[Federal Register Volume 87, Number 242 (Monday, December 19, 2022)]
[Notices]
[Pages 77654-77657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-27376]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96480; File No. SR-PEARL-2022-54]


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

December 13, 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 30, 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'').
    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

[[Page 77655]]

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 Add/Remove Tiered Rebates/Fees 
set forth in Section 1)a) of the Fee Schedule to lower Taker fees 
(defined below) in certain Tiers for transactions in Penny Classes 
(defined below) for the Priority Customer \3\ origin.
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    \3\ 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.
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Background
    The Exchange currently assesses transaction rebates and fees to all 
market participants which are based upon the total monthly volume 
executed by the Member \4\ on MIAX Pearl in the relevant, respective 
origin type (not including Excluded Contracts) \5\ (as the numerator) 
expressed as a percentage of (divided by) TCV \6\ (as the denominator). 
In addition, the per contract transaction rebates and fees are applied 
retroactively to all eligible volume for that origin type once the 
respective threshold tier (``Tier'') has been reached by the Member. 
The Exchange aggregates the volume of Members and their Affiliates.\7\ 
Members that place resting liquidity, i.e., orders resting on the book 
of the MIAX Pearl System,\8\ are paid the specified ``maker'' rebate 
(each a ``Maker''), and Members that execute against resting liquidity 
are assessed the specified ``taker'' fee (each a ``Taker''). For 
opening transactions and ABBO \9\ uncrossing transactions, per contract 
transaction rebates and fees are waived for all market participants. 
Finally, Members are assessed lower transaction fees and receive lower 
rebates for order executions in standard option classes in the Penny 
Interval Program \10\ (``Penny Classes'') than for order executions in 
standard option classes which are not in the Penny Interval Program 
(``Non-Penny Classes''), where Members are assessed higher transaction 
fees and receive higher rebates.
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    \4\ ``Member'' means an individual or organization that is 
registered with the Exchange pursuant to Chapter II of Exchange 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See the Definitions Section of 
the Fee Schedule and Exchange Rule 100.
    \5\ ``Excluded Contracts'' means any contracts routed to an away 
market for execution. See the Definitions Section of the Fee 
Schedule.
    \6\ ``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 time in which the Exchange experiences an 
``Exchange System Disruption'' (solely in the option classes of the 
affected Matching Engine (as defined below)). The term Exchange 
System Disruption, which is defined in the Definitions section of 
the Fee Schedule, means an outage of a Matching Engine or collective 
Matching Engines for a period of two consecutive hours or more, 
during trading hours. The term Matching Engine, which is also 
defined in the Definitions section of the Fee Schedule, is a part of 
the MIAX PEARL electronic system that processes options orders and 
trades on a symbol-by-symbol basis. Some Matching Engines will 
process option classes with multiple root symbols, and other 
Matching Engines may be dedicated to one single option root symbol 
(for example, options on SPY may be processed by one single Matching 
Engine that is dedicated only to SPY). A particular root symbol may 
only be assigned to a single designated Matching Engine. A 
particular root symbol may not be assigned to multiple Matching 
Engines. The Exchange believes that it is reasonable and appropriate 
to select two consecutive hours as the amount of time necessary to 
constitute an Exchange System Disruption, as two hours equates to 
approximately 1.4% of available trading time per month. The Exchange 
notes that the term ``Exchange System Disruption'' and its meaning 
have no applicability outside of the Fee Schedule, as it is used 
solely for purposes of calculating volume for the threshold tiers in 
the Fee Schedule. See the Definitions Section of the Fee Schedule.
    \7\ ``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.
    \8\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \9\ ``ABBO'' means the best bid(s) or offer(s) disseminated by 
other Eligible Exchanges (defined in Exchange Rule 1400(g)) and 
calculated by the Exchange based on market information received by 
the Exchange from OPRA. See the Definitions Section of the Fee 
Schedule and Exchange Rule 100.
    \10\ See Securities Exchange Act Release No. 88992 (June 2, 
2020), 85 FR 35142 (June 8, 2020) (SR-PEARL-2020-06).
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Proposal
    The Exchange proposes to amend the Fee Schedule for the Exchange's 
options market to modify Taker fees in certain Tiers for options 
transactions in Penny Classes for the Priority Customer origin. 
Currently, for options transactions in all Penny Classes (except for 
symbols SPY, QQQ and IWM),\11\ the Exchange assesses the following 
Taker fees for the Priority Customer origin: $0.50 in Tier 1; $0.50 in 
Tier 2; $0.50 in Tier 3; $0.49 in Tier 4; $0.48 in Tier 5; and $0.47 in 
Tier 6. The Exchange assesses Taker fees for options transactions in 
SPY for the Priority Customer origin as follows: $0.46 in Tier 1; $0.46 
in Tier 2; $0.45 in Tier 3; $0.44 in Tier 4; $0.43 in Tier 5; and $0.42 
in Tier 6. The Exchange also assesses Taker fees for options 
transactions in QQQ and IWM for the Priority Customer origin as 
follows: $0.50 in Tier 1; $0.50 in Tier 2; $0.48 in Tier 3; $0.47 in 
Tier 4; $0.46 in Tier 5; and $0.45 in Tier 6.
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    \11\ See Fee Schedule, Section 1)a), note ``*''.
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    The Exchange now proposes to lower the Taker fees in certain Tiers 
for options transactions in Penny Classes for the Priority Customer 
origin. In particular, the Exchange proposes to lower the Taker fees 
for options transactions in all Penny Classes, excluding SPY, QQQ and 
IWM, for the Priority Customer origin as follows: from $0.50 to $0.48 
in Tier 1; from $0.50 to $0.48 in Tier 2; from $0.50 to $0.48 in Tier 
3; and from $0.49 to $0.48 in Tier 4. The Exchange also proposes to 
lower the Taker fees for options transactions in QQQ and IWM for the 
Priority Customer origin as follows: from $0.50 to $0.48 in Tier 1 and 
from $0.50 to $0.48 in Tier 2. The purpose of these changes is for 
business and competitive reasons in order to attract additional Penny 
Class volume from Members by lowering certain Taker fees in options 
classes that are typically among the most actively traded

[[Page 77656]]

symbols,\12\ which should benefit all Exchange participants by 
providing more trading opportunities and tighter spreads.
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    \12\ See supra note 10 (adopting the Penny Program that applies 
to the 363 most actively traded multiply listed option classes).
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Implementation
    The proposed changes will be effective beginning December 1, 2022.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \13\ in general, and 
furthers the objectives of section 6(b)(4) of the Act,\14\ in that it 
is an equitable allocation of reasonable dues, fees and other charges 
among Exchange Members and issuers and other persons using its 
facilities and does not unfairly discriminate between customers, 
issuers, brokers or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
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    The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. In Regulation NMS, 
the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \15\
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    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
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    There are currently 16 registered options exchanges competing for 
order flow. Based on publicly-available information, and excluding 
index-based options, as of November 28, 2022, no single exchange has 
more than approximately 12-13% equity options market share for the 
month of November 2022.\16\ Therefore, no exchange possesses 
significant pricing power. More specifically, as of November 28, 2022, 
the Exchange has a market share of approximately 4.47% of executed 
volume of multiply-listed equity options for the month of November 
2022.\17\
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    \16\ See ``The market at a glance,'' (last visited November 28, 
2022), available at https://www.miaxoptions.com/.
    \17\ See id.
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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).\18\ 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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    \18\ 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 that its proposal is reasonable because it 
will lower Taker fees for options transactions in Penny Classes in 
certain Tiers for Priority Customer orders, which should encourage 
Members to submit more Priority Customer orders, leading to increased 
liquidity on the Exchange to the benefit of all market participants by 
providing more trading opportunities and tighter spreads.
    Further, the Exchange believes that it is equitable and not 
unfairly discriminatory to assess lower Taker fees to Priority Customer 
orders than to non-Priority Customer orders. A Priority Customer is by 
definition not a broker or dealer in securities, and does not place 
more than 390 orders in listed options per day on average during a 
calendar month for its own beneficial account(s).\19\ This limitation 
does not apply to participants on the Exchange whose behavior is 
substantially similar to that of market professionals, including non-
Priority Customers, MIAX Pearl Market Makers, Firms, and Broker-
Dealers, who will generally submit a higher number of orders (many of 
which do not result in executions) than Priority Customers.
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    \19\ See Exchange Rule 100.
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    Furthermore, the proposed decrease to Taker fees in Penny Classes 
for Priority Customer transactions in certain Tiers will encourage 
Members to send more orders to the Exchange. To the extent that 
Priority Customer order flow in Penny Classes is increased by the 
proposal, market participants will increasingly compete for the 
opportunity to trade on the Exchange, including sending more orders, 
which will have the potential to be assessed lower fees and higher 
rebates. The resulting increased volume and liquidity will benefit all 
Exchange participants by providing more trading opportunities and 
tighter spreads.
    For competitive and business reasons, the Exchange believes that 
lower Taker fees assessable to Priority Customer transactions in QQQ 
and IWM options in certain Tiers will encourage Members to execute more 
volume in QQQ and IWM options on behalf of Priority Customers since 
they will be assessed reduced fees for Priority Customer orders in 
those options classes which remove liquidity. The Exchange believes for 
these reasons that offering the reduced Taker fees for Priority 
Customer transactions in QQQ and IWM options in certain Tiers is 
equitable, reasonable and not unfairly discriminatory, and thus 
consistent with the Act.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that the 
proposed changes in the Taker fees for the applicable market 
participants should continue to encourage the provision of liquidity 
that enhances the quality of the Exchange's market and increases the 
number of trading opportunities on the Exchange for all participants 
who will be able to compete for such opportunities. The proposed rule 
changes should enable the Exchange to continue to attract and compete 
for order flow with other exchanges.
    The proposed Taker fee decreases are intended to keep the 
Exchange's fees highly competitive with those of other exchanges, and 
to encourage liquidity and should enable the Exchange to continue to 
attract and compete for order flow with other exchanges. The Exchange 
notes that it operates in a highly competitive market in which market 
participants 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 rebates and fees to remain 
competitive with other exchanges and to attract order flow. The 
Exchange believes that the proposed rule changes reflect this 
competitive environment because the proposal modifies the Exchange's 
fees in

[[Page 77657]]

a manner that encourages market participants to continue to provide 
liquidity and to send order flow to the Exchange.

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.
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    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \21\ 17 CFR 240.19b-4(f)(2).
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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,\20\ and Rule 19b-4(f)(2) \21\ 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.

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-2022-54 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-2022-54. 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-2022-54 and should be submitted on 
or before January 9, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-27376 Filed 12-16-22; 8:45 am]
BILLING CODE 8011-01-P


