[Federal Register Volume 87, Number 218 (Monday, November 14, 2022)]
[Notices]
[Pages 68214-68217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24651]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96250; File No. SR-PEARL-2022-46]


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 the Monthly Volume Credit

November 7, 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 November 2, 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 remove the ``Monthly Volume 
Credit'' from the Fee Schedule.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
Pearl's principal office, and at the Commission's Public Reference 
Room.

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

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

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

1. Purpose
    The Exchange commenced operations in February 2017 \3\ and adopted 
its initial fee schedule.\4\ In 2018, as the Exchange's market share 
increased,\5\ the Exchange adopted a Monthly Volume Credit \6\ to 
continue to attract order flow

[[Page 68215]]

and increase membership by lowering the costs for Members.\7\ The 
Exchange believes that the Monthly Volume Credit has served its 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.\8\ Therefore, the Exchange now proposes to 
remove the Monthly Volume Credit from the Fee Schedule.
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    \3\ 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.
    \4\ See Securities Exchange Act Release No. 80061 (February 17, 
2017), 82 FR 11676 (February 24, 2017) (SR-PEARL-2017-10).
    \5\ The Exchange experienced a monthly average trading volume in 
equity options of 3.94% for the month of March 2018. See Market at a 
Glance, available at www.miaxoptions.com (last visited November 2, 
2022).
    \6\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
    \7\ 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.
    \8\ The Exchange experienced a monthly average trading volume in 
equity options of 4.35% for the month of October 2022. See Market at 
a Glance, supra note 5 (last visited November 2, 2022).
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    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 \9\ to encourage Members to send 
increased Priority Customer \10\ 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 \11\ or MEO 
Interface.\12\ 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,\13\ not including Excluded Contracts,\14\ of at least 0.30% 
of MIAX Pearl-listed Total Consolidated Volume (``TCV''),\15\ as set 
forth in the following table:
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    \9\ See supra note 6.
    \10\ 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.
    \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\ ``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.
    \14\ ``Excluded Contracts'' means any contracts routed to an 
away market for execution. See the Definitions Section of the Fee 
Schedule.
    \15\ ``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 volume
               Type of member connection                      credit
------------------------------------------------------------------------
Member that connects via the FIX Interface.............             $250
Member that connects via the MEO Interface.............            1,000
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    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.\16\
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    \16\ See, generally, Fee Schedule, Section 1)a).
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Implementation and Procedural History
    The proposed rule change will be immediately effective. The 
Exchange initially filed this proposal to remove the Monthly Volume 
Credit (and monthly credits associated with Trading Permits) on July 1, 
2021, with the proposed fees being immediately effective.\17\ In that 
proposal, the Exchange also proposed to increase its Trading Permit 
fees. Between August 2021 and September 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.\18\ The Commission received 
three comment letters from one commenter on the various filings.\19\ On 
October 25, 2022, the Exchange withdrew its latest proposal and 
submitted a revised proposal to only remove the Monthly Volume Credit 
(SR-PEARL-2022-44, which was not noticed by the Commission). On 
November 2, 2022, the Exchange withdrew SR-PEARL-2022-44 and now 
resubmits a revised proposal to only remove the Monthly Volume Credit.
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    \17\ See Securities Exchange Act Release No. 92366 (July 9, 
2021), 86 FR 37379 (SR-PEARL-2021-32).
    \18\ 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; 95419 (August 
4, 2022), 87 FR 48702 (August 10, 2022 (SR-PEARL-2022-30); 95775 
(September 15, 2022), 87 FR 57544 (September 20, 2022) (SR-PEARL-
2022-35).
    \19\ See Letters from Richard J. McDonald, Susquehanna 
International Group, LLC (``SIG''), to Vanessa Countryman, 
Secretary, Commission, dated September 28, 2021 and March 15, 2022, 
and Letter from Brian Sopinsky, General Counsel, SIG, to Vanessa 
Countryman, Secretary, Commission, dated May 9, 2022.

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[[Page 68216]]

2. Statutory Basis
    The Exchange believes that its proposal to amend the Fee Schedule 
is consistent with Section 6(b) of the Act \20\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \21\ 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 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' . . . .'' \22\
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(4).
    \22\ 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)).
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    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.'' \23\
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    \23\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
discontinue or reduce use of certain categories of products and 
services, terminate an existing membership or determine to not become a 
new member, and/or shift order flow, in response to transaction fee 
changes. For example, on February 28, 2019, the Exchange filed with the 
Commission a proposal to increase Taker fees in certain Tiers for 
options transactions in certain Penny classes for Priority Customers 
and decrease Maker rebates in certain Tiers for options transactions in 
Penny classes for Priority Customers (which fee was to be effective 
March 1, 2019).\24\ The Exchange experienced a decrease in total market 
share for the month of March 2019, after the proposal went into effect. 
Accordingly, the Exchange believes that its March 1, 2019, fee change, 
to increase certain transaction fees and decrease certain transaction 
rebates, may have contributed to the decrease in MIAX Pearl's market 
share and, as such, the Exchange believes competitive forces constrain 
the Exchange's, and other options exchanges, ability to set transaction 
fees and market participants can shift order flow based on fee changes 
instituted by the exchanges.
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    \24\ See Securities Exchange Act Release No. 85304 (March 13, 
2019), 84 FR 10144 (March 19, 2019) (SR-PEARL-2019-07).
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    The Exchange believes its proposal to 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. The Exchange 
believes it is reasonable and equitable 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\
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    \25\ See Fee Schedule, Section 1)a).
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    The Exchange further believes its proposal to remove the Monthly 
Volume Credit is reasonable because the Exchange originally adopted the 
Monthly Volume Credit to attract order flow to increase the Exchange's 
market share. The Exchange believes that the Monthly Volume Credit has 
served its purpose of incentivizing market participants to trade on the 
Exchange as the Exchange's market share continues to grow and increase 
since the credit was established.\26\ Therefore, the Exchange believes 
it is reasonable to remove the Monthly Volume Credit from the Fee 
Schedule.
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    \26\ The Exchange experienced a monthly average trading volume 
in equity options of 4.35% for the month of October 2022. See Market 
at a Glance, supra note 5 (last visited November 2, 2022).
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    Lastly, the Exchange also believes the proposal furthers the 
objectives of Section 6(b)(5) of the Act in that it is not designed to 
permit unfair discrimination between customers, issuers, brokers and 
dealers because the Monthly Volume Credit will no longer be available 
to any Member and all Members would now be subject to the same level of 
non-transaction fees regardless of the amount of Priority Customer 
volume they execute on the Exchange.

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

    In accordance with Section 6(b)(8) of the Act,\27\ 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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    \27\ 15 U.S.C. 78f(8).
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Intra-Market Competition
    The Exchange believes the removal of the Monthly Volume Credit will 
not place certain market participants at a relative disadvantage to 
other market participants because, in order to attract order flow, the 
Exchange established this credit 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 
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.\28\ Lastly, the proposed fee change 
will not impact intra-market competition because it will apply to all 
Members equally.
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    \28\ See, generally, Fee Schedule, Section 1)a).
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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%

[[Page 68217]]

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.\29\ 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.
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    \29\ See supra note 5.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange responded to comment letters in a prior proposal.\30\
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    \30\ See supra note 18.
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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,\31\ and Rule 19b-4(f)(2) \32\ 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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    \31\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \32\ 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-2022-46 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-2022-46. 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-2022-46 and should be submitted on 
or before December 5, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24651 Filed 11-10-22; 8:45 am]
BILLING CODE 8011-01-P


