[Federal Register Volume 87, Number 181 (Tuesday, September 20, 2022)]
[Notices]
[Pages 57544-57547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-20269]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95775; File No. SR-PEARL-2022-35]


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

September 14, 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 September 1, 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.
---------------------------------------------------------------------------

    \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 Options 
Fee Schedule (the ``Fee Schedule'') to remove two monthly credits 
associated with Trading Permit \3\ and non-transaction fees.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.

[[Page 57545]]

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

1. Purpose
    The Exchange commenced operations in February 2017 \4\ and adopted 
its initial fee schedule that waived fees for Trading Permits to trade 
on the Exchange.\5\ In 2018, as the Exchange's market share 
increased,\6\ the Exchange adopted a nominal fee for Trading Permits 
along with a tiered-volume based fee credit, known as the Trading 
Permit Fee Credit, and a Monthly Volume Credit.\7\ The Exchange 
established the Trading Permit Fee Credit to continue to attract order 
flow and increase membership by lowering the costs for Members.\8\
---------------------------------------------------------------------------

    \4\ See MIAX PEARL Successfully Launches Trading Operations, 
dated February 6, 2017, available at https://www.miaxoptions.com/sites/default/files/alert-files/MIAX_Press_Release_02062017.pdf.
    \5\ See Securities Exchange Act Release No. 80061 (February 17, 
2017), 82 FR 11676 (February 24, 2017) (SR-PEARL-2017-10).
    \6\ The Exchange experienced a monthly average trading volume of 
3.94% for the month of March 2018. See Market at a Glance, available 
at www.miaxoptions.com (last visited (August 29, 2022).
    \7\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
    \8\ 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.
---------------------------------------------------------------------------

    The Exchange believes that the Trading Permit Fee Credit and 
Monthly Volume Credit have served their purpose of incentivizing market 
participants to trade on the Exchange as the Exchange's market share 
continues to grow and increase since the credits were established.\9\ 
Therefore, the Exchange now proposes to remove the two monthly credits 
associated with Trading Permit and non-transaction fees from the Fee 
Schedule.
---------------------------------------------------------------------------

    \9\ The Exchange experienced a monthly average trading volume of 
4.75% for the month of August 2022 (as of August 29, 2022). See 
Market at a Glance, supra note 6.
---------------------------------------------------------------------------

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 \10\ to encourage Members to send 
increased Priority Customer \11\ order flow to the Exchange, which the 
Exchange applied as a metric to the assessment of non-transaction fees 
for that Member. During the period when the Monthly Volume Credit was 
in effect (as further described below), the Exchange applied a 
different Monthly Volume Credit depending on whether the Member 
connected to the Exchange via the FIX Interface \12\ or MEO 
Interface.\13\ During the period when the Monthly Volume Credit was in 
effect, the Exchange assessed the Monthly Volume Credit to each Member 
that had executed Priority Customer volume along with that of its 
affiliates,\14\ not including Excluded Contracts,\15\ of at least 0.30% 
of MIAX Pearl-listed Total Consolidated Volume (``TCV''),\16\ as set 
forth in the following table:
---------------------------------------------------------------------------

    \10\ See supra note 7.
    \11\ 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.
    \12\ 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.
    \13\ 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.
    \14\ ``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.
    \15\ ``Excluded Contracts'' means any contracts routed to an 
away market for execution. See the Definitions Section of the Fee 
Schedule.
    \16\ ``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
------------------------------------------------------------------------
Member that connects via the FIX Interface....................      $250
Member that connects via the MEO Interface....................     1,000
------------------------------------------------------------------------

    If a Member connected via both the MEO Interface and FIX Interface 
and qualified for the Monthly Volume Credit based upon its Priority 
Customer volume, the greater Monthly Volume Credit would apply to such 
Member. During the periods when the Monthly Volume Credit was 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 to amend 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.\17\
---------------------------------------------------------------------------

    \17\ See, generally, Fee Schedule, Section (1)(a).
---------------------------------------------------------------------------

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. During periods when the 
Trading Permit fee credit was in effect, the Trading Permit fee credit 
was applicable to Members that connected via both the MEO and FIX 
Interfaces. Members who connected via both the MEO and FIX Interfaces 
were assessed the rates for both types of Trading Permits, but these 
Members received a $100 monthly credit towards

[[Page 57546]]

the Trading Permit fees applicable to the MEO Interface. 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 Exchange believes the Trading Permit fee credit 
has achieved its purpose and the Exchange believes that it is 
appropriate to remove this credit in light of the current operating 
conditions and membership population on the Exchange.
Implementation and Procedural History
    The proposed rule change will be immediately effective. The 
Exchange initially filed this proposal to remove the two monthly 
credits associated with Trading Permit and non-transaction fees on July 
1, 2021, with the proposed fees being immediately effective.\18\ In 
that proposal, the Exchange also proposed to increase its Trading 
Permit fees. Between August 2021 and August 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 or 
to supplement its competition based arguments.\19\ The Commission 
received three comment letters from one commenter on the various 
filings.\20\ The Exchange withdrew its latest proposal and submits this 
proposal to only remove the two monthly credits associated with Trading 
Permit and non-transaction fees. The Exchange does not propose to amend 
its Trading Permit fees in this filing.
---------------------------------------------------------------------------

    \18\ See Securities Exchange Act Release No. 92366 (July 9, 
2021), 86 FR 37379 (SR-PEARL-2021-32).
    \19\ 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); 94287 (February 18, 
2022), 87 FR 10837 (February 25, 2022) (SR-PEARL-2022-05) 
(``Suspension Order 2''); 94696 (April 12, 2022), 87 FR 22987 (April 
18, 2022) (SR-PEARL-2022-09); 94993 (May 26, 2022), 87 FR 33518 
(June 2, 2022) (SR-PEARL-2022-23); SR-PEARL-2022-28; and Securities 
Exchange Act Release No. 95419 (August 4, 2022), 87 FR 48702 (August 
10, 2022 (SR-PEARL-2022-30).
    \20\ See Letters from Richard J. McDonald, Susquehanna 
International Group, LLC (``SIG''), to Vanessa Countryman, 
Secretary, Commission, dated September 28, 2021, March 15, 2022, and 
May 9, 2022.
---------------------------------------------------------------------------

    The proposed changes will be effective beginning September 1, 2022.
2. Statutory Basis
    The Exchange believes that its proposal to amend the Fee Schedule 
is consistent with Section 6(b) of the Act \21\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \22\ 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.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The proposed changes to the Fee 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'. . . .'' \23\
---------------------------------------------------------------------------

    \23\ 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.'' \24\
---------------------------------------------------------------------------

    \24\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    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 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.\25\
---------------------------------------------------------------------------

    \25\ See Fee Schedule, Section (1)(a).
---------------------------------------------------------------------------

    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.

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

    In accordance with Section 6(b)(8) of the Act,\26\ 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.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(8).
---------------------------------------------------------------------------

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

[[Page 57547]]

initial fixed cost for Members. The Exchange now believes that it is 
appropriate to remove these credits 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 current 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.
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 
exchange-traded fund (``ETF'') options order flow. Over the course of 
2021 and 2022, the Exchange's market share has fluctuated between 
approximately 3-6% of the U.S. equity options industry.\27\ 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 attract and retain memberships on the Exchange. 
Lastly, the proposed fee change will not impact intermarket competition 
because it will apply to all Members equally.
---------------------------------------------------------------------------

    \27\ See supra note 6.
---------------------------------------------------------------------------

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,\28\ and Rule 19b-4(f)(2) \29\ 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.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \29\ 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 [email protected]. Please include 
File Number SR-PEARL-2022-35 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-2022-35. 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 a.m. and 3 
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-2022-35 and should be submitted on 
or before October 11, 2022.
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-20269 Filed 9-19-22; 8:45 am]
BILLING CODE 8011-01-P


