[Federal Register Volume 85, Number 69 (Thursday, April 9, 2020)]
[Notices]
[Pages 19996-20002]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07439]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88554; File No. SR-PEARL-2020-05]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Fee
Schedule
April 3, 2020.
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 March 31, 2020, 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'').
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
[[Page 19997]]
forth in sections A, B, and C below, of the most significant aspects of
such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees
set forth in Section (1)(a) of the Fee Schedule to: (i) Increase Taker
(as defined below) fees in certain Tiers for options transactions in
Penny classes (including SPY, QQQ, and IWM options classes) and non-
Penny classes (as defined below) for Priority Customers; \3\ (ii)
increase Taker fees in certain Tiers for options transactions in Penny
and non-Penny classes for MIAX PEARL Market Makers; \4\ and (iii)
increase Taker fees in certain Tiers for options transactions in Penny
and non-Penny classes for Non-Priority Customers, Firms, Broker-Dealers
and Non-MIAX PEARL Market Makers (collectively herein ``Professional
Members'').
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\3\ ``Priority Customer'' means a person or entity that (i) is
not a broker or dealer in securities, and (ii) does not place more
than 390 orders in listed options per day on average during a
calendar month for its own beneficial account(s). See Exchange Rule
100, including Interpretation and Policy .01.
\4\ ``Market Maker'' means a Member registered with the Exchange
for the purpose of making markets in options contracts traded on the
Exchange. See the Definitions Section of the Fee Schedule and
Exchange Rule 100.
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Background
The Exchange currently assesses transaction rebates and fees to all
market participants which are based upon the total monthly volume
executed by the Member \5\ on MIAX PEARL in the relevant, respective
origin type (not including Excluded Contracts) \6\ expressed as a
percentage of TCV.\7\ In addition, the per contract transaction rebates
and fees are applied retroactively to all eligible volume for that
origin type once the respective threshold tier (``Tier'') has been
reached by the Member. The Exchange aggregates the volume of Members
and their Affiliates.\8\ Members that place resting liquidity, i.e.,
orders resting on the book of the MIAX PEARL System,\9\ are paid the
specified ``maker'' rebate (each a ``Maker''), and Members that execute
against resting liquidity are assessed the specified ``taker'' fee
(each a ``Taker''). For opening transactions and ABBO uncrossing
transactions, per contract transaction rebates and fees are waived for
all market participants. Finally, Members are assessed lower
transaction fees and receive lower rebates for order executions in
standard option classes in the Penny Pilot Program \10\ (``Penny
classes'') than for order executions in standard option classes which
are not in the Penny Pilot Program (``non-Penny classes''), where
Members are assessed higher transaction fees and receive higher
rebates.
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\5\ ``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 the Definitions Section of
the Fee Schedule and Exchange Rule 100.
\6\ ``Excluded Contracts'' means any contracts routed to an away
market for execution. See the Definitions Section of the Fee
Schedule.
\7\ ``TCV'' means total consolidated volume calculated as the
total national volume in those classes listed on MIAX PEARL for the
month for which the fees apply, excluding consolidated volume
executed during the period time in which the Exchange experiences an
``Exchange System Disruption'' (solely in the option classes of the
affected Matching Engine (as defined below)). The term Exchange
System Disruption, which is defined in the Definitions section of
the Fee Schedule, means an outage of a Matching Engine or collective
Matching Engines for a period of two consecutive hours or more,
during trading hours. The term Matching Engine, which is also
defined in the Definitions section of the Fee Schedule, is a part of
the MIAX PEARL electronic system that processes options orders and
trades on a symbol-by-symbol basis. Some Matching Engines will
process option classes with multiple root symbols, and other
Matching Engines may be dedicated to one single option root symbol
(for example, options on SPY may be processed by one single Matching
Engine that is dedicated only to SPY). A particular root symbol may
only be assigned to a single designated Matching Engine. A
particular root symbol may not be assigned to multiple Matching
Engines. The Exchange believes that it is reasonable and appropriate
to select two consecutive hours as the amount of time necessary to
constitute an Exchange System Disruption, as two hours equates to
approximately 1.4% of available trading time per month. The Exchange
notes that the term ``Exchange System Disruption'' and its meaning
have no applicability outside of the Fee Schedule, as it is used
solely for purposes of calculating volume for the threshold tiers in
the Fee Schedule. See the Definitions Section of the Fee Schedule.
\8\ ``Affiliate'' means (i) an affiliate of a Member of at least
75% common ownership between the firms as reflected on each firm's
Form BD, Schedule A, or (ii) the Appointed Market Maker of an
Appointed EEM (or, conversely, the Appointed EEM of an Appointed
Market Maker). An ``Appointed Market Maker'' is a MIAX PEARL Market
Maker (who does not otherwise have a corporate affiliation based
upon common ownership with an EEM) that has been appointed by an EEM
and an ``Appointed EEM'' is an EEM (who does not otherwise have a
corporate affiliation based upon common ownership with a MIAX PEARL
Market Maker) that has been appointed by a MIAX PEARL Market Maker,
pursuant to the process described in the Fee Schedule. See the
Definitions Section of the Fee Schedule.
\9\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\10\ See Securities Exchange Act Release No. 84865 (December 19,
2018), 83 FR 66813 (December 27, 2018) (SR-PEARL-2018-26).
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Transaction rebates and fees in Section (1)(a) of the Fee Schedule
are currently assessed according to the following tables:
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Per contract rebates/fees for penny Per contract rebates/
classes fees for non-penny
Origin Tier Volume criteria -------------------------------------------- classes
QQQ, IWM ---------------------
Maker Taker * SPY taker taker Maker Taker
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Priority Customer.......................... 1 0.00%-0.10%................... ($0.25) $0.48 $0.43 $0.44 ($0.85) $0.84
2 Above 0.10%-0.35%............. (0.40) 0.48 0.43 0.44 (0.95) 0.84
3 Above 0.35%-0.50%............. (0.45) 0.46 0.42 0.44 (1.00) 0.84
4 Above 0.50%-0.75%............. (0.51) 0.45 0.41 0.43 (1.03) 0.84
5 Above 0.75%-1.25%............. (0.52) 0.44 0.40 0.42 (1.04) 0.84
6 Above 1.25%................... (0.52) 0.43 0.38 0.40 (1.04) 0.84
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* For all Penny Classes other than SPY, QQQ, and IWM.
[[Page 19998]]
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Per contract rebates/fees for penny classes Per contract rebates/
-------------------------------------------------------- fees for non-penny
Maker Maker Taker Taker classes
Origin Tier Volume criteria (contra (contra (contra (contra ---------------------
origins ex priority origins ex priority
priority customer priority customer Maker ** Taker **
customer) origin) customer) origin)
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All MIAX PEARL Market Makers......... 1 0.00%-0.15%............. ($0.25) ($0.23) $0.50 $0.50 ($0.30) $1.10
2 Above 0.15%-0.40% or (0.40) (0.38) 0.50 0.50 (0.30) 1.10
Above 0.45% in SPY/QQQ/
IWM.
3 Above 0.40%-0.65%....... (0.40) (0.38) 0.49 0.50 (0.60) 1.09
4 Above 0.65%-1.00% or (0.47) (0.45) 0.48 0.49 (0.65) 1.08
Above 2.25% in SPY.
5 Above 1.00%-1.40%....... (0.48) (0.46) 0.46 0.47 (0.70) 1.07
6 Above 1.40%............. (0.48) (0.47) 0.45 0.46 (0.85) 1.06
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Per contract rebates/fees for penny classes Per contract rebates/
-------------------------------------------------------- fees for non-penny
Maker Maker Taker [diam] classes
[supcaret] [supcaret] (contra Taker ------------------------
Origin Tier Volume criteria (contra (contra origins ex (contra
origins ex priority priority priority Maker
priority customer customer) customer **[supcaret] Taker **
customer) origin) origin)
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Non-Priority Customer, Firm, BD, and 1 0.00%-0.15%........... ($0.25) ($0.23) $0.50 $0.50 ($0.30) $1.10
Non-MIAX PEARL Market Makers. 2 Above 0.15%-0.40%..... (0.40) (0.38) 0.50 0.50 (0.30) 1.10
3 Above 0.40%-0.65%..... (0.40) (0.38) 0.49 0.50 (0.60) 1.10
4 Above 0.65%-1.00%..... (0.47) (0.45) 0.49 0.50 (0.65) 1.09
5 Above 1.00%-1.40%..... (0.48) (0.46) 0.48 0.50 (0.70) 1.08
6 Above 1.40%........... (0.48) (0.46) 0.48 0.50 (0.85) 1.07
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** Members may qualify for the Maker Rebate and the Taker Fee associated with the highest Tier for transactions in Non-Penny classes if the Member
executes more than 0.30% volume in Non-Penny classes, not including Excluded Contracts, as compared to the TCV in all MIAX PEARL listed option
classes. For purposes of qualifying for such rates, the Exchange will aggregate the volume transacted by Members and their Affiliates in the following
Origin types in Non-Penny classes: MIAX PEARL Market Makers, and Non-Priority Customer, Firm, BD, and Non-MIAX PEARL Market Makers.
[supcaret] Members may qualify for Maker Rebates equal to the greater of: (A) ($0.40) for Penny Classes and ($0.65) for Non-Penny Classes, or (B) the
amount set forth in the applicable Tier reached by the Member in the relevant Origin, if the Member and their Affiliates execute at least 2.00% volume
in the relevant month, in Priority Customer Origin type, in all options classes, not including Excluded Contracts, as compared to the TCV in all MIAX
PEARL listed option classes.
[diam] Members may qualify for Taker Fees of $0.48 for Penny classes for their Firm Origin when trading against Origins not Priority Customer if the
Member and their Affiliates execute at least 2.00% of TCV in the relevant month in the Priority Customer Origin type, in all options classes, not
including Excluded Contracts, as compared to TCV in all MIAX PEARL listed option classes.
Except as otherwise set forth herein, the Volume Criteria is calculated based on the total monthly volume executed by the Member in all options classes
on MIAX PEARL in the relevant Origin type, not including Excluded Contracts, (as the numerator) expressed as a percentage of (divided by) TCV (as the
denominator).
In Tier 2 for MIAX PEARL Market Makers, the alternative Volume Criteria (above 0.45% in SPY/QQQ/IWM) is calculated based on the total monthly volume
executed by the Market Maker collectively in SPY, QQQ, and IWM options on MIAX PEARL in the relevant Origin type, not including Excluded Contracts,
(as the numerator) expressed as a percentage of (divided by) SPY/QQQ/IWM TCV (as the denominator). In Tier 4 for MIAX PEARL Market Makers, the
alternative Volume Criteria (above 2.25% in SPY) is calculated based on the total monthly volume executed by the Market Maker solely in SPY options on
MIAX PEARL in the relevant Origin type, not including Excluded Contracts, (as the numerator) expressed as a percentage of (divided by) SPY TCV (as the
denominator). The per contract transaction rebates and fees shall be applied retroactively to all eligible volume once the threshold has been reached
by Member. The Exchange aggregates the volume of Members and their Affiliates in the Add/Remove Tiered Fees. The per contract transaction rebates and
fees shall be waived for transactions executed during the opening and for transactions that uncross the ABBO.
Priority Customer Taker Fees
The Exchange proposes to increase Taker fees in certain Tiers for
options transactions in Penny classes (including SPY, QQQ, and IWM
options classes) and non-Penny classes for Priority Customers.
Specifically, the Exchange proposes to increase the Taker fees for
Priority Customer orders in options in certain Penny classes (excluding
SPY, QQQ, and IWM) in Tier 1 from $0.48 to $0.50, in Tier 2 from $0.48
to $0.50, in Tier 3 from $0.46 to $0.48, in Tier 4 from $0.45 to $0.47,
in Tier 5 from $0.44 to $0.46, and in Tier 6 from $0.43 to $0.45. The
Exchange next proposes to increase the Taker fees for Priority Customer
orders for SPY options in Tier 1 from $0.43 to $0.46, in Tier 2 from
$0.43 to $0.46, in Tier 3 from $0.42 to $0.45, in Tier 4 from $0.41 to
$0.44, in Tier 5 from $0.40 to $0.43, and in Tier 6 from $0.38 to
$0.42. The Exchange next proposes to increase the Taker fees for
Priority Customer orders for QQQ and IWM options in Tier 1 from $0.44
to $0.50, in Tier 2 from $0.44 to $0.50, in Tier 3 from $0.44 to $0.48,
in Tier 4 from $0.43 to $0.47, in Tier 5 from $0.42
[[Page 19999]]
to $0.46, and in Tier 6 from $0.40 to $0.45. The Exchange next proposes
to increase the Taker fees for Priority Customer orders in options in
non-Penny classes in Tiers 1-6 from $0.84 to $0.85.
Market Maker Taker Fees
Next, the Exchange proposes to increase Taker fees in certain Tiers
for options transactions in Penny and non-Penny classes for Market
Makers. Specifically, the Exchange proposes to increase the Taker fees
for Market Makers for orders contra Origins ex Priority Customer in
Penny classes in Tier 3 from $0.49 to $0.50, in Tier 4 from $0.48 to
$0.49, in Tier 5 from $0.46 to $0.47, and in Tier 6 from $0.45 to
$0.46. The Exchange next proposes to increase the Taker fees for Market
Makers for orders contra Priority Customer in Penny classes in Tier 4
from $0.49 to $0.50, in Tier 5 from $0.47 to $0.48, and in Tier 6 from
$0.46 to $0.47. The Exchange next proposes to increase the Taker fees
for Market Maker orders in options in non-Penny classes in Tier 3 from
$1.09 to $1.10, in Tier 4 from $1.08 to $1.09, in Tier 5 from $1.07 to
$1.08, and in Tier 6 from $1.06 to $1.07.
Professional Customer Taker Fees
Next, the Exchange proposes to increase Taker fees in certain Tiers
for options transactions in Penny and non-Penny classes for
Professional Members. Specifically, the Exchange proposes to increase
the Taker fees for Professional Members for orders contra Origins ex
Priority Customer in Penny classes in Tier 3 from $0.49 to $0.50, in
Tier 4 from $0.49 to $0.50, in Tier 5 from $0.48 to $0.49, and in Tier
6 from $0.48 to $0.49. The Exchange next proposes to increase the Taker
fees for Professional Member orders in options in non-Penny classes in
Tier 4 from $1.09 to $1.10, in Tier 5 from $1.08 to $1.09, and in Tier
6 from $1.07 to $1.09.
The purpose of the proposed changes to adjust the specified Taker
fees is for business and competitive reasons. In order to attract order
flow, the Exchange initially set its Taker fees so that they were
meaningfully lower than other options exchanges that operate comparable
maker/taker pricing models.\11\ The Exchange now believes that it is
appropriate to further adjust these specified Taker fees so that they
are more in line with other exchanges, but will still remain highly
competitive such that they should enable the Exchange to continue to
attract order flow and maintain market share.\12\
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\11\ See Securities Exchange Act Release Nos. 80915 (June 13,
2017), 82 FR 27912 (June 19, 2017) (SR-PEARL-2017-29); 80914 (June
13, 2017), 82 FR 27910 (June 19, 2017) (SR-PEARL-2017-30).
\12\ See Cboe BZX Options Exchange Fee Schedule, under
``Transaction Fees.''
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With all proposed changes, Section (1)(a) of the Fee Schedule shall
be the following:
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Per contract rebates/fees for penny Per contract rebates/
classes fees for non-penny
Origin Tier Volume criteria -------------------------------------------- classes
QQQ, IWM ---------------------
Maker Taker * SPY taker taker Maker Taker
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Priority Customer.......................... 1 0.00%-0.10%................... ($0.25) $0.50 $0.46 $0.50 ($0.85) $0.85
2 Above 0.10%-0.35%............. (0.40) 0.50 0.46 0.50 (0.95) 0.85
3 Above 0.35%-0.50%............. (0.45) 0.48 0.45 0.48 (1.00) 0.85
4 Above 0.50%-0.75%............. (0.51) 0.47 0.44 0.47 (1.03) 0.85
5 Above 0.75%-1.25%............. (0.52) 0.46 0.43 0.46 (1.04) 0.85
6 Above 1.25%................... (0.52) 0.45 0.42 0.45 (1.04) 0.85
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* For all Penny Classes other than SPY, QQQ, and IWM.
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Per contract rebates/fees for penny classes Per contract rebates/
-------------------------------------------------------- fees for non-penny
Maker Maker Taker Taker classes
Origin Tier Volume criteria (contra (contra (contra (contra ---------------------
origins ex priority origins ex priority
priority customer priority customer Maker ** Taker **
customer) origin) customer) origin)
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All MIAX PEARL Market Makers......... 1 0.00%-0.15%............. ($0.25) ($0.23) $0.50 $0.50 ($0.30) $1.10
2 Above 0.15%-0.40% or (0.40) (0.38) 0.50 0.50 (0.30) 1.10
Above 0.45% in SPY/QQQ/
IWM.
3 Above 0.40%-0.65%....... (0.40) (0.38) 0.50 0.50 (0.60) 1.10
4 Above 0.65%-1.00% or (0.47) (0.45) 0.49 0.50 (0.65) 1.09
Above 2.25% in SPY.
5 Above 1.00%-1.40%....... (0.48) (0.46) 0.47 0.48 (0.70) 1.08
6 Above 1.40%............. (0.48) (0.47) 0.46 0.47 (0.85) 1.07
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[[Page 20000]]
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Per contract rebates/fees for penny classes Per contract rebates/
-------------------------------------------------------- fees for non-penny
Maker Maker Taker [diam] classes
[supcaret] [supcaret] (contra Taker ------------------------
Origin Tier Volume criteria (contra (contra origins ex (contra
origins ex priority priority priority Maker
priority customer customer) customer **[supcaret] Taker **
customer) origin) origin)
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Non-Priority Customer, Firm, BD, and 1 0.00%-0.15%........... ($0.25) ($0.23) $0.50 $0.50 ($0.30) $1.10
Non-MIAX PEARL Market Makers. 2 Above 0.15%-0.40%..... (0.40) (0.38) 0.50 0.50 (0.30) 1.10
3 Above 0.40%-0.65%..... (0.40) (0.38) 0.50 0.50 (0.60) 1.10
4 Above 0.65%-1.00%..... (0.47) (0.45) 0.50 0.50 (0.65) 1.10
5 Above 1.00%-1.40%..... (0.48) (0.46) 0.49 0.50 (0.70) 1.09
6 Above 1.40%........... (0.48) (0.46) 0.49 0.50 (0.85) 1.09
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** Members may qualify for the Maker Rebate and the Taker Fee associated with the highest Tier for transactions in Non-Penny classes if the Member
executes more than 0.30% volume in Non-Penny classes, not including Excluded Contracts, as compared to the TCV in all MIAX PEARL listed option
classes. For purposes of qualifying for such rates, the Exchange will aggregate the volume transacted by Members and their Affiliates in the following
Origin types in Non-Penny classes: MIAX PEARL Market Makers, and Non-Priority Customer, Firm, BD, and Non-MIAX PEARL Market Makers.
[supcaret] Members may qualify for Maker Rebates equal to the greater of: (A) ($0.40) for Penny Classes and ($0.65) for Non-Penny Classes, or (B) the
amount set forth in the applicable Tier reached by the Member in the relevant Origin, if the Member and their Affiliates execute at least 2.00% volume
in the relevant month, in Priority Customer Origin type, in all options classes, not including Excluded Contracts, as compared to the TCV in all MIAX
PEARL listed option classes.
[diam] Members may qualify for Taker Fees of $0.48 for Penny classes for their Firm Origin when trading against Origins not Priority Customer if the
Member and their Affiliates execute at least 2.00% of TCV in the relevant month in the Priority Customer Origin type, in all options classes, not
including Excluded Contracts, as compared to TCV in all MIAX PEARL listed option classes.
Except as otherwise set forth herein, the Volume Criteria is calculated based on the total monthly volume executed by the Member in all options classes
on MIAX PEARL in the relevant Origin type, not including Excluded Contracts, (as the numerator) expressed as a percentage of (divided by) TCV (as the
denominator).
In Tier 2 for MIAX PEARL Market Makers, the alternative Volume Criteria (above 0.45% in SPY/QQQ/IWM) is calculated based on the total monthly volume
executed by the Market Maker collectively in SPY, QQQ, and IWM options on MIAX PEARL in the relevant Origin type, not including Excluded Contracts,
(as the numerator) expressed as a percentage of (divided by) SPY/QQQ/IWM TCV (as the denominator). In Tier 4 for MIAX PEARL Market Makers, the
alternative Volume Criteria (above 2.25% in SPY) is calculated based on the total monthly volume executed by the Market Maker solely in SPY options on
MIAX PEARL in the relevant Origin type, not including Excluded Contracts, (as the numerator) expressed as a percentage of (divided by) SPY TCV (as the
denominator). The per contract transaction rebates and fees shall be applied retroactively to all eligible volume once the threshold has been reached
by Member. The Exchange aggregates the volume of Members and their Affiliates in the Add/Remove Tiered Fees. The per contract transaction rebates and
fees shall be waived for transactions executed during the opening and for transactions that uncross the ABBO.
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.'' \13\
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\13\ 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 15%
market share.\14\ Therefore, no exchange possesses significant pricing
power. More specifically, as of March 24, 2020, the Exchange had an
approximately 4.03% market share of executed volume of multiply-listed
equity and exchange traded fund (``ETF'') options for the month of
March 2020.\15\ The Exchange believes that the ever-shifting market
share among the exchanges from month to month demonstrates that market
participants can discontinue or reduce use of certain categories of
products and services, terminate an existing membership or determine to
not become a new member, and/or shift order flow, in response to
transaction fee changes. For example, on February 28, 2019, the
Exchange filed with the Commission a proposal to increase Taker fees in
certain Tiers for options transactions in certain Penny classes for
Priority Customers and decrease Maker rebates in certain Tiers for
options transactions in Penny classes for Priority Customers (which fee
was to be effective March 1, 2019).\16\ The Exchange experienced a
decrease in total market share for the month of March 2019, after the
proposal went into effect. Accordingly, the Exchange believes that the
March 1, 2019 fee change, to increase certain transaction fees and
decrease certain transaction rebates, may have contributed to the
decrease 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 transaction fees and market participants can
shift order flow based on fee changes instituted by the exchanges.
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\14\ 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.
\15\ See id.
\16\ See Securities Exchange Act Release No. 85304 (March 13,
2019), 84 FR 10144 (March 19, 2019) (SR-PEARL-2019-07).
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The proposed changes are scheduled to become operative April 1,
2020.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \17\ in general, and
furthers the objectives of Section 6(b)(4) of the Act,\18\ in that it
is an equitable allocation of reasonable dues, fees and other charges
among Exchange members and issuers and other persons using its
facilities, and 6(b)(5) of the Act,\19\ in that it is designed to
prevent fraudulent and manipulative
[[Page 20001]]
acts and practices, to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
facilitating transactions in securities, to remove impediments to and
perfect the mechanisms of a free and open market and a national market
system and, in general, to protect investors and the public interest.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(4).
\19\ 15 U.S.C. 78f(b)(1) and (b)(5).
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The Exchange believes its proposal to increase Taker fees in
certain Tiers for options transactions in Penny classes (including SPY,
QQQ, and IWM options classes) and non-Penny classes for Priority
Customers, increase Taker fees in certain Tiers for options
transactions in Penny and non-Penny classes for Market Makers, and
increase Taker fees in certain Tiers for options transactions in Penny
and non-Penny classes for Professional Members provides for the
equitable allocation of reasonable dues and fees and is not unfairly
discriminatory for the following reasons. The Exchange operates in a
highly competitive market. The Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \20\ There are currently
16 registered options exchanges competing for order flow. Based on
publicly-available information, and excluding index-based options, no
single exchange has more than approximately 15% of the market share of
executed volume of multiply-listed equity and ETF options trades as of
March 24, 2020, for the month of March 2020.\21\ Therefore, no exchange
possesses significant pricing power in the execution of multiply-listed
equity and ETF options order flow. More specifically, as of March 24,
2020, the Exchange had an approximately 4.03% market share of executed
volume of multiply-listed equity and ETF options for the month of March
2020.\22\
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\20\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
\21\ See supra note 15.
\22\ See id.
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The Exchange believes that the ever-shifting market shares among
the exchanges from month to month demonstrates that market participants
can shift order flow, or discontinue or reduce use of certain
categories of products, in response to transaction and/or non-
transaction fee changes. For example, on February 28, 2019, the
Exchange filed with the Commission a proposal to increase Taker fees in
certain Tiers for options transactions in certain Penny classes for
Priority Customers and decrease Maker rebates in certain Tiers for
options transactions in Penny classes for Priority Customers (which fee
was to be effective March 1, 2019).\23\ The Exchange experienced a
decrease in total market share between the months of February and March
of 2019, after the fees were in effect. Accordingly, the Exchange
believes that the March 1, 2019 fee change may have contributed to the
decrease in the Exchange's market share and, as such, the Exchange
believes competitive forces constrain options exchange transaction fees
and market participants can shift order flow based on fee changes
instituted by the exchanges.
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\23\ See supra note 16.
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The Exchange believes that its proposal to increase Taker fees in
certain Tiers for options transactions in Penny classes (including SPY,
QQQ, and IWM options classes) and non-Penny classes for Priority
Customers, increase Taker fees in certain Tiers for options
transactions in Penny and non-Penny classes for Market Makers, and
increase Taker fees in certain Tiers for options transactions in Penny
and non-Penny classes for Professional Members is reasonable, equitably
allocated and not unfairly discriminatory because these changes are for
business and competitive reasons. The Exchange cannot predict with
certainty the number of market participants that would qualify for the
higher Taker fees for each of the proposed changes as Members may
continually shift among the different Tiers from month to month. The
Exchange further believes that it is appropriate to increase the Taker
fees for Priority Customers in SPY, QQQ and IWM options classes because
these select products are generally more liquid than other options
classes.
Further, the Exchange believes the proposed Taker fee adjustments
in certain specified Tiers applicable to certain orders submitted by
Priority Customers in Penny classes and non-Penny classes, Market
Makers in Penny classes and non-Penny classes, and Professional Members
in Penny classes and non-Penny classes are reasonable, equitable and
not unfairly discriminatory because all similarly situated market
participants in the same Origin type are subject to the same tiered
Taker fees and access to the Exchange is offered on terms that are not
unfairly discriminatory. For competitive and business reasons, the
Exchange initially set its Taker fees for such orders generally lower
than certain other options exchanges that operate comparable maker/
taker pricing models.\24\ The Exchange now believes that it is
appropriate to further increase those specified Taker fees so that they
are more in line with other exchanges, and will still remain highly
competitive such that they should enable the Exchange to continue to
attract order flow and maintain market share. The Exchange believes for
these reasons that increasing certain Taker fees for transactions in
the specified Tiers is equitable, reasonable and not unfairly
discriminatory, and thus consistent with the Act.
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\24\ See supra notes 11 and 12.
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Furthermore, the proposed adjustments to the Taker fees promotes
just and equitable principles of trade, fosters cooperation and
coordination with persons engaged in facilitating transactions in
securities, and protects investors and the public interest, because
even with the increases to Taker fees, the Exchange's proposed Taker
fees for such orders still remain highly competitive with certain other
options exchanges offering comparable pricing models, and should enable
the Exchange to continue to attract order flow and maintain market
share.\25\ The Exchange believes that the amount of such fees, as
proposed to be adjusted, will continue to encourage those market
participants to send orders to the Exchange.
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\25\ See id.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange believes that the
proposed changes in the specified Taker fees for the applicable market
participants should continue to encourage the provision of liquidity
that enhances the quality of the Exchange's market and increases the
number of trading opportunities on the Exchange for all participants
who will be able to compete for such opportunities. The proposed rule
changes should enable the Exchange to continue to attract and compete
for order flow with other exchanges. However, this competition does not
create an undue burden on competition but rather offers all market
[[Page 20002]]
participants the opportunity to receive the benefit of competitive
pricing.
The proposed Taker fee adjustments are intended to keep the
Exchange's fees highly competitive with those of other exchanges, and
to encourage liquidity and should enable the Exchange to continue to
attract and compete for order flow with other exchanges. The Exchange
notes that it operates in a highly competitive market in which market
participants can readily favor competing venues if they deem fee levels
at a particular venue to be excessive. In such an environment, the
Exchange must continually adjust its rebates and fees to remain
competitive with other exchanges and to attract order flow. The
Exchange believes that the proposed rule changes reflect this
competitive environment because they modify the Exchange's fees in a
manner that encourages market participants to continue to provide
liquidity and to send order flow to the Exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act,\26\ and Rule 19b-4(f)(2) \27\ 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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\26\ 15 U.S.C. 78s(b)(3)(A)(ii).
\27\ 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-2020-05 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-2020-05. 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-2020-05, and should be submitted
on or before April 30, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07439 Filed 4-8-20; 8:45 am]
BILLING CODE 8011-01-P