[Federal Register Volume 84, Number 197 (Thursday, October 10, 2019)]
[Notices]
[Pages 54692-54695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22143]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87233; File No. SR-PEARL-2019-27]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
PEARL Fee Schedule
October 4, 2019.
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 September 20, 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 one-time membership
application fees for MIAX PEARL Members.\3\
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\3\ ``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.
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The Exchange previously filed to establish one-time membership
application fees on June 28, 2019 (SR-PEARL-2019-22).\4\ That filing
was withdrawn on August 27, 2019. It is replaced with the current
filing (SR-PEARL-2019-27).
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\4\ See Securities Exchange Act Release No. 86363 (July 12,
2019), 84 FR 34445 (July 18, 2019) (SR-PEARL-2019-22) (the ``Second
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
The Exchange proposes to amend the Fee Schedule to establish one-
time membership application fees based upon the applicant's status as
either an Electronic Exchange Member \5\ (``EEM'') or as a Market
Maker.\6\ MIAX PEARL commenced operations as a national securities
exchange registered under Section 6 of the Act \7\ on February 6,
2017.\8\ The Exchange adopted its transaction fees and certain of its
non-transaction fees in its filing SR-PEARL-2017-10.\9\ In that filing,
the Exchange expressly waived the one-time membership application fees
to provide an incentive to prospective EEMs and Market Makers to become
Members of the Exchange. At that time, the Exchange waived one-time
membership application fees for the Waiver Period \10\ and stated that
it would provide notice to market participants when the
[[Page 54693]]
Exchange intended to terminate the Waiver Period.
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\5\ ``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.
\6\ ``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.
\7\ 15 U.S.C. 78f.
\8\ 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).
\9\ See Securities Exchange Act Release No. 80061 (February 17,
2017), 82 FR 11676 (February 24, 2017) (SR-PEARL-2017-10).
\10\ ``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.
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On March 14, 2019, the Exchange issued a Regulatory Circular that
the Exchange would be ending the Waiver Period for one-time membership
application fees, among other non-transaction fees, beginning on April
1, 2019.\11\ The Exchange initially filed the proposal on March 27,
2019, designating the proposed fees effective April 1, 2019.\12\ The
First Proposed Rule Change was published for comment in the Federal
Register on April 12, 2019.\13\ The proposed fees remained in effect
until the Exchange withdrew the First Proposed Rule Change on May 20,
2019.\14\ The First Proposed Rule Change included additional fee
changes to adopt certain other non-transaction fees and to terminate
the three-month New Member Non-Transaction Fee Waiver and Waiver
Period.\15\
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\11\ See MIAX PEARL Regulatory Circular 2019-09 available at
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_PEARL_RC_2019_09.pdf.
\12\ 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'').
\13\ See id.
\14\ See Letter from Gregory P. Ziegler, AVP and Senior
Associate Counsel, MIAX PEARL, LLC, to Vanessa Countryman, Acting
Secretary, Commission, dated May 17, 2019.
\15\ See supra note 12.
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The Exchange refiled the proposal on June 28, 2019, designating the
proposed fees effective July 1, 2019.\16\ The Second Proposed Rule
Change was published for comment in the Federal Register on July 18,
2019.\17\ The proposed fee changes remained in effect until the
Exchange withdrew the Second Proposed Rule Change on August 27,
2019.\18\ The Second Proposed Rule Change included additional fee
changes to adopt certain other non-transaction fees and to terminate
the three-month New Member Non-Transaction Fee Waiver and Waiver
Period.\19\ The Exchange is now re-filing the proposal to establish
one-time membership application fees for EEMs and Market Makers. The
Exchange will file separate proposals to establish certain other non-
transaction fees and to terminate the New Member Non-Transaction Fee
Waiver and Waiver Period.
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\16\ See supra note 4.
\17\ See id.
\18\ See Letter from Joseph Ferraro, SVP and Deputy General
Counsel, MIAX PEARL, LLC, to Vanessa Countryman, Acting Secretary,
Commission, dated August 26, 2019.
\19\ See supra note 4.
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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 EEM or as a Market
Maker. 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 is because of the additional review and
resources involved in processing a Market Maker's application, as
Market Makers have greater and more complex obligations with respect to
doing business on the Exchange. 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) \20\ 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).\21\ Below is the table for the proposed one-time membership
application fee for MIAX PEARL:
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\20\ See Cboe Fees Schedule, p. 12, Cboe Trading Permit Holder
Application Fees.
\21\ See Nasdaq ISE, Options Rules, Options 7, Pricing Schedule,
Section 9. Legal and Regulatory A. Application.
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Application
Type of membership fee
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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.
Applicability to and Impact on Participants
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.'' \22\
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\22\ 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.\23\ Therefore, no exchange possesses significant pricing
power. More specifically, as of September 9, 2019, the Exchange had an
approximately 5.30% market share of executed volume of multiply-listed
equity and exchange traded fund (``ETF'') options.\24\ 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 non-transaction and transaction fee changes. For example,
on September 28, 2018, the Exchange filed with the Commission a
proposal to decrease a transaction fee for certain types of orders
(which fee was to be effective October 1, 2018).\25\ The Exchange
experienced an increase in total market share in the month of October
2018, after the proposal went into effect. Accordingly, the Exchange
believes that the October 1, 2018 fee change, decreasing a transaction
fee, may have contributed to the increase in the Exchange's market
share and, as such, the Exchange believes competitive forces constrain
MIAX PEARL's, and other options exchanges, ability to set non-
transaction and transaction fees and market participants can shift
order flow based on fee changes instituted by the exchanges.
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\23\ 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.
\24\ See id.
\25\ See Securities Exchange Act Release No. 84387 (October 9,
2018), 83 FR 52039 (October 15, 2018) (SR-PEARL-2018-21).
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The proposed adoption of a one-time membership application fee
applicable to EEMs and Market Markers would be applied uniformly to
each of these 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 and thus would be subject to the proposed
fees.
[[Page 54694]]
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \26\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \27\ 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.
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\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that the proposed change to adopt a one-time
membership application fee applicable to EEMs and Market Markers as
described above is reasonable in several respects. First, 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 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.'' \28\
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\28\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
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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. 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. 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.\29\
Therefore, no exchange possesses significant pricing power. More
specifically, as of September 9, 2019, the Exchange had approximately a
5.30% market share of executed volume of multiply-listed equity and ETF
options.\30\
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\29\ 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.
\30\ See id.
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The Exchange also 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 non-transaction and
transaction fee changes. For example, on September 28, 2018, the
Exchange filed with the Commission a proposal to decrease a transaction
fee for certain types of orders (which fee was to be effective October
1, 2018).\31\ The Exchange experienced an increase in total market
share in the month of October 2018, after the proposal went into
effect. Accordingly, the Exchange believes that the October 1, 2018 fee
change, decreasing a transaction fee, may have contributed to the
increase in the Exchange's market share and, as such, the Exchange
believes competitive forces constrain MIAX PEARL's, and other options
exchanges, ability to set non-transaction and transaction fees and
market participants can shift order flow based on fee changes
instituted by the exchanges. 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 change is
equitable and not unfairly discriminatory because the elimination of
the fee waiver for one-time membership application fees will uniformly
apply to all EEMs and Market Makers seeking to become Members of the
Exchange. Additionally, The [sic] Exchange believes its proposal for a
one-time membership application fees applicable to EEMs and Market
Markers is reasonable and well within the range of fees assessed among
other exchanges, including the Exchange's affiliate, MIAX.\32\
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\31\ See Securities Exchange Act Release No. 84387 (October 9,
2018), 83 FR 52039 (October 15, 2018) (SR-PEARL-2018-21).
\32\ See the MIAX Options Fee Schedule.
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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 to the application
fees in place at other options exchanges,\33\ and are associated with
the time and resources of 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 review and resources
involved in processing a Market Maker's application, as Market Makers
have greater and more complex obligations with respect to doing
business on the Exchange.
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\33\ See supra notes 20 and 21.
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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.
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 one-time membership application fees
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 one-time membership application fees,
as described herein, are comparable to fees charged by other options
exchanges
[[Page 54695]]
for the same or similar services, including those fees assessed by its
affiliate, MIAX.\34\
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\34\ See the MIAX Options Fee Schedule.
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The Exchange believes that the proposed one-time membership
application fees do not place certain market participants at a relative
disadvantage to other market participants because the pricing is
associated with the Exchange's time and resources to process such
applications. The proposed one-time membership application fees do not
apply unequally to different size market participants, but instead
would allow the Exchange to charge for reviewing and processing Market
Maker and EEM membership applications. Accordingly, the proposed one-
time membership application 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 EEMs and Market Makers the
fees that MIAX PEARL will assess for Membership application to MIAX
PEARL. This will permit EEMs and Market Makers to more accurately
anticipate and account for the costs of one-time membership application
in order to become Members of the Exchange, which promotes consistency.
Inter-Market Competition
The Exchange believes the proposed one-time membership application
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.\35\ 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 equity
and ETF options order flow. As of September 9, 2019, the Exchange had
an approximately 5.30% market share \36\ 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.
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\35\ See supra note 23.
\36\ 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 change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act,\37\ and Rule 19b-4(f)(2) \38\ 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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\37\ 15 U.S.C. 78s(b)(3)(A)(ii).
\38\ 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-2019-27 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-2019-27. 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-2019-27 and should be submitted on
or before October 31, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22143 Filed 10-9-19; 8:45 am]
BILLING CODE 8011-01-P