
[Federal Register Volume 88, Number 155 (Monday, August 14, 2023)]
[Notices]
[Pages 55096-55099]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17304]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98088; File No. SR-EMERALD-2023-20]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the MIAX Emerald Options Exchange Fee Schedule To Modify the Excessive 
Quoting Fee

August 8, 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 July 27, 2023, MIAX Emerald, LLC (``MIAX Emerald'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change as described in Items I and II 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 proposes to amend the MIAX Emerald Options Exchange 
Fee Schedule (the ``Fee Schedule'') to modify the Excessive Quoting 
Fee. The text of the proposed rule change is available on the 
Exchange's website at https://www.miaxglobal.com/markets/us-options/emerald-options/rule-filings, at MIAX Emerald'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 55097]]

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 Section (1)(c) of the Fee Schedule 
to add an exemption such that Market Makers \3\ would not be assessed 
the daily Excessive Quoting Fee for the first trading day that they 
exceed the 3.5 billion inbound quote \4\ limit in a rolling 12-month 
period. The Exchange originally filed this proposal on July 18, 2023 
(SR-EMERALD-2023-17). On July 27, 2023, the Exchange withdrew SR-
EMERALD-2023-17 and refiled this proposal.
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    \3\ The term ``Market Maker'' refers to ``Lead Market Maker'' 
(``LMM''), ``Primary Lead Market Maker'' (``PLMM'') and ``Registered 
Market Maker'' (``RMM''), collectively. See the Definitions Section 
of the Fee Schedule and Exchange Rule 100.
    \4\ The term ``quote'' or ``quotation'' means a bid or offer 
entered by a Market Maker that is firm and may update the Market 
Maker's previous quote, if any. The Rules of the Exchange provide 
for the use of different types of quotes, including Standard quotes 
and eQuotes, as more fully described in Rule 517. A Market Maker 
may, at times, choose to have multiple types of quotes active in an 
individual option. See the Definitions Section of the Fee Schedule.
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Background
    The Exchange adopted the Excessive Quoting Fee as a result of a 
significant upgrade to the MIAX Emerald System \5\ network 
architecture, based on customer demand, which resulted in the 
Exchange's network environment becoming more transparent and 
deterministic. Pursuant to the Excessive Quoting Fee, the Exchange will 
assess a fee of $10,000 per day to any Market Maker that exceeds 3.5 
billion inbound quotes sent to the Exchange on that particular day. In 
counting the total number of quotes for the purposes of the Excessive 
Quoting Fee, the Exchange excludes messages that are generated as a 
result of sending a mass purge message to the Exchange. The 3.5 billion 
inbound quote limit for the Excessive Quoting Fee resets each trading 
day.\6\
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    \5\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \6\ See Fee Schedule, Section (1)(c).
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Proposal
    The Exchange proposes to adopt an exemption from the daily 
Excessive Quoting Fee for the first trading day that a Market Maker 
would incur such fee in a rolling 12-month period (the ``Exemption''). 
For example, if a Marker Maker exceeds 3.5 billion inbound quotes on 
August 1, 2023, the Exchange will not assess the Excessive Quoting Fee. 
Following that initial exceeding day, if that same Market Maker exceeds 
the 3.5 billion inbound quote limit again on any trading day between 
August 2, 2023 and July 31, 2024, then the Exchange would assess the 
Excessive Quoting Fee on each of those days. Continuing with this 
scenario, beginning with August 1, 2024, if that same Marker Maker 
exceeds the 3.5 billion inbound quote limit on September 1, 2024, the 
Exchange would not assess the Excessive Quoting Fee for that day 
because a new rolling 12-month period started. Following that exceeding 
day of September 1, 2024, if that same Market Maker exceeds the 3.5 
billion inbound quote limit again on any trading day between September 
2, 2024 and August 31, 2025, then the Exchange would assess the 
Excessive Quoting Fee on each of those days.
    The purpose of the proposed Exemption is intended to provide one-
time relief to Market Makers from the Excessive Quoting Fee during a 
12-month period. For example, increased volatility in the market place, 
an increase in the number of options products quoted on the Exchange, 
Market Makers testing new algorithms or technology, or some combination 
of those factors, among others, may impact the number of quotes sent by 
a Market Maker on a particular trading day, resulting in that Market 
Maker potentially exceeding the 3.5 billion inbound quote limit. The 
proposed Exemption would provide one-time relief in those types of 
circumstances. The Exchange believes the proposed Exemption will not 
undermine the purpose of the Excessive Quoting Fee, but will continue 
to balance the interests of Market Makers sending quotes to the 
Exchange, pursuant to their quoting obligations and quoting strategies, 
while ensuring that Market Makers do not over utilize the Exchange's 
System by sending excessive numbers of quotes to the potential 
detriment of other Members \7\ of the Exchange.
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    \7\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
the Definitions Section of the Fee Schedule.
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    The proposal contemplates that a Market Maker would have to exceed 
the high threshold of 3.5 billion inbound quotes on more than one 
trading day in a rolling 12-month period before that Market Maker would 
be charged the Excessive Quoting Fee (with the Exemption providing 
relief once during a rolling 12-month period). The Exchange believes 
the proposed Exemption is similar to the exemption currently offered by 
the options markets for NYSE Arca, Inc. (``NYSE Arca Options'') and 
NYSE American LLC (``NYSE American Options'') for those exchanges' 
``Ratio Threshold Fee.'' \8\
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    \8\ See NYSE American Options Fee Schedule, Section II. Monthly 
Excessive Bandwidth Utilization Fees, available at https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf (``The Monthly Excessive 
Bandwidth Utilization Fee will not be assessed for the first 
occurrence in a rolling 12-month period.''); see also NYSE Arca 
Options Fees and Charges, NYSE Arca Options General, note 12, 
available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf (``The Ratio Threshold 
Fee is calculated on a monthly basis. This fee shall not apply to 
orders that improve the Exchange's prevailing best bid-offer (BBO) 
market at the time the orders are received. The fee will not be 
assessed for the first occurrence in a rolling 12-month period.'').
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    The Excessive Quoting Fee was not intended to be a source of 
revenue for the Exchange, as the Exchange noted in its proposals to 
adopt the Excessive Quoting Fee and increase the inbound quote 
limit.\9\ Rather, the Excessive Quoting Fee was designed to ensure that 
Market Makers do not over utilize the Exchange's System by sending 
excessive numbers of quotes to the Exchange, potentially to the 
detriment of all other Members of the Exchange. The proposed Exemption 
provides one-time relief from the Excessive Quoting Fee during a 12-
month period and will not undermine the purpose of the Excessive 
Quoting Fee, but will continue to balance the interests of Market 
Makers sending quotes to the Exchange, pursuant to their quoting 
obligations and quoting strategies and not over utilize the System. The 
Exchange also notes that since the adoption of the Excessive Quoting 
Fee in early 2021, the Exchange assessed the Excessive Quoting Fee only 
one time.
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    \9\ See Securities Exchange Act Release Nos. 91406 (March 24, 
2021), 86 FR 16795 (March 31, 2021) (SR-EMERALD-2021-10) and 94368 
(March 7, 2022), 87 FR 14051 (March 11, 2022) (SR-EMERALD-2022-09).
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Implementation
    The proposed changes are immediately effective.
2. Statutory Basis
    The Exchange believes that its proposal to amend the Fee Schedule 
is consistent with section 6(b) of the Act \10\ in general, and 
furthers the objectives of section 6(b)(4) and (5) of the Act \11\ 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 and does not unfairly

[[Page 55098]]

discriminate between customers, issuers, brokers or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
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The Proposed Rule Change Is Reasonable
    The Exchange operates in a highly competitive market. 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.\12\
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    \12\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS 
Adopting Release'').
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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, no single exchange has more than approximately 13% 
of the market share of executed volume of multiply-listed equity and 
exchange-traded fund (``ETF'') options trades.\13\ Therefore, no 
exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
for the month of June 2023, the Exchange had a market share of 3.04% of 
executed volume of multiply-listed equity and ETF options trades.\14\
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    \13\ See the ``Market Share'' section of the Exchange's website, 
available at https://www.miaxglobal.com/ (last visited July 27, 
2023).
    \14\ 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 
shift order flow, or discontinue or reduce use of certain categories of 
products, in response to fee changes. Accordingly, competitive forces 
constrain options exchange transaction fees. Stated otherwise, 
modifications to exchange transaction fees can have a direct effect on 
the ability of an exchange to compete for order flow.
    The Exchange believes that the proposed Exemption is reasonable 
because it provides one-time relief to Market Makers from the Excessive 
Quoting Fee during a 12-month period during which a combination of 
possible factors, described above, may result in that Market Maker 
potentially exceeding the 3.5 billion inbound quote limit on a 
particular trading day. The Exchange believes the proposed Exemption 
will not undermine the purpose of the Excessive Quoting Fee, but will 
continue to balance the interests of Market Makers sending quotes to 
the Exchange, pursuant to their quoting obligations and quoting 
strategies, while ensuring that Market Makers do not over utilize the 
Exchange's System by sending excessive numbers of quotes to the 
potential detriment of other Members of the Exchange. In the backdrop 
of the competitive environment in which the Exchange operates, the 
proposed rule change is a reasonable attempt by the Exchange to 
mitigate effects of an ever-changing marketplace without affecting its 
competitiveness or the quantity of quotes being sent by Market Makers. 
The Exchange also believes the proposed Exemption is reasonable because 
it is similar to the exemption currently offered by NYSE Arca Options 
and NYSE American Options for their Ratio Threshold Fee.\15\
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    \15\ See supra note 8.
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The Proposed Rule Change Is an Equitable Allocation of Fees
    The Exchange believes the proposed change is an equitable 
allocation of fees. The proposed Exemption is an equitable allocation 
of fees because it would be available to all Market Makers. All Market 
Makers would be eligible for the Exemption the first trading day they 
would incur the daily Excessive Quoting Fee in a rolling 12-month 
period. In addition, to the extent the Exemption encourages Market 
Makers to maintain their quoting activity on the Exchange by mitigating 
the initial impact of the Excessive Quoting Fee, the Exchange believes 
the proposed change would promote market quality to the benefit of all 
market participants.
The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory because it neither targets nor will it have a disparate 
impact on any particular type of Market Maker. The Exchange believes 
the proposed Exemption is not unfairly discriminatory because it would 
apply to all Market Makers on an equal and non-discriminatory basis. 
The Exemption, as proposed, would provide all Market Makers with an 
exemption from the daily Excessive Quoting Fee the first trading day 
such fee would be incurred in a rolling 12-month period. The Exchange 
believes that the proposed change would encourage Market Makers to 
continue quoting on the Exchange by providing one-time relief from the 
Excessive Quoting Fee in a rolling 12-month period and providing Market 
Makers with an opportunity to evaluate their quoting behavior, while 
balancing the interests of all market participants that send messages 
to the Exchange on a daily basis. The proposed change would thus 
support continued quoting and trading opportunities for all market 
participants, thereby promoting just and equitable principles of trade, 
removing impediments to and perfecting the mechanism of a free and open 
market and a national market system and, in general, protecting 
investors and the public interest.
    The Exchange will continue to review the quoting behavior of all 
firms in connection with changing market conditions and technology or 
algorithm changes on a regular basis to ensure that the proposed 
Exemption is providing relief for Market Makers as intended.

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

    In accordance with section 6(b)(8) of the Act, the Exchange does 
not believe that the proposed rule change would impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, as discussed above, the Exchange believes 
that the proposed change would encourage the submission of additional 
quotes to a public exchange, thereby promoting market depth, price 
discovery and transparency and enhancing order execution opportunities 
for all market participants.
Intramarket Competition
    The Exchange does not believe the proposed changes would impose any 
burden on intramarket competition that is not necessary or appropriate. 
The proposed Exemption would apply equally to all Market Makers. All 
Market Makers would be eligible for the Exemption for the first 
occurrence that the Excessive Quoting Fee would be imposed for 
exceeding the 3.5 billion inbound quote limit on a particular trading 
day, over the course of a rolling 12-month period. To the extent the 
proposed change is successful in encouraging Market Makers to maintain 
their quoting activity on the Exchange, the Exchange believes the 
proposed change will continue to promote market quality to the benefit 
of all market participants.
Intermarket Competition
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 16 competing option 
exchanges if they deem fee levels at a particular venue to

[[Page 55099]]

be excessive. In such an environment, the Exchange must continually 
adjust its fees to remain competitive with other exchanges and to 
attract order flow to the Exchange. Based on publicly-available 
information, and excluding index-based options, no single exchange has 
more than approximately 13% of the market share of executed volume of 
multiply-listed equity and ETF options trades.\16\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
for the month of June 2023, the Exchange had a market share of 3.04% of 
executed volume of multiply-listed equity and ETF options trades.\17\
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    \16\ See supra note 13.
    \17\ See id.
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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 changes has become effective pursuant to section 
19(b)(3)(A)(ii) of the Act \18\ and Rule 19b-4(f)(2) \19\ 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.
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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \19\ 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-EMERALD-2023-20 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-EMERALD-2023-20. 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 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-EMERALD-2023-20 and should be submitted on or 
before September 5, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17304 Filed 8-11-23; 8:45 am]
BILLING CODE 8011-01-P


