fee,'' and other exchanges' 
``access'' fees: They are all fees to solely provide access and allow 
activity to the specific marketplace. These are all monthly fees 
assessed to members for trading on each particular exchange. The 
Exchange now argues that its proposed fees are constrained by 
competition in the same way MEMX's membership fees are constrained by 
competition.
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    \97\ See supra note 56.
    \98\ See supra note 47.
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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,\99\ and Rule 19b-4(f)(2) \100\ 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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    \99\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \100\ 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 [email protected]. Please include 
File Number SR-PEARL-2022-23 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-2022-23. 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-2022-23 and should be submitted on 
or before June 23, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\101\
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    \101\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-11788 Filed 6-1-22; 8:45 am]
BILLING CODE 8011-01-P


