[Federal Register Volume 88, Number 122 (Tuesday, June 27, 2023)]
[Notices]
[Pages 41703-41706]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-13455]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97769; File No. SR-PEARL-2023-26]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Remove 
Additional Separate Maker Rebates in Non-Penny Classes From the MIAX 
Pearl Options Fee Schedule

June 20, 2023.
    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 June 9, 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.

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 remove the additional separate rebates 
from Section

[[Page 41704]]

1)a) of the Fee Schedule denoted by footnotes ``[ssbox]'' and 
``[ballot].'' The Exchange originally filed this proposal on May 31, 
2023, (SR-PEARL-2023-24). On June 9, 2023, the Exchange withdrew SR-
PEARL-2023-24 and resubmitted this proposal.
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 \3\ on MIAX Pearl in the relevant, respective 
origin type (not including Excluded Contracts) \4\ (as the numerator) 
expressed as a percentage of (divided by) TCV \5\ (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.\6\ 
Members that place resting liquidity, i.e., orders resting on the book 
of the MIAX Pearl System,\7\ 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 \8\ 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 \9\ (``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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    \3\ ``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.
    \4\ ``Excluded Contracts'' means any contracts routed to an away 
market for execution. See the Definitions Section of the Fee 
Schedule.
    \5\ ``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.
    \6\ ``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.
    \7\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \8\ ``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.
    \9\ 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
    Currently, the Exchange provides a per contract Maker rebate in 
Non-Penny classes for MIAX Pearl Market Maker origins in Tier 1 and 
Tier 2 of ($0.30); ($0.60) in Tier 3; ($0.65) in Tier 4; ($0.70) in 
Tier 5; and ($0.85) in Tier 6) as shown in the Fee Schedule section for 
the origin type, ``All MIAX Pearl Market Makers.'' Under footnote 
``[squf]'' of section 1)a) of the Fee schedule Market Makers may 
qualify for additional separate rebates for transactions in Non-Penny 
classes in Tiers 1 through 4 if the Market Maker increases their Non-
Penny Class Maker TCV by 100% or more as compared to that Market 
Maker's TCV for the month of July 2022, which is the Market Maker's 
baseline Non-Penny Class Maker TCV. Marker Makers that qualify will 
receive the following additional rebates (in addition to the relevant 
rebates described in the Fee Schedule): ($0.40) in Tier 1; ($0.40) in 
Tier 2; ($0.10) in Tier 3; and ($0.05) in Tier 4. Market Makers with no 
volume in the Non-Penny Class Maker segment for the month of July 2022 
will have any new volume considered as added volume.
    Additionally, the Exchange provides a per contract Maker rebate in 
Non-Penny classes for Non-Priority Customer, Firm, BD, and Non-MIAX 
Pearl Market Maker origins in Tier 1 and Tier 2 of ($0.30); ($0.60) in 
Tier 3; ($0.65) in Tier 4; ($0.70) in Tier 5; ($0.85) in Tier 6 as 
shown in the Fee Schedule for the following origin types, ``Non-
Priority Customer, Firm, BD, and Non-MIAX Pearl Market Makers.'' Under 
footnote ``[ballot]'' of section 1)a) of the Fee schedule EEMs may 
qualify for additional separate rebates for transactions in Non-Penny 
classes in Tiers 1 through 4 if the EEM Professional Origins, which 
include Non-Priority Customer, Firm, BD, and Non-MIAX Pearl Market 
Makers collectively, increases their Non-Penny Class Maker TCV by 100% 
or more as compared to that EEM's TCV for the month of July 2022, which 
is the EEM's Professional Origins baseline Non-Penny Class Maker TCV. 
EEMs Professional Origins who qualify will receive the following 
additional rebates (in addition to the relevant rebates described in 
the Fee Schedule): ($0.40) in Tier 1; ($0.40) in Tier 2; ($0.10) in 
Tier 3; and ($0.05) in Tier 4. EEMs with no Professional Origins volume 
in the Non-Penny Class Maker segment for the month of July 2022 will 
have any new volume considered as added volume. These rebates were 
adopted to attract additional Non-Penny Class volume to the 
Exchange.\10\
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    \10\ See Securities Exchange Act Release No. 95886 (September 
22, 2022), 87 FR 58843 (September 28, 2022) (SR-PEARL-2022-40).
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    The Exchange has observed that the incremental credit has not had 
the

[[Page 41705]]

intended result in the last six months. Since the incremental credit 
has not incentivized MIAX Pearl Market Makers and EEM Professional 
origins to significantly increase their Non-Penny Class volume on the 
Exchange, the Exchange has determined to eliminate the incremental 
credit and remove it from the Exchange's Fee Schedule.
    The Exchange now proposes to remove these additional separate 
rebates from the Exchange's Fee Schedule denoted by the ``[squf]'' and 
``[square]'' footnotes. Accordingly, the Exchange proposes to remove 
the footnotes from the table in Section 1)a) and also the explanatory 
note below the table for each footnote.
Implementation
    The proposed changes are immediately effective.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \11\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act,\12\ 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,\13\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
    \13\ 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.'' \14\
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    \14\ 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 May 26, 2023, no single exchange had more 
than approximately 12-13% equity options market share for the month of 
May 2023.\15\ Therefore, no exchange possesses significant pricing 
power. More specifically, as of May 26, 2023, the Exchange had a market 
share of approximately 6.87% of executed volume of multiply-listed 
equity options for the month of May 2023.\16\
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    \15\ See MIAX's ``The market at a glance/MTD AVERAGE,'' 
available at https://www.miaxglobal.com/ (Data as of 5\1\2023-
5\25\2023).
    \16\ 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).\17\ 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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    \17\ 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 eliminate additional separate 
Maker rebates for options transactions in Non-Penny Classes in Tiers 1 
through 4 for MIAX Pearl Market Makers and EEM Professional origins is 
reasonable because the incentive that is the subject of this proposal 
did not have the intended results. The rebates were intended to attract 
additional Non-Penny Class volume to the Exchange.\18\ The Exchange 
notes that the incremental credit has been underutilized in the last 
six months and has not incentivized Members to increase Non-Penny Class 
volume on the Exchange as anticipated. The Exchange also does not 
anticipate that any Member will qualify for the pricing incentive that 
is the subject of this proposal in the near future. The Exchange 
believes that it is reasonable to eliminate incentives when such 
incentives are underutilized. The Exchange believes that eliminating 
incentive programs from the Fee Schedule when such incentives become 
ineffective is equitable and not unfairly discriminatory because the 
incentive would be eliminated in its entirety and would no longer be 
available to any Member.
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    \18\ See supra note 10.
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    The Exchange notes that all Members would continue to be subject to 
the same fee structure, and access to the Exchange's market would 
continue to be offered on fair and non-discriminatory terms. The 
Exchange also believes that the proposed change would protect investors 
and the public interest because the removal of an underutilized pricing 
incentive would simplify the Fee Schedule and facilitate market 
participants' understanding of the fees charged and rebates offered by 
the Exchange.
    For the foregoing reasons, the Exchange believes that the proposal 
is consistent with the Act.

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

    The Exchange believes that the proposed change will not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange does not believe that the proposal will impose any 
burden on intra-market competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes the 
elimination of the enhanced rebates will not impose any burden on 
intra-market competition as the incentive has been underutilized in the 
last six months. The Exchange believes that it is reasonable to 
eliminate incentives when such incentives are underutilized. The 
Exchange believes that eliminating incentive programs from the Fee 
Schedule when such incentives become ineffective is equitable and not 
unfairly discriminatory because the incentive would be eliminated in 
its entirety and would no longer be available to any Member. Therefore 
the Exchange does not believe that its proposal will impose any burden 
on intra-market competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

[[Page 41706]]

Inter-Market Competition
    The Exchange operates in a highly competitive market in which 
market participants can readily choose to send their orders to other 
exchanges if they deem fee levels and incentives at those other 
exchanges to be more favorable. As noted above, the Exchange's market 
share is currently 6.87%.\19\ In such an environment, the Exchange must 
continually adjust its fees and rebates to remain competitive with 
other exchanges. Because competitors are free to modify their own fees 
and credits in response, and because market participants may readily 
adjust their own order routing practices, the Exchange does not believe 
its proposed fee change can impose any burden on inter-market 
competition.
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    \19\ See supra note 15.
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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,\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.
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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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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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-PEARL-2023-26 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-2023-26. 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 (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-PEARL-2023-26 and should be 
submitted on or before July 18, 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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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-13455 Filed 6-26-23; 8:45 am]
BILLING CODE 8011-01-P


