Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, notice is hereby given that on March 1, 2021, 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.
17 CFR 240.19b-4.
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 Fee Schedule (the “Fee Schedule”) for the Exchange's options market.
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 amend the Add/Remove Tiered Rebates/Fees set forth in Section (1)(a) the Fee Schedule for the Exchange's options market to: (i) Increase Taker (as defined below) fees in certain Tiers (defined below) for options transactions in Penny classes (as defined below) (excluding SPY, QQQ, and IWM) for Priority Customers; (ii) increase Taker fees in certain Tiers for options transactions in Penny classes for MIAX PEARL Market Makers when trading against origins other than Priority Customer; (iii) increase the Taker fees in certain Tiers for options transactions in Penny classes for MIAX PEARL Market Makers when trading against Priority Customer origins and when the executing buyer and seller are not the same Member or Affiliates; and (iv) increase Taker fees in certain Tiers for options transactions in Penny classes for “Professional Members” (listed in the table in Section (1)(a) of the Fee Schedule as Non-Priority Customer, Firm, BD, and Non-MIAX PEARL Market Makers).
“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.
“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 and Exchange Rule 100.
“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.
“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 membership@miaxoptions.com 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.
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 on MIAX PEARL in the relevant, respective origin type (not including Excluded Contracts) (as the numerator) expressed as a percentage of (divided by) TCV (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. Members that place resting liquidity, i.e., orders resting on the book of the MIAX PEARL System, 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 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 (“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.
“Excluded Contracts” means any contracts routed to an away market for execution. See the Definitions Section of the Fee Schedule.
“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.
The term “System” means the automated trading system used by the Exchange for the trading of securities. See Exchange Rule 100.
“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.
See Securities Exchange Act Release No. 88992 (June 2, 2020), 85 FR 35142 (June 8, 2020) (SR-PEARL-2020-06).
Taker Fees
The Exchange proposes to amend the Fee Schedule for the Exchange's options market to: (i) Increase Taker fees in certain Tiers for options transactions in Penny classes (excluding SPY, QQQ, and IWM) for Priority Customers; (ii) increase Taker fees in certain Tiers for options transactions in Penny classes for MIAX PEARL Market Makers when trading against origins other than Priority Customer; (iii) increase the Taker fees in certain Tiers for options transactions in Penny classes for MIAX PEARL Market Makers when trading against Priority Customer origins and when the executing buyer and seller are not the same Member or Affiliates; and (iv) increase Taker fees in certain Tiers for options transactions in Penny classes for Professional Members.
In particular, the Exchange proposes to increase the Taker fees for Priority Customer orders in options in certain Penny classes (excluding SPY, QQQ, and IWM) in Tier 3 from $0.48 to $0.50, in Tier 4 from $0.47 to $0.49, in Tier 5 from $0.46 to $0.48, and in Tier 6 from $0.45 to $0.47. The Exchange next proposes to increase the Taker fees for options transactions in Penny classes for MIAX PEARL Market Makers when trading against origins other than Priority Customer in Tier 4 from $0.49 to $0.50, in Tier 5 from $0.47 to $0.50, and in Tier 6 from $0.46 to $0.50.
The Exchange also proposes to increase the Taker fees for options transactions in Penny classes for MIAX PEARL Market Makers when trading against Priority Customer origins in Tiers 5 and 6 when the executing buyer and seller are not the same Member or Affiliates. In particular, the Exchange proposes to increase the Taker fees for options transactions in Penny classes for MIAX PEARL Market Makers when trading against Priority Customer origins in Tiers 5 and 6 from the current $0.48 and $0.47, respectively, to the proposed $0.50 per contract when the executing buyer and seller are not the same Member or Affiliates. The Exchange proposes that Taker fees for options transactions in Penny classes for MIAX PEARL Market Makers when trading against Priority Customer origins in Tiers 5 and 6 will remain at their current levels of $0.48 and $0.47, respectively, when the executing buyer and seller are the same Member or Affiliates.
In order to differentiate between the proposed increased Taker fees for options transactions in Penny classes for MIAX PEARL Market Makers when trading against Priority Customer origins in Tiers 5 and 6 when the executing buyer and seller are not the same Member or Affiliates, the Exchange proposes to insert two new symbols immediately following the table of fees and rebates for Professional Members in Section (1)(a) of the Fee Schedule. In particular, the Exchange proposes to adopt new symbol “★,” and the following explanatory sentence: “This Taker rate is for executed MIAX PEARL Market Maker Orders when the executing buyer and seller are the same Member or Affiliates.” The Exchange also proposes to adopt new symbol “✧,” and the following explanatory sentence: “This Taker rate is for executed MIAX PEARL Market Maker Orders when the executing buyer and seller are not the same Member or Affiliates.” Accordingly, the Exchange proposes to insert each symbol following the corresponding Taker fee for options transactions in Penny classes for MIAX PEARL Market Makers when trading against Priority Customer origins in Tiers 5 and 6.
The Exchange also proposes to increase the Taker fees for options transactions in Penny classes for Professional Members when trading against origins other than Priority Customer in Tier 5 from $0.49 to $0.50 and in Tier 6 from $0.49 to $0.50.
The purpose of adjusting the specified Taker fees is for business and competitive reasons. In order to attract order flow, the Exchange initially set its Taker fees so that they were meaningfully lower than other options exchanges that operate comparable maker/taker pricing models. The Exchange now believes that it is appropriate to further adjust these specified Taker fees so that they are more in line with other exchanges, but will still remain highly competitive such that they should enable the Exchange to continue to attract order flow and maintain market share.
See Securities Exchange Act Release Nos. 80915 (June 13, 2017), 82 FR 27912 (June 19, 2017) (SR-PEARL-2017-29); 80914 (June 13, 2017), 82 FR 27910 (June 19, 2017) (SR-PEARL-2017-30).
See Cboe BZX Options Exchange Fee Schedule, under “Transaction Fees.”
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule is consistent with Section 6(b) of the Act in general, and furthers the objectives of Section 6(b)(4) of the Act, 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, 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.
15 U.S.C. 78f(b)(4).
15 U.S.C. 78f(b)(1) and (b)(5).
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.”
See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005).
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 15% market share for the month of February 2021. Therefore, no exchange possesses significant pricing power. More specifically, as of February 26, 2021, the Exchange has a market share of approximately 4.75% of executed volume of multiply-listed equity and exchange traded fund (“ETF”) options for the month of February 2021. 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). 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.
The Options Clearing Corporation (“OCC”) publishes options and futures volume in a variety of formats, including daily and monthly volume by exchange, available here: https://www.theocc.com/market-data/volume/default.jsp.
See id.
See Securities Exchange Act Release No. 85304 (March 13, 2019), 84 FR 10144 (March 19, 2019) (SR-PEARL-2019-07).
The Exchange believes its proposal to increase Taker fees in certain Tiers for options transactions in Penny classes for Priority Customers, Market Makers, and Professional Members is reasonable, equitable and not unfairly discriminatory because all similarly situated market participants in the same Origin type are subject to the same tiered Taker fees and access to the Exchange is offered on terms that are not unfairly discriminatory. For competitive and business reasons, the Exchange initially set its Taker fees for such orders generally lower than certain other options exchanges that operate comparable maker/taker pricing models. The Exchange now believes that it is appropriate to increase those specified Taker fees so that they are more in line with other exchanges, and will still remain highly competitive such that they should enable the Exchange to continue to attract order flow and maintain market share. The Exchange believes for these reasons that increasing certain Taker fees for transactions in the specified Tiers is equitable, reasonable and not unfairly discriminatory, and thus consistent with the Act.
See supra note 12.
The Exchange believes the proposal to adopt a higher Taker fee for certain Market Maker orders in Penny classes when trading against Priority Customer origins in Tiers 5 and 6 when the executing buyer and seller are not the same Member or Affiliates (versus when the executing buyer and seller are the same Member or Affiliates) provides for the equitable allocation of reasonable dues and fees and is not unfairly discriminatory since the Exchange already offers certain transaction fee discounts to Members and their Affiliates that aggregate their order flow on these types of transactions through various pricing structures in Section (1)(a) of the Fee Schedule. The Exchange further believes this proposal provides for the equitable allocation of reasonable dues and fees and is not unfairly discriminatory since the Exchange's affiliate, Miami International Securities Exchange, LLC (“MIAX”), provides similar pricing structures and offers certain transaction fee discounts to MIAX Members and their Affiliates that aggregate their order flow on certain types of transactions through various tier-based pricing structures. Accordingly, the Exchange believes it is reasonable, equitable, and not unfairly discriminatory to charge a higher Taker fee for certain Market Maker orders in Penny classes when trading against Priority Customer origins when the executing buyer and seller are not the same Member or Affiliates, as other discount programs currently exist for the same Member and Affiliates.
See Fee Schedule, Section (1)(a).
See MIAX Fee Schedule, Sections 1(a)(i)-(ii) and Section 1(a)(iii), notes “K” and “▪”.
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. 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 Taker fee adjustments 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 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, and Rule 19b-4(f)(2) 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.
17 CFR 240.19b-4(f)(2).
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 rule-comments@sec.gov. Please include File Number SR-PEARL-2021-06 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-2021-06. 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-2021-06 and should be submitted on or before April 7, 2021.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05445 Filed 3-16-21; 8:45 am]
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