[Federal Register Volume 84, Number 138 (Thursday, July 18, 2019)]
[Notices]
[Pages 34445-34451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15254]
[[Page 34445]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86363; File No. SR-PEARL-2019-22]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
PEARL Fee Schedule
July 12, 2019.
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 June 28, 2019, 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 Fee
Schedule (the ``Fee Schedule'') to establish certain non-transaction
fees applicable to participants and new members trading options on and/
or using services provided by MIAX PEARL.
MIAX PEARL commenced operations as a national securities exchange
registered under Section 6 of the Act \3\ on February 6, 2017.\4\ The
Exchange adopted its transaction fees and certain of its non-
transaction fees in its filing SR-PEARL-2017-10.\5\
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\3\ 15 U.S.C. 78f.
\4\ See Securities Exchange Act Release No. 79543 (December 13,
2016), 81 FR 92901 (December 20, 2016) (File No. 10-227) (order
approving application of MIAX PEARL, LLC for registration as a
national securities exchange).
\5\ See Securities Exchange Act Release No. 80061 (February 17,
2017), 82 FR 11676 (February 24, 2017) (SR-PEARL-2017-10).
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While changes to the Fee Schedule pursuant to this proposal are
effective upon filing, the Exchange has designated these changes to be
operative on July 1, 2019.
The Exchange initially filed the proposal on March 27, 2019 (SR-
PEARL-2019-12).\6\ That filing was withdrawn on May 20, 2019. It is
replaced with the current filing (SR-PEARL-2019-22).
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\6\ See Securities Exchange Act Release No. 85541 (April 8,
2019), 84 FR 14983 (April 12, 2019) (SR-PEARL-2019-12) (the ``First
Proposed Rule Change'').
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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
Proposal
The Exchange proposes to amend the Fee Schedule to establish
certain non-transaction fees applicable to participants and new members
trading options on and/or using services provided by MIAX PEARL. The
Exchange initially filed the proposal on March 27, 2019, designating
the proposed fees effective April 1, 2019.\7\ The First Proposed Rule
Change was published for comment in the Federal Register on April 12,
2019.\8\ The proposed fee changes remained in effect until the Exchange
withdrew the First Proposed Rule Change on May 20, 2019.\9\ The
Exchange is now re-filing the proposal to establish certain non-
transaction fees applicable to market participants and new members
trading options on and/or using certain services provided by the
Exchange, to include additional information.
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\7\ See id.
\8\ See id.
\9\ See Letter from Gregory P. Ziegler, AVP and Senior Associate
Counsel, MIAX PEARL, LLC, to Vanessa Countryman, Acting Secretary,
Commission, dated May 17, 2019.
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The Exchange introduced the structure of certain non-transaction
fees in its filing SR-PEARL-2017-10 \10\ (without proposing actual fee
amounts), but also explicitly waived the assessment of any such fees
for the period of time which the Exchange defined as the ``Waiver
Period.'' \11\ The Exchange now proposes to adopt certain non-
transaction fees as described below, and thereby terminate the Waiver
Period applicable to such non-transaction fees. In general, the
Exchange proposes to amend the Fee Schedule to establish a one-time
membership application fee for MIAX PEARL Members; \12\ Application
Programming Interface (``API'') Testing and Certification fees; and
MIAX PEARL Member Participant Identifier (``MPID'') \13\ fees.
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\10\ See supra note 5.
\11\ ``Waiver Period'' means, for each applicable fee, the
period of time from the initial effective date of the MIAX PEARL Fee
Schedule until such time that the Exchange has an effective fee
filing establishing the applicable fee. The Exchange will issue a
Regulatory Circular announcing the establishment of an applicable
fee that was subject to a Waiver Period at least fifteen (15) days
prior to the termination of the Waiver Period and effective date of
any such applicable fee. See the Definitions Section of the Fee
Schedule.
\12\ ``Member'' means an individual or organization that is
registered with the Exchange pursuant to Chapter II of the 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 Exchange Rule 100.
\13\ An MPID is a code used in the MIAX PEARL system to identify
the participant to MIAX PEARL and to the participant's Clearing
Member respecting trades executed on MIAX PEARL. Participants may
use more than one MPID.
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The Exchange also proposes to amend the Fee Schedule to remove the
text and application of the three-month New Member Non-Transaction Fee
Waiver.\14\ The Exchange adopted the three-month New Member Non-
Transaction Fee Waiver in its filing SR-PEARL-2018-07.\15\
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\14\ ``New Member Non-Transaction Fee Waiver'' means the waiver
of certain non-transaction fees, as explicitly set forth in specific
sections of the Fee Schedule, for a new Member of the Exchange, for
the waiver period. For purposes of this definition, the waiver
period consists of the calendar month the new Member is credentialed
to use the System in the production environment following approval
as a new Member of the Exchange and the two (2) subsequent calendar
months thereafter. For purposes of this definition, a new Member
shall mean any Member who has not previously been approved as a
Member of the Exchange. See the Definitions Section of the Fee
Schedule.
\15\ See Securities Exchange Act Release No. 82867 (March 13,
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
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The Exchange proposes to remove the New Member Non-Transaction Fee
Waiver as described below, and thereby terminate the New Member Non-
Transaction Fee Waiver as it applies to all relevant fees, which would
include the Monthly Trading Permit fee; Port fees; and MIAX PEARL Top
of Market (``ToM'') and MIAX PEARL Liquidity Feed (``PLF'') market data
fees. The Exchange also proposes to amend the Definitions section of
the Fee Schedule to delete the definitions of ``New Member Non-
Transaction Fee Waiver''
[[Page 34446]]
and ``Waiver Period'' as those definitions would no longer be
applicable in accordance with this proposal to remove the Waiver Period
for all remaining waived non-transaction fees, as described below,
including the three-month fee waiver applicable to certain non-
transaction fees for new Members of the Exchange.
MIAX PEARL Membership Application Fee
The Exchange proposes to assess a one-time membership application
fee based upon the applicant's status as either an Electronic Exchange
Member \16\ (``EEM'') or as a Market Maker.\17\ The Exchange proposes
that applicants for MIAX PEARL Membership as an EEM will be assessed a
one-time application fee of $500. The Exchange proposes that applicants
for MIAX PEARL Membership as a Market Maker will be assessed a one-time
application fee of $1,500. The difference in the proposed membership
application fee to be charged to EEMs and Market Makers reflects the
additional review and processing costs and effort needed for Market
Maker applications. MIAX PEARL's proposed one-time membership
application fees are similar to and generally lower than one-time
application fees in place at the Cboe Exchange, Inc. (``Cboe'') ($3,000
for an individual applicant and $5,000 for an applicant organization)
\18\ and at Nasdaq ISE, LLC (``Nasdaq ISE'') ($7,500 per firm for a
primary market maker, $5,500 per firm for a competitive market maker,
and $3,500 per firm for an electronic market maker).\19\ Below is the
table for the proposed one-time membership application fee for MIAX
PEARL:
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\16\ ``Electronic Exchange Member'' or ``EEM'' means the holder
of a Trading Permit who is a Member representing as agent Public
Customer Orders or Non-Customer Orders on the Exchange and those
non-Market Maker Members conducting proprietary trading. Electronic
Exchange Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100. See the Definitions Section of the Fee Schedule.
\17\ ``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
Exchange Rule 100. See the Definitions Section of the Fee Schedule.
\18\ See Cboe Fees Schedule, p. 12, Cboe Trading Permit Holder
Application Fees.
\19\ See Nasdaq ISE, Options Rules, Options 7, Pricing Schedule,
Section 9. Legal and Regulatory A. Application.
------------------------------------------------------------------------
Application
Type of membership fee
------------------------------------------------------------------------
Electronic Exchange Member.............................. $500.00
Market Maker............................................ 1,500.00
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MIAX PEARL will assess a one-time Membership Application Fee on the
earlier of (i) the date the applicant is certified in the membership
system, or (ii) once an application for MIAX PEARL membership is
finally denied.
Member API Testing and Certification Fee
Next, the Exchange proposes to assess an API Testing and
Certification fee to Members. An API makes it possible for Member
software to communicate with MIAX PEARL software applications, and is
subject to Member testing with, and certification by, MIAX PEARL. API
testing and certification includes, for EEMs, testing all available
order types, new order entry, order management, order throughput and
mass order cancellation. For Market Makers, API testing and
certification also includes testing of all available quote types, quote
throughput, quote management and cancellation, Aggregate Risk Manager
settings and triggers, and confirmation of quotes within the trading
engines.
The API Testing and Certification fees for Members are based upon
the type of interface that the Member has been credentialed to use. The
Exchange proposes to assess an API testing and certification fee for
Members (i) initially per API for FIX,\20\ MEO,\21\ FXD\22\ and CTD\23\
in the month the Member has been credentialed to use one or more ports
in the production environment for the tested API, and (ii) each time a
Member initiates a change to its system that requires testing and
certification. The Exchange also proposes that API Testing and
Certification fees will not be assessed in situations where the
Exchange initiates a mandatory change to the Exchange's System \24\
that requires testing and certification.
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\20\ ``FIX Interface'' means the Financial Information Exchange
interface for certain order types as set forth in Exchange Rule 516.
See Exchange Rule 100. See the Definitions Section of the Fee
Schedule.
\21\ ``MEO Interface'' means a binary order interface for
certain order types as set forth in Rule 516 into the MIAX PEARL
System. See Exchange Rule 100. See the Definitions Section of the
Fee Schedule.
\22\ ``FXD Interface'' or ``FIX Drop Copy Port'' means a
messaging interface that provides a copy of real-time trade
execution, trade correction and trade cancellation information to
FIX Drop Copy Port users who subscribe to the service. FXD Port
users are those users who are designated by an EEM to receive the
information and the information is restricted for use by the EEM
only. See the Definitions Section of the Fee Schedule.
\23\ ``CTD Port'' or ``Clearing Trade Drop Port'' provides an
Exchange Member with a real-time clearing trade updates. The updates
include the Member's clearing trade messages on a low latency, real-
time basis. The trade messages are routed to a Member's connection
containing certain information. The information includes, among
other things, the following: (i) Trade date and time; (ii) symbol
information; (iii) trade price/size information; (iv) Member type
(for example, and without limitation, Market Maker, Electronic
Exchange Member, Broker-Dealer); and (v) Exchange MPID for each side
of the transaction, including Clearing Member MPID. See the
Definitions Section of the Fee Schedule.
\24\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
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Any Member can select any type of interface (FIX Interface, MEO
Interface, FXD Interface, and/or the CTD Port) to test and certify. The
Exchange proposes the following fees: Each Member who uses the FIX
Interface to connect to the System will be assessed an API Testing and
Certification fee of $1,000; each Member who uses the MEO Interface to
connect to the System will be assessed an API Testing and Certification
fee of $1,500; each Member who uses the FXD Interface to connect to the
system will be assessed an API Testing and Certification fee of $500;
and each Member who uses the CTD Port to connect to the system will be
assessed an API Testing and Certification fee of $500.
Below is the proposed fee table for API Testing and Certification
fees for Members:
------------------------------------------------------------------------
API testing and
Type of interface certification fee
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FIX....................................... $1,000.00
MEO....................................... 1,500.00
FXD....................................... 500.00
CTD....................................... 500.00
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API Testing and Certification Fees will be assessed (i) initially per
API for FIX, MEO, FXD and CTD in the month the Member has been
credentialed to use one or more ports in the production environment
for the tested API, and (ii) each time a Member initiates a change to
its system that requires testing and certification. API Testing and
Certification Fees will not be assessed in situations where the
Exchange initiates a mandatory change to the Exchange's system that
requires testing and certification.
[[Page 34447]]
Non-Member API Testing and Certification Fee
The Exchange proposes to assess an API Testing and Certification
fee for Third Party Vendors,\25\ Service Bureaus \26\ and other non-
Members (i) initially per API for FIX, MEO, FXD, and CTD in the month
the non-Member has been credentialed to use one or more ports in the
production environment for the tested API, and (ii) each time a Third
Party Vendor, Service Bureau, or other non-Member initiates a change to
its system that requires testing and certification. The Exchange also
proposes that API Testing and Certification fees will not be assessed
in situations where the Exchange initiates a mandatory change to the
Exchange's System that requires testing and certification.
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\25\ Third party vendors are subscribers of MIAX's market and
other data feeds, which they in turn use for redistribution
purposes. Third party vendors do not provide connectivity and
therefore are not subject to Network testing and certification. See
the Definitions Section of the Fee Schedule.
\26\ ``Service Bureau'' means a technology provider that offers
and supplies technology and technology services to a trading firm
that does not have its own proprietary system. See the Definitions
Section of the Fee Schedule.
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The Exchange's proposed API Testing and Certification fees for non-
Members are based upon the type of interface used by the non-Member to
connect to the Exchange--the FIX Interface, the MEO Interface, the FXD
Interface, and/or the CTD Port. Any non-Member can select any type of
interface (FIX Interface, MEO Interface, FXD Interface, and/or the CTD
Port) to test and certify. As with Members, an API makes it possible
for third party vendors' and Service Bureaus' software to communicate
with MIAX PEARL software applications, and is subject to testing with,
and certification by, MIAX PEARL. The higher proposed fee charged to
non-Members reflects the greater amount of time spent by MIAX PEARL
employees testing and certifying non-Members. It has been MIAX PEARL's
experience that Member testing takes less time than non-Member testing
because Members have more experience testing these systems with
exchanges; generally fewer questions and issues arise during the
testing and certification process. Also, because Third Party Vendors
and Service Bureaus are redistributing data and reselling services to
other Members and market participants, the number and types of
scenarios that need to be tested are more numerous and complex than
those tested and certified for a single Member.
The Exchange proposes the following fees: Each non-Member who uses
the FIX Interface to connect to the System will be assessed an API
Testing and Certification fee of $1,200; each non-Member who uses the
MEO Interface to connect to the System will be assessed an API Testing
and Certification fee of $2,000; each non-Member who uses the FXD
Interface to connect to the system will be assessed an API Testing and
Certification fee of $600; and each non-Member who uses the CTD Port to
connect to the system will be assessed an API Testing and Certification
fee of $600.
Below is the proposed fee table for API Testing and Certification
fees for non-Members:
------------------------------------------------------------------------
API testing and
Type of interface certification fee
------------------------------------------------------------------------
FIX....................................... $1,200.00
MEO....................................... 2,000.00
FXD....................................... 600.00
CTD....................................... 600.00
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API Testing and Certification Fees for Third Party Vendors, Service
Bureaus and other non-Members will be assessed (i) initially per API
for FIX, MEO, FXD, and CTD in the month the non-Member has been
credentialed to use one or more ports in the production environment
for the tested API, and (ii) each time a Third Party Vendor, Service
Bureau, or other non-Member initiates a change to its system that
requires testing and certification. API Testing and Certification Fees
will not be assessed in situations where the Exchange initiates a
mandatory change to the Exchange's system that requires testing and
certification.
MPID Fees
The Exchange proposes to assess monthly MPID fees to Members based
upon the type of MPID. MPID fees are assessed for assigning and
managing these identifiers for each Member. The Exchange proposes that
Members will be assessed a monthly MPID fee of $125 for each FIX MPID
and Members will be assessed a monthly MPID fee of $125 for each MEO
MPID. MPIDs allow the Exchange to provide additional services to its
Members, including customer reporting, monitoring and risk protection
services, down at the MPID level. MPIDs provide Members the ability to
segment their business operations in a manner that can be tailored to
their business needs, as well as receive certain additional
administrative and operational services provided by the Exchange.
The Exchange also proposes to introduce a cap on the amount of MPID
fees that can be assessed by the Exchange to a Member of $500 per
month, regardless of the actual number of EEM or MEO MPIDs assigned to
such Member. The Exchange believes that establishing a monthly cap on
MPID fees will provide Members greater flexibility to accommodate their
varying business models and customer configurations, as many Members
often request multiple MPIDs from the Exchange, and the Exchange does
not want MPID costs to serve as a barrier for requesting multiple
MPIDs. The Exchange notes that this fee cap is similar to the MPID fee
cap assessed by the Exchange's affiliate, Miami International
Securities Exchange, LLC (``MIAX'').\27\
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\27\ See Securities Exchange Act Release No. 82823 (March 7,
2018), 83 FR 10935 (March 13, 2018) (SR-MIAX-2018-09).
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Below is the proposed MPID fee table:
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Monthly
Type of MPID MPID fees
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FIX MPID................................................... $125.00
MEO MPID................................................... 125.00
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MPID fees are capped at $500.00 per month per Member.
New Member Non-Transaction Fee Waiver
The Exchange proposes to remove the New Member Non-Transaction Fee
Waiver from the Fee Schedule. The New Member Non-Transaction Fee Waiver
waived the assessment of a fee for a Trading Permit, Port, ToM or PLF
market data feed for a new Member of the Exchange for the first
calendar month during which the new Member was approved as a Member and
was credentialed to use the System in the production environment, and
for the two (2) subsequent calendar months thereafter.
[[Page 34448]]
The Exchange initially waived certain non-transaction fees for new
Members in order to attract new business and encourage Members to use
the Exchange. The Exchange now believes that the New Member Non-
Transaction Fee Waiver is no longer necessary since the MIAX PEARL
market is established and MIAX PEARL no longer needs to rely on such
waivers to attract market participants.
The Exchange notes that any Member who began receiving the New
Member Non-Transaction Fee Waiver prior to the filing of this proposal,
will continue to receive that benefit for the first calendar month
during which they were approved as a Member and were credentialed to
use the System in the production environment, and for the two (2)
subsequent calendar months thereafter.
Applicability to and Impact on Participants \28\
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\28\ On May 21, 2019, the SEC Division of Trading and Markets
(the ``Division'') issued fee filing guidance titled ``Staff
Guidance on SRO Rule Filings Relating to Fees'' (``Guidance'').
Within the Guidance, the Division noted, among other things, that
the purpose discussion should address ``how the fee may apply
differently (e.g., additional cost vs. additional discount) to
different types of market participants (e.g., market makers,
institutional brokers, retail brokers, vendors, etc.) and different
sizes of market participants.'' See Guidance (available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees). The Guidance
also suggests that the purpose discussion should include numerical
examples. Where possible, the Exchange is including numerical
examples. In addition, the Exchange is providing data to the
Commission in support of its arguments herein. The Guidance covers
all aspects of a fee filing, which the Exchange has addressed
throughout this filing.
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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.'' \29\
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\29\ 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, no single exchange has more than approximately 16%
market share.\30\ Therefore, no exchange possesses significant pricing
power. More specifically, as of June 2019, the Exchange has less than
5% market share of executed volume of multiply-listed equity & ETF
options trades.\31\ 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, or shift order flow, in response to fee changes. Accordingly,
competitive forces constrain the Exchange's ability to set its fees for
various products, services and transactions.
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\30\ 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.
\31\ See id.
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The proposed adoption of certain non-transaction fees would be
applied uniformly to all market participants. Further, as there are
currently 16 registered options exchanges competing for order flow with
no single exchange accounting for more than approximately 16% of market
share, the Exchange cannot predict with certainty whether any
participant is planning to become a Member or utilize any of the
services that the Exchange is planning to establish fees for and thus
would be subject to the proposed fees.
The Exchange has issued a Regulatory Circular announcing the
establishment of the aforementioned fees that were subject to the
Waiver Period at least 15 days prior to the termination of the Waiver
Period and effective date of the applicable fee.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \32\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \33\ 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. The Exchange also believes the proposal furthers
the objectives of Section 6(b)(5) of the Act in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest and is not designed to permit unfair discrimination between
customers, issuers, brokers and dealers. Moreover, the Exchange
believes that its proposal complies with Commission guidance on SRO fee
filings that the Commission Staff issued on May 21, 2019.\34\
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\32\ 15 U.S.C. 78f(b).
\33\ 15 U.S.C. 78f(b)(4) and (5).
\34\ See Guidance, supra note 28.
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The Exchange believes that the proposed change to eliminate the
waiver of the non-transaction fees described above is reasonable in
several respects. As a threshold matter, the Exchange is subject to
significant competitive forces in the market for options transaction
and non-transaction services that constrain its pricing determinations
in that market. The fact that this market is competitive has long been
recognized by the courts. In NetCoalition v. Securities and Exchange
Commission, the D.C. Circuit stated as follows: ``[n]o one disputes
that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .'' \35\
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\35\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options transaction services. The Exchange is one of several options
venues to which market participants may direct their order flow, and it
represents a small percentage of the overall market. Competing options
exchanges offer complex order functionality, with varying pricing
schedules. The Exchange believes its proposed fees are reasonable and
well within the range of non-transaction fees assessed among other
exchanges, including the Exchange's affiliate, MIAX.\36\
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\36\ See the MIAX Fee Schedule.
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Within this environment, market participants can freely and often
do shift their order flow among the Exchange and competing venues in
response to changes in their respective pricing schedules.\37\
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\37\ While MIAX PEARL has not charged certain non-transaction
fees as described above, to date, the Exchange perceives no
regulatory, structure, or cost impediments to market participants
shifting order flow away from it as a result of this rule change.
See Guidance, supra note 28. In particular, the Exchange notes that
these examples of shifts in liquidity and market share, along with
many others, have occurred within the context of market
participants' existing duties of Best Execution and obligations
under the Order Protection Rule under Regulation NMS.
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[[Page 34449]]
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 16%
of the market share of executed volume of multiply-listed equity and
ETF options trades.\38\ Therefore, no exchange possesses significant
pricing power. More specifically, as of June 2019, the Exchange had
less than 5% market share of executed volume of multiply-listed equity
& ETF options trades.\39\ 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, or shift order flow, in response to fee changes.
Accordingly, competitive forces constrain the Exchange's ability to set
its fees for various products, services and transactions.
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\38\ 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.
\39\ See id.
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Further, the Exchange no longer believes it is necessary to waive
these fees to attract market participants to the MIAX PEARL market
since this market is now established and MIAX PEARL no longer needs to
rely on such waivers to attract market participants. The Exchange
believes that the proposed changes are equitable and not unfairly
discriminatory because the elimination of the non-transaction fees will
uniformly apply to all Exchange participants based on market
participant type.
The Exchange believes its one-time membership application fees are
reasonable, equitable and not unfairly discriminatory. As described
above, the one-time application fees are similar and generally lower
than application fees in place at other options exchanges,\40\ and are
designed to recover costs associated with the processing of such
applications. The Exchange believes that it is reasonable, equitable,
and not unfairly discriminatory that Market Maker applicants are
charged slightly more than EEM applicants because of the additional
costs involved in processing a Market Maker's application.
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\40\ See supra notes 18 and 19.
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The Exchange believes it is reasonable, equitable, and not unfairly
discriminatory to begin to assess API Testing and Certification fees
for both Members and non-Members. The Exchange believes the proposed
API Testing and Certification fees are a reasonable allocation of its
costs and expenses among its Members and non-Members using its
facilities since it is recovering the costs associated with providing
such infrastructure testing and certification services.
MIAX PEARL believes it is reasonable, equitable and not unfairly
discriminatory to assess different API Testing and Certification fees
to Members and non-Members. The higher fee charged to non-Members
reflects the greater amount of time spent by MIAX PEARL employees
testing and certifying non-Members. It has been MIAX PEARL's experience
that Member testing takes less time than non-Member testing because
Members have more experience testing these systems with exchanges;
generally fewer questions and issues arise during the testing and
certification process. Also, with respect to API testing and
certification, because Third Party Vendors and Service Bureaus are
redistributing data and reselling services to other Members and market
participants the number and types of scenarios that need to be tested
are more numerous and complex than those tested and certified for
Members.
The Exchange believes its proposal to assess monthly MPID fees to
Members based upon the type of MPID is reasonable, equitable and not
unfairly discriminatory because the proposed fees apply to all Members
assigned MPIDs equally and will allow the Exchange to assess fees for
assigning and maintaining such services. The Exchange believes its
proposal is a reasonable allocation of fees because MPIDs provide
Members the ability to segment their business operations in a manner
that can be tailored to their business needs, as well as receive
certain additional administrative and operational services provided by
the Exchange. The proposed monthly MPID fees are equitable and not
unfairly discriminatory because the proposed MPID fees will allow the
Exchange to continue to maintain and enhance value-added services,
including reporting of relevant trade information through enhanced
reporting tools and provide ongoing services to customers that are
assigned each MPID. The Exchange also notes that Members are not
required to purchase multiple MPIDs. As of June 2019, the Exchange had
41 Members (including affiliates of Members) that have at least 1 MPID
each. Of those 41 Members, 20 Members have multiple MPIDs. Further, of
the 20 Members with multiple MPIDs, only 8 of those Members have more
than 4 MPIDs each. Accordingly, with the proposed fee cap of $500,
those 8 Members with the greatest number of MPIDs would benefit from
the proposed fee cap.
The Exchange also believes that its proposal to establish a fee cap
for Members on MPID fees is reasonable, equitable, and not unfairly
discriminatory. The proposal to cap the total amount of MPID fees that
can be assessed upon a Member to a maximum of $500 per month is
designed to promote just and equitable principles of trade by
encouraging Members to configure their MPID assignments with greater
granularity and for MPID costs to not serve as a barrier for requesting
multiple MPIDs. Because any Member is eligible to take advantage of the
fee cap, the Exchange believes the fee cap is fair and equitable and
not unreasonably discriminatory because it applies equally to all
Members, and access to such fee cap is offered on terms that are not
unfairly discriminatory.
The Exchange believes that the proposal to remove the New Member
Non-Transaction Fee Waiver is reasonable, equitable, and not unfairly
discriminatory because the removal of the New Member Non-Transaction
Fee Waiver applies equally to all new Members of the Exchange. The
Exchange initially waived certain non-transaction fees for new Members
in order to attract new business and encourage Members to join the
Exchange. The Exchange believes that the New Member Non-Transaction Fee
Waiver is no longer necessary since the MIAX PEARL market is
established and MIAX PEARL no longer relies on such waivers to attract
market participants. Further, the proposed rule change will not apply
to any new Member who began receiving the New Member Non-Transaction
Fee Waiver prior to the filing of this proposal and will continue to
receive that benefit for the first calendar month during which they
were approved as a Member and were credentialed to use the System in
the production environment, and for the two (2) subsequent calendar
months thereafter.
Finally, 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 fees for services and products, in addition to order flow, to
remain competitive with other exchanges. The Exchange believes that the
proposed changes reflect this competitive environment.
[[Page 34450]]
B. Self-Regulatory Organization's Statement on Burden on Competition
MIAX PEARL does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Intra-Market Competition
The Exchange does not believe that the proposed rule change would
place certain market participants at the Exchange at a relative
disadvantage compared to other market participants or affect the
ability of such market participants to compete. Unilateral action by
MIAX PEARL in the assessment of certain non-transaction fees for
services provided to its Members and others using its facilities will
not have an impact on competition. As a more recent entrant in the
already highly competitive environment for equity options trading, MIAX
PEARL does not have the market power necessary to set prices for
services that are unreasonable or unfairly discriminatory in violation
of the Act. MIAX PEARL's proposed non-transaction fee levels, as
described herein, are comparable to fee levels charged by other options
exchanges for the same or similar services, including those fees
assessed by its affiliate, MIAX.
The Exchange believes that the proposed non-transaction fees do not
place certain market participants at a relative disadvantage to other
market participants because the pricing is associated with costs to the
Exchange of the relevant fee being proposed. The proposed non-
transaction fees do not apply unequally to different size market
participants, but instead would allow the Exchange to recoup some of
its costs in reviewing and processing Market Maker and EEM membership
applications; costs for API testing and certification for Members and
non-Members to ensure proper functioning of all available order types,
new order entry, order management, order throughput and mass order
cancellation (as well as, for Market Makers, all available quote types,
quote throughput, quote management and cancellation, Aggregate Risk
Manager settings and triggers, and confirmation of quotes within the
trading engines); and costs associated with assigning and managing
MPIDs for Members to ensure proper reporting, monitoring and risk
protection services for customers. Accordingly, the proposed non-
transaction fees do not favor certain categories of market participants
in a manner that would impose a burden on competition.
Further, the Exchange believes that the proposed rule change will
promote transparency by making it clear to Members and non-Members the
fees that MIAX PEARL will assess for Membership application to MIAX
PEARL, API testing and certification, and MPID fees, as well as the cap
on MPID fees for EEMs. This will permit Members and non-Members to more
accurately anticipate and account for non-transactional costs, which
promotes consistency.
Inter-Market Competition
The Exchange believes the proposed non-transaction fees do not
place an undue burden on competition on other SROs that is not
necessary or appropriate. The Exchange operates in a highly competitive
market in which market participants can readily favor one of the 16
competing options venues if they deem fee levels at a particular venue
to be excessive. Based on publicly-available information, and excluding
index-based options, no single exchange has more than 16% market share.
Therefore, no exchange possesses significant pricing power in the
execution of multiply-listed and ETF options order flow. As of June
2019, to date, the Exchange had less than 5% market share and the
Exchange believes that the ever-shifting market share among exchanges
from month to month demonstrates that market participants can
discontinue or reduce use of certain categories of products, or shift
order flow, in response to fee changes. In such an environment, the
Exchange must continually adjust its fees and fee waivers to remain
competitive with other exchanges and to attract 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,\41\ and Rule 19b-4(f)(2) \42\ 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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\41\ 15 U.S.C. 78s(b)(3)(A)(ii).
\42\ 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-2019-22 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-2019-22. 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
[[Page 34451]]
submissions should refer to File Number SR-PEARL-2019-22 and should be
submitted on or before August 8, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15254 Filed 7-17-19; 8:45 am]
BILLING CODE 8011-01-P