[Federal Register Volume 88, Number 30 (Tuesday, February 14, 2023)]
[Notices]
[Pages 9576-9579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03056]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96836; File No. SR-PEARL-2023-02]


Self-Regulatory Organizations: MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change by MIAX PEARL, 
LLC To Amend the MIAX Pearl Options Fee Schedule

February 8, 2023.
    Pursuant to the provisions of 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 January 31, 2023, 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.

[[Page 9577]]

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

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

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

1. Purpose
    The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees 
set forth in Section 1(a) of the Fee Schedule that apply to the MIAX 
Pearl Market Maker \3\ origin to modify the volume threshold for the 
alternative volume criteria (described below) in Tier 2 (defined 
below).
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    \3\ ``Market Maker'' 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 Exchange Rules. See the Definitions 
Section of the Fee Schedule.
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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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Alternative Volume Criteria Threshold Change in Tier 2
    The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees 
set forth in Section 1(a) of the Fee Schedule that apply to the MIAX 
Pearl Market Maker origin, to modify the volume threshold for the 
alternative Volume Criteria in Tier 2. The Market Maker origin 
currently provides an alternative volume criteria in Tier 2, which is 
based upon the total monthly volume executed by a MIAX Pearl Market 
Maker collectively in SPY/QQQ/IWM options on the Exchange, expressed as 
a percentage of total consolidated national volume in SPY/QQQ/IWM 
options.\11\ Pursuant to this alternative volume criteria, a Market 
Maker is able to reach the Tier 2 threshold if the Market Maker's total 
executed monthly volume, not including Excluded Contracts, in SPY/QQQ/
IWM options on MIAX Pearl is above 0.75% of total consolidated national 
monthly volume in SPY/QQQ/IWM options. For this calculation, volume 
that is from resting liquidity (Maker) and taking liquidity (Taker) in 
SPY/QQQ/IWM options is counted towards the alternative volume criteria, 
and the 0.75% threshold does not have to be reached individually in 
each of the three symbols. A Market Maker is able to qualify for Tier 2 
rebates and fees, which will then be applicable to all volume executed 
by the MIAX Pearl Market Maker on MIAX Pearl. The two

[[Page 9578]]

volume criteria available for Tier 2 is based upon either: (a) the 
total monthly volume executed by the Market Maker in all options 
classes on MIAX Pearl, not including Excluded Contracts, (as the 
numerator), expressed as a percentage of (divided by) TCV (as the 
denominator); or (b) the total monthly volume executed by the MIAX 
Pearl Market Maker collectively in SPY/QQQ/IWM options on MIAX Pearl, 
not including Excluded Contracts, (as the numerator), expressed as a 
percentage of (divided by) SPY/QQQ/IWM TCV \12\ (as the denominator). 
Once either volume criteria threshold in Tier 2 is reached by the 
Market Maker, the Tier 2 per contract rebates and fees apply to all 
volume in all options classes executed by that MIAX Pearl Market Maker 
on MIAX Pearl.
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    \11\ See Fee Schedule, Section 1(a), explanatory paragraph below 
the tables and footnotes. See also Securities Exchange Act Release 
Nos. 84592 (November 14, 2018), 83 FR 58646 (November 20, 2018) (SR-
PEARL-2018-23); 90906 (January 21, 2021), 86 FR 5296 (January 19, 
2021) (SR-PEARL-2020-38).
    \12\ ``SPY/QQQ/IWM TCV'' means total consolidated volume in SPY, 
QQQ, and IWM calculated as the total national volume in SPY, QQQ, 
and IWM 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 SPY, 
QQQ, or IWM options). See the Definitions Section of the Fee 
Schedule.
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    The Exchange now proposes to modify the threshold for the 
alternative volume criteria in Tier 2 from 0.75% to 0.55% of total 
consolidated national monthly volume in SPY/QQQ/IWM options. With the 
proposed change, a Market Maker will be able to reach the alternative 
Volume Criteria in Tier 2 if the Market Maker's total executed monthly 
volume, not including Excluded Contracts, in SPY/QQQ/IWM options on 
MIAX Pearl is above 0.55% of total consolidated national monthly volume 
in SPY/QQQ/IWM options. The Exchange is not modifying the calculation 
method for a Market Maker to reach the alternative volume criteria in 
Tier 2, only the threshold percentage. The Exchange proposes to make 
the corresponding change to the volume threshold percentage described 
in the explanatory paragraph for the alternative volume criteria for 
Tier 2 that is below the tables in Section 1(a) of the Fee Schedule.
    The purpose of this proposed change is for business and competitive 
reasons. In order to attract order flow, the Exchange initially set its 
volume threshold for the alternative volume criteria in Tier 2 at a 
meaningful low level.\13\ In 2021, the Exchange then increased the 
volume threshold for the alternative volume criteria in Tier 2.\14\ The 
Exchange now believes that it is appropriate to adjust this volume 
threshold so that it is more in line with the volume threshold that 
Market Makers currently achieve in SPY/QQQ/IWM options on MIAX Pearl by 
reducing the volume threshold for the alternative volume criteria in 
Tier 2 from 0.75% to 0.55% in SPY/QQQ/IWM options. Further, the 
Exchange believes that with the proposed change, the Exchange will 
attract additional SPY/QQQ/IWM option order flow from Market Makers, 
which should benefit all Exchange participants by providing more 
trading opportunities and tighter spreads. The Exchange cannot predict 
with certainty how many Market Makers will achieve the alternative 
volume criteria in Tier 2 with the decreased threshold percentage.
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    \13\ See Securities Exchange Act Release No. 84592 (November 14, 
2018), 83 FR 58646 (November 20, 2018) (SR-PEARL-2018-23).
    \14\ See Securities Exchange Act Release No. 90906 (January 21, 
2021), 86 FR 5296 (January 19, 2021) (SR-PEARL-2020-38).
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Implementation
    The proposed change will be effective beginning February 1, 2023.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with section 6(b) of the Act \15\ in general, and 
furthers the objectives of section 6(b)(4) of the Act,\16\ 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 6(b)(5) of the Act,\17\ in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanisms of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4).
    \17\ 15 U.S.C. 78f(b)(1) and (b)(5).
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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.'' \18\
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    \18\ 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 January 26, 2023, no single exchange has 
more than approximately 12-13% equity options market share for the 
month of January 2023.\19\ Therefore, no exchange possesses significant 
pricing power. More specifically, as of January 26, 2023, the Exchange 
had a market share of approximately 6.71% of executed volume of 
multiply-listed equity options for the month of January 2023.\20\
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    \19\ See ``The market at a glance,'' (last visited January 26, 
2023), available at https://www.miaxoptions.com/.
    \20\ 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).\21\ 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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    \21\ 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 decrease the threshold for 
the alternative volume criteria in Tier 2 from 0.75% to 0.55% of total 
consolidated national monthly volume in SPY/QQQ/IWM options is 
reasonable, equitably allocated and not unfairly discriminatory because 
the reduced threshold percentage should attract additional SPY/QQQ/IWM 
option order flow from Market Makers, which will benefit all Exchange 
participants by providing more trading opportunities and tighter 
spreads.

[[Page 9579]]

    The Exchange believes its proposal is reasonable, equitable and not 
unfairly discriminatory because all similarly situated market 
participants in the same origin type (MIAX Pearl Market Makers) are 
subject to the same tiered Maker rebates and access to the Exchange is 
offered on terms that are not unfairly discriminatory. The Exchange 
believes its proposal will incentivize Market Makers to increase their 
posted liquidity in SPY/QQQ/IWM options to the benefit of the entire 
market, which will increase order flow sent to the Exchange, benefiting 
all market participants through increased liquidity, tighter markets 
and order interaction.

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 change should continue to encourage the provision of liquidity 
in SPY/QQQ/IWM options 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. 
However, this competition does not create an undue burden on 
competition but rather offers all market participants the opportunity 
to receive the benefit of competitive pricing.
    The proposed change to the threshold criteria for the alternative 
volume criteria in Tier 2 for the Market Maker origin is intended to 
keep the Exchange's rebates 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 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.

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,\22\ and Rule 19b-4(f)(2) \23\ 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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    \22\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \23\ 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-2023-02 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-2023-02. 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 such 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-2023-02 and should be submitted on 
or before March 7, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03056 Filed 2-13-23; 8:45 am]
BILLING CODE 8011-01-P


