[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was withdrawn on August 27, 2019.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