[Federal Register Volume 87, Number 218 (Monday, November 14, 2022)]
[Notices]
[Pages 68217-68222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24650]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96249; File No. SR-PEARL-2022-47]


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 a Monthly Credit Associated With 
Trading Permit Fees

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 a monthly credit 
associated with Trading Permit (defined below) fees.
    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 68218]]

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 that waived fees for Trading Permits \4\ to 
trade on the Exchange.\5\ In 2018, as the Exchange's market share 
increased,\6\ the Exchange adopted nominal fees for Trading Permits 
based on the type of interface used--MEO \7\ or FIX \8\--and according 
to the volume-based tier \9\ each Member \10\ achieved during the month 
along with that of its Affiliates.\11\ At the same time, the Exchange 
adopted a nominal monthly credit known as the ``Trading Permit Fee 
Credit,'' a $100 per month credit for Members that connected to the 
Exchange via both the MEO and FIX Interfaces.\12\
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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\ The term ``Trading Permit'' means a permit issued by the 
Exchange that confers the ability to transact on the Exchange. See 
Exchange Rule 100.
    \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 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).
    \7\ 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.
    \8\ 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.
    \9\ The tiers were determined by the defined term ``Non-
Transaction Fees Volume Based Tiers''. See the Definitions Section 
of the Fee Schedule.
    \10\ 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.
    \11\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07). See the 
Definitions Section of the Fee Schedule for the definition of 
``Affiliate.''
    \12\ 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 
(``EEMs'') \13\ and Market Makers.\14\ The Exchange recently filed a 
proposal with the Commission to amend the calculation and amount of 
Trading Permit fees assessed to Market Makers, and adopt a flat Trading 
Permit fee for EEMs, based on the type of interface used, MEO and/or 
FIX. Pursuant to that proposal, the Exchange moved away from the volume 
tier-based Trading Permit fee structure for Market Maker Trading Permit 
fees; instead, Market Makers are assessed Trading Permit fees based 
upon the number of classes in which the Market Maker was registered to 
quote on any given day within the calendar month, or upon the class 
volume percentages set forth in the table in Section 3)b) of the Fee 
Schedule.\15\
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    \13\ ``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.
    \14\ 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.
    \15\ See Securities Exchange Act Release No. 95780 (September 
15, 2022), 87 FR 57732 (September 21, 2022) (SR-PEARL-2022-39).
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    The Exchange established the Trading Permit Fee Credit to continue 
to attract order flow and increase membership by lowering Trading 
Permit costs for Members.\16\ The Exchange adopted the Trading Permit 
Fee Credit to incentivize market participants to trade on the Exchange 
and help the Exchange's market share grow.\17\ This practice is not 
uncommon. New exchanges often do not charge fees or offer pricing 
incentives for certain services such as memberships/trading permits to 
attract order flow to an exchange, and later amend their fees to 
reflect the true value of those services, absorbing costs to provide 
those services in the meantime. Allowing new exchange entrants time to 
build and sustain market share through various pricing incentives 
before increasing non-transaction fees encourages market entry and 
promotes competition. It also enables new exchanges to mature their 
markets and allow market participants to trade on the new exchanges 
without fees serving as a potential barrier to attracting memberships 
and order flow.\18\ Not allowing exchanges to modify or amend such 
pricing incentives as their markets mature, especially when other 
options exchanges do not offer similar incentives, could discourage 
exchanges from offering such incentives if they believe the Commission 
would later require that exchange to continue to offer such incentives, 
like a nominal $100 credit that is the subject of this proposal, and 
lower prices than those of its competitor exchanges. In that case, the 
Commission alone, and not market forces, would dictate exchange 
pricing.
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    \16\ See supra note 12.
    \17\ 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 6 (last visited November 2, 2022).
    \18\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (stating, ``[t]he 
Exchange established this lower (when compared to other options 
exchanges in the industry) Participant Fee in order to encourage 
market participants to become Participants of BOX. . .''). See also 
Securities Exchange Act Release No. 90076 (October 2, 2020), 85 FR 
63620 (October 8, 2020) (SR-MEMX-2020-10) (``MEMX Membership Fee 
Proposal'') (proposing to adopt the initial fee schedule and stating 
that ``[u]nder the initial proposed Fee Schedule, the Exchange 
proposes to make clear that it does not charge any fees for 
membership, market data products, physical connectivity or 
application sessions.''). MEMX has seen its market share increase 
and recently proposed to adopt a membership fee and fees for 
connectivity. See Securities Exchange Act Release Nos. 93927 
(January 7, 2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19) 
(proposing to adopt membership fees); and 95299 (July 15, 2022), 87 
FR 43563 (July 21, 2022) (SR-MEMX-2022-17) (proposing to adopt fees 
for connectivity). See also, e.g., Securities Exchange Act Release 
No. 88211 (February 14, 2020), 85 FR 9847 (February 20, 2020) (SR-
NYSENAT-2020-05), available at https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2020/SR-NYSENat-2020-05.pdf (initiating market data fees for the NYSE National exchange 
after initially setting such fees at zero).
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    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 history of filings to 
remove the Trading Permit Fee Credit is described below), 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 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

[[Page 68219]]

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 on July 1, 2021 (along with the 
removal of a separate credit), with the proposed changes being 
immediately effective.\19\ 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.\20\ The Commission received three comment letters from one 
commenter on the various filings.\21\ On October 25, 2022, the Exchange 
withdrew its latest proposal and submitted a revised proposal to only 
remove the Trading Permit Fee Credit (SR-PEARL-2022-45, which was not 
noticed by the Commission). On November 2, 2022, the Exchange withdrew 
SR-PEARL-2022-45 and now resubmits a revised proposal to only remove 
the Trading Permit Fee Credit.
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    \19\ See Securities Exchange Act Release No. 92366 (July 9, 
2021), 86 FR 37379 (SR-PEARL-2021-32).
    \20\ 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).
    \21\ 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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2. Statutory Basis
    The Exchange believes that its proposal to amend the Fee Schedule 
is consistent with Section 6(b) of the Act \22\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \23\ 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 not designed 
to permit unfair discrimination between customers, issuers, brokers and 
dealers.\24\
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(4).
    \24\ 15 U.S.C. 78f(b)(5).
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    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' . . . .'' \25\
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    \25\ 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.'' \26\
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    \26\ 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 its proposal to remove the nominal Trading 
Permit Fee Credit of $100 for EEMs 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. The Exchange believes it is 
reasonable and equitable to remove the nominal $100 Trading Permit Fee 
Credit for business and competitive reasons. The Exchange established 
the Trading Permit Fee Credit to lower the costs for EEMs that connect 
via the MEO Interface and 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.
    The Exchange commenced operations in February 2017 \27\ and adopted 
its initial fee schedule that waived fees for Trading Permits to trade 
on the Exchange.\28\ Although Trading Permit fees were waived, an 
initial fee structure was put in place to communicate the Exchange's 
intent to charge Trading Permit fees in the future. As a new exchange 
entrant, the Exchange chose to offer Trading Permits free of charge to 
encourage market participants to trade on the Exchange and experience, 
among things, the quality of the Exchange's technology and trading 
functionality. This practice is not uncommon. New exchanges often do 
not charge fees or charge lower fees for certain services such as 
memberships or trading permits to attract order flow to a new market, 
and later amend their fees to reflect the true value of those services, 
absorbing all costs to provide those services in the meantime. Allowing 
new exchange entrants time to build and sustain market share through 
various pricing incentives before increasing non-transaction fees 
encourages market entry and promotes competition. It also enables new 
exchanges to mature their markets and allow market participants to 
trade on the new exchanges without fees serving as a potential barrier 
to attracting memberships and order flow.\29\ Later in 2018, as the 
Exchange's market share increased,\30\ the Exchange adopted nominal 
fees for Trading Permits along with the Trading Permit Fee Credit.\31\
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    \27\ See supra note 3.
    \28\ See supra note 5.
    \29\ See supra note 18.
    \30\ The Exchange experienced a monthly average trading volume 
of 3.94% for the month of March 2018. See supra note 6, Market at a 
Glance (last visited November 2, 2022).
    \31\ See supra note 12. At that time, the Exchange chose to 
adopt a volume tier-based fee for Trading Permits along with the 
type of interface used--FIX or MEO--as a way to provide different 
choices regarding how potential Members could access the Exchange's 
System. This was for business and competitive reasons and to provide 
choice regarding Trading Permits and membership that had not 
previously existed. The Exchange has since proposed to move away 
from the volume tier-based Trading Permit fee structure and filed a 
proposal with the Commission so that its Trading Permit fee 
structure aligns with that of the Exchange's affiliates, MIAX and 
MIAX Emerald, as well as other options exchanges by assessing Market 
Makers Trading Permit fees based on options classes assigned. See 
also Securities Exchange Act Release No. 95780 (September 15, 2022), 
87 FR 57732 (September 21, 2022) (SR-PEARL-2022-39) (amending the 
Trading Permit Fees in the MIAX Pearl Options Fee Schedule).

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[[Page 68220]]

    The Exchange recently reviewed the calculation and amount of its 
Trading Permit fees. In its review, the Exchange determined that the 
nominal Trading Permit Fee Credit of $100 is no longer necessary to 
attract market share or memberships. The Exchange believes that even 
with the proposal to remove the nominal $100 Trading Permit Fee Credit, 
the Exchange's Trading Permit fees for EEMs ($1,000 for EEMs that 
connect via the FIX Interface and $3,000 for EEMs that connect via the 
MEO Interface) will be similar to the rates charged by the Exchange's 
affiliates, Miami International Securities Exchange, LLC (``MIAX'') 
\32\ and MIAX Emerald, LLC (``MIAX Emerald''),\33\ and competing 
options exchanges in the industry for similar Trading Permits for such 
market participants. For example, BOX Options Exchange LLC (``BOX'') 
\34\ assesses a ``Participant Fee'' of $1,500 per month; NYSE Arca, 
Inc. (``NYSE Arca'') \35\ assesses Office and Clearing Firms Trading 
Permit fees of $1,000 per month; NYSE American, LLC (``NYSE American'') 
\36\ assesses Clearing Members and Order Flow Providers ``ATP Trading 
Permit'' fees of $1,000 per month; Nasdaq ISE LLC (``Nasdaq ISE'') \37\ 
assesses Electronic Access Members ``Access Fees'' of $500 per month; 
Cboe Exchange, Inc. (``Cboe'') \38\ assesses Electronic Access Permit 
fees of $3,000 per month and Clearing TPH Permit fees of $2,000 per 
month; and Cboe C2 Exchange, Inc. (``Cboe C2'') \39\ assesses 
Electronic Access Permit fees of $1,000 per month. None of these 
exchanges offer a related credit.
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    \32\ See MIAX Fee Schedule, Section (3)(b) (assessing MIAX EEMs 
a flat fee of $1,500 per month for Trading Permits).
    \33\ See MIAX Emerald Fee Schedule, Section (3)(b) (assessing 
MIAX Emerald EEMs a flat fee of $1,500 per month for Trading 
Permits).
    \34\ See BOX fee schedule, Section 1, available at https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-June-1-2022-1.pdf 
(last visited October 19, 2022). BOX's Participant Fee is the analog 
to the Exchange's Trading Permit fee for EEMs who use the FIX 
interface. BOX had an average daily market share of 6.64% for the 
month of October (as of October 19, 2022). See supra note 6, Market 
at a Glance.
    \35\ 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 October 19, 2022).
    \36\ 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 October 19, 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 EEMs that use the FIX 
interface.
    \37\ 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 October 19, 
2022). Nasdaq ISE Options' EAM Access Fee is the analog to the 
Exchange's Trading Permit fee for EEMs that use the FIX Interface. 
Nasdaq ISE had an average daily market share of 6.35% for the month 
of October (as of October 19, 2022). See supra note 6, Market at a 
Glance.
    \38\ See Cboe Fee Schedule, Electronic Trading Permit Fees, 
available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf (last visited October 19, 2022). Cboe's 
Electronic Access Permit fee and Clearing TPH fee are the analog to 
the Exchange's Trading Permit fee for EEMs that use the FIX 
Interface.
    \39\ See Cboe C2 Fee Schedule, Access Fees, available at https://www.cboe.com/us/options/membership/fee_schedule/ctwo/ (last visited 
October 19, 2022). Cboe C2's Electronic Access Permit fee is the 
analog to the Exchange's Trading Permit fee for EEMs that use the 
FIX Interface. Cboe C2 had an average daily market share of 4.65% 
for the month of October (as of October 19, 2022). See supra note 6, 
Market at a Glance.
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    There is no requirement, regulatory or otherwise, that any broker-
dealer connect to and access any (or all of) the available options 
exchanges. One other exchange recently noted in a proposal to amend 
their own trading permit fees that of the 62 market making firms that 
are registered as Market Makers across Cboe, MIAX, and BOX, 42 firms 
access only one of the three exchanges.\40\ Further, the Exchange and 
its affiliates, MIAX and MIAX Emerald, have a total of 47 members. Of 
those 47 total members, 35 are members of all three exchanges, four are 
members of only two (2) exchanges, and eight (8) are members of only 
one exchange. Of those that are Market Makers today on the Exchange, 
two (2) are not registered as Market Makers on MIAX and one (1) is not 
registered as a Market Maker on MIAX Emerald. Broken down even further, 
of those Market Makers that use the MEO Interface and reached the 
Exchange's top tier for the Trading Permit fee for June 2022, one (1) 
Market Maker was only a Member of the Exchange and not its two 
affiliates, MIAX and MIAX Emerald. The above data evidences that a 
Member need not be a member of all options exchanges, let alone the 
Exchange and its two affiliates, and market participants elect to do so 
based on their own business decisions and need to directly access each 
exchange's liquidity pool. Not only is there not an actual regulatory 
requirement to connect to every options exchange, the Exchange believes 
there is also no ``de facto'' or practical requirement as well, as 
further evidenced by the market maker membership analysis of the 
options exchanges discussed above. Indeed, Members choose if and how to 
access a particular exchange and because it is a choice, the Exchange 
must set reasonable pricing, otherwise prospective market makers would 
not connect and existing Market Makers would disconnect from the 
Exchange.
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    \40\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change to Amend the 
Fee Schedule on the BOX Options Market LLC Facility To Adopt 
Electronic Market Maker Trading Permit Fees). The Exchange believes 
that BOX's observation demonstrates that market making firms can, 
and do, select which exchanges they wish to access, and, 
accordingly, options exchanges must take competitive considerations 
into account when setting fees for such access.
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    The Exchange believes that elasticity of demand for Exchange 
Membership exists when it comes to purchasing a Trading Permit and, as 
evidenced by the below data, prior fee proposals have resulted in 
Members terminating their memberships.\41\ For example, over the course 
of those prior filings, three (3) Members terminated their memberships 
in the time since the proposed fee increase first went into effect. In 
June 2021, the month immediately preceding the initial implementation 
of the prior 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. These numbers again remained stagnant until March 2022, 
where another Member that utilized the FIX Interface ceased utilizing 
the FIX Interface. This resulted in 19 users of the MEO Interface and 
26 users of the FIX Interface. Further, other exchanges have also 
experienced termination of memberships if their members deem permit or 
membership fees to be unreasonable or excessive. For example, the 
Exchange notes that a BOX participant modified its access to BOX in 
connection with the implementation of a proposed change to BOX's permit 
fees.\42\ The absence of new memberships

[[Page 68221]]

coupled with the termination of two memberships on the Exchange, as 
well as similar membership changes on another options exchange in 
relation to a trading permit fee increase, clearly shows that 
elasticity of demand exists.
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    \41\ See Securities Exchange Act Release No. 95419 (August 4, 
2022), 87 FR 48702 (August 10, 2022) (SR-PEARL-2022-30).
    \42\ According to BOX, a Market Maker on BOX terminated its 
status as a Market Maker in response to BOX's proposed modification 
of Market Maker trading permit fees. See Securities Exchange Act 
Release No. 94894 (May 11, 2022), 87 FR 29987 (May 17, 2022) (SR-
BOX-2022-17). BOX noted, and the Exchange agrees, that this Market 
Maker's decision demonstrates that Market Makers can, and do, alter 
their membership status if they deem permit fees at an exchange to 
be unsuitable for their business needs, thus demonstrating the 
competitive environment for Market Maker permit fees and the 
constraints on options exchanges when setting Market Maker permit 
fees.
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    The Exchange notes that there are material costs associated with 
providing the infrastructure and headcount to fully-support access to 
the Exchange. The Exchange incurs technology expenses related to 
establishing and maintaining Information Security services, enhanced 
network monitoring and customer reporting associated with its network 
technology. While some of the expense is fixed, much of the expense is 
not fixed, and thus increases as the expenses associated with access 
services for Members increases. For example, new Members to the 
Exchange may require the purchase of additional hardware to support 
those Members as well as enhanced monitoring and reporting of customer 
performance that the Exchange provides. Further, as the total number of 
Members increase, the Exchange may need to increase its data center 
footprint and consume more power, resulting in increased costs charged 
by their third-party data center provider. Accordingly, the cost to the 
Exchange to provide access to its Members is not fixed. The Exchange 
believes the proposal to remove the Trading Permit Fee Credit is 
reasonable in order to offset a portion of the costs to the Exchange 
associated with providing access to its quote and order infrastructure.
    The Exchange again notes that it operates in a highly competitive 
market in which market makers can readily favor competing venues if 
they deem fee levels at a particular venue to be excessive. In such an 
environment, the Exchange must continually adjust its fees for services 
and products, in addition to order flow, to remain competitive with 
other exchanges. The Exchange believes that the proposed changes 
reflect this competitive environment. The Exchange again notes it is 
not aware of any reason why Members could not simply drop their access 
to an exchange (or not initially access an exchange) if an exchange 
were to establish prices for its non-transaction fees that, in the 
determination of such market participant, did not make business or 
economic sense to access such exchange. The Exchange again notes that 
no broker-dealer is required by rule, regulation, or competitive forces 
to be a Member on the Exchange.
    Accordingly, the Exchange believes removal of the nominal $100 
Trading Permit Fee Credit is reasonable and equitable. It is also not 
unfairly discriminatory as the removal of the credit applies equally to 
all EEMs and the Exchange's Trading Permit fees for EEMs are in line 
with similar fees charged by competitor exchanges.

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

    In accordance with Section 6(b)(8) of the Act,\43\ 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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    \43\ 15 U.S.C. 78f(8).
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Intra-Market Competition
    The Exchange believes the removal of the 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 
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. The proposed fee change will not impact intra-market 
competition because it will apply to all Members equally.
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.\44\ 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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    \44\ See supra note 6.
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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.\45\
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    \45\ See supra note 20.
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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,\46\ and Rule 19b-4(f)(2) \47\ 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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    \46\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \47\ 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

[[Page 68222]]

     Send an email to [email protected]. Please include 
File Number SR-PEARL-2022-47 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-2022-47. 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-2022-47 and should be submitted on 
or before December 5, 2022.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\48\
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    \48\ 17 CFR 200.30-3(a)(12).

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24650 Filed 11-10-22; 8:45 am]
BILLING CODE 8011-01-P


