[Federal Register Volume 85, Number 243 (Thursday, December 17, 2020)]
[Notices]
[Pages 81971-81982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27730]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90651; File No. SR-PEARL-2020-33]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX 
PEARL Equities Fee Schedule To Adopt Connectivity Fees, Port Fees, a 
Technical Support Request Fee, and Historical Market Data Fee

December 11, 2020.
    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 December 3, 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 Equities 
Fee Schedule (the ``Fee Schedule'') by adopting fees applicable to 
participants trading equity securities on and/or using services 
provided by MIAX PEARL Equities.\3\
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    \3\ See Exchange Rule 1901. The Exchange notes that it submitted 
a separate filing with the Commission pursuant to Section 
19(b)(3)(A) of the Act to establish the Fee Schedule and adopt 
transaction fees. See Securities Exchange Act Release No. 90102 
(October 6, 2020), 85 FR 64559 (October 13, 2020) (SR-PEARL-2020-
17).
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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
    On August 14, 2020, the Commission approved the Exchange's proposal 
to adopt rules governing the trading of equity securities, referred to 
as MIAX PEARL Equities.\4\ The Exchange launched MIAX PEARL Equities on 
September 25, 2020. The Exchange proposes to adopt a Definitions 
section in the Fee Schedule as well as the following fees: (1) 
Connectivity fees for Equity Members \5\ and non-Members; (2) Port fees 
(together with the proposed connectivity fees, the ``Proposed Access 
Fees''); (3) a Technical Support Request fee; and (4) a fee for 
Historical Market Data (collectively, the ``Proposed Fees'').
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    \4\ See Securities Exchange Act Release No. 89563 (August 14, 
2020), 85 FR 51510 (August 20, 2020) (SR-PEARL-2020-03) (Order 
Approving a Proposed Rule Change, as Modified by Amendment No. 1, To 
Establish Rules Governing the Trading of Equity Securities) 
(``Approval Order'').
    \5\ The term ``Equity Member'' means a Member authorized by the 
Exchange to transact business on MIAX PEARL Equities. See Exchange 
Rule 1901.
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    The Exchange initially filed the proposal on September 24, 2020.\6\ 
The Exchange withdrew the First Proposed Rule Change on October 5, 2020 
and submitted SR-PEARL-2020-19.\7\ The Second Proposed Rule Change was 
published for comment in the Federal Register on October 20, 2020 \8\ 
and no comment letters were received. Nonetheless, the Exchange 
withdrew the Second Proposed Rule Change \9\ and now replaces it with 
this filing to provide further clarification regarding the Exchange's 
cost analysis for the Proposed Fees.\10\
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    \6\ The Exchange initially filed the proposed fee changes on 
September 24, 2020 (SR-PEARL-2020-18). See SR-PEARL-2020-18 (the 
``First Proposed Rule Change'').
    \7\ See Securities Exchange Act Release No. 90186 (October 14, 
2020), 85 FR 66656 (October 20, 2020) (SR-PEARL-2020-19) (the 
``Second Proposed Rule Change'').
    \8\ See id.
    \9\ See letter from Chris Solgan, VP, Senior Counsel, the 
Exchange, dated November 20, 2020, notifying the Commission that the 
Exchange would withdraw SR-PEARL-2020-19.
    \10\ In this filing, the Exchange also corrects an error in the 
earlier filings by replacing references to the term ``Priority Purge 
Ports'' with simply ``Purge Ports.''
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    MIAX PEARL Equities, as a new entrant into the equity securities 
marketplace, has only begun generating revenue and has a very low 
market share. The Exchange believes that exchanges, in setting fees of 
all types, should meet very high standards of transparency to 
demonstrate why each new fee or fee increase meets the requirements of 
the Act that fees be reasonable, equitably allocated, not unfairly 
discriminatory, and not create an undue burden on competition among 
members and markets. The Exchange believes this high standard is 
especially important when an exchange imposes various access fees for 
market participants to access an exchange's marketplace. The Exchange 
believes that it is important to demonstrate that these fees are based 
on its costs and reasonable business needs. Accordingly, the Exchange 
believes the Proposed Fees in general, and the Proposed Access Fees in 
particular, will allow the Exchange to offset a portion of the expenses 
the Exchange has and will incur and that the Exchange has provided 
sufficient transparency (as described below) into how the Exchange 
determined to charge such fees.
Definitions
    The Exchange proposes to include a Definitions section at the 
beginning of the Fee Schedule, before the General Notes section. The 
purpose of the Definitions section is to provide market participants 
greater clarity and transparency regarding the applicability of fees 
and rebates by defining terms used within the Fee Schedule in a single 
location. The Exchange notes that other equities exchanges include 
Definitions sections in their respective fee schedules,\11\ and the 
Exchange believes that including a Definitions section in the front of 
the Fee Schedule makes the Fee Schedule more user-friendly and makes 
the Fee Schedule more comprehensive.
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    \11\ See Cboe BZX Exchange, Inc. Fee Schedule, Definitions 
section; Cboe BYX Exchange, Inc., Definitions section; Cboe EDGA 
Exchange, Inc., Definitions section; Cboe EDGX Exchange, Inc., 
Definitions section.
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    Unless included in the Definition section, capitalized terms used 
in the Fee Schedule are defined in the MIAX PEARL Equities Rules. Each 
of the definitions proposed to be included in

[[Page 81972]]

the Fee Schedule are based on definitions included in the existing MIAX 
PEARL fee schedule applicable to options (``Options Fee Schedule'') 
\12\ or those of another exchange. In particular, the Exchange propose 
to offer and define ports and interfaces that provide connectivity to 
MIAX PEARL Equities. The Exchange notes that each of these offerings 
are not novel or unique, are available on other equity exchanges, and 
are currently offered by the Exchange for options trading and provided 
for in the Exchange's Options Fee Schedule. The Exchange proposes to 
define the following terms in the Fee Schedule:
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    \12\ See the Options Fee Schedule available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_PEARL_Fee_Schedule_11052020.pdf.
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     ``Cross-connect'' occurs when the affected third-party 
system is sited at the same data center where MIAX PEARL Equities 
systems are sited, and the third-party connects to MIAX PEARL Equities 
through the data center, rather than connecting directly to MIAX PEARL 
Equities outside of the data center.
     ``Exchange System Disruption'' means an outage of a 
Matching Engine or collective Matching Engines for a period of two 
consecutive hours or more, during trading hours.
     ``Extranet Provider'' means a technology provider that 
connects with MIAX PEARL Equities systems and in turn provides such 
connectivity to MIAX PEARL Equities participants that do not connect 
directly with MIAX PEARL Equities.
     ``FIX Order by Order'' means a type of FXD Port that sends 
all order activities other than reject message, including Execution 
Reports and Trade Cancel/Correct messages. FIX Order by Order is 
currently offered by the Exchange for options trading and provided for 
in the Exchange's Options Fee Schedule.
     ``FIX Order Interface'' or ``FOI'' means the Financial 
Information Exchange interface for certain order types as set forth in 
Exchange Rule 2614. FOI is currently offered by the Exchange for 
options trading and provided for in the Exchange's Options Fee 
Schedule.
     ``FIX Port'' means a FIX port that allows Equity Members 
to send orders and other messages using the FIX protocol. FIX is 
currently offered by the Exchange for options trading and provided for 
in the Exchange's Options Fee Schedule.
     ``Full Service Port'' or ``FSP'' means an MEO port that 
supports all MEO order input message types. FSP is currently offered by 
the Exchange for options trading and provided for in the Exchange's 
Options Fee Schedule.
     ``FIX Drop Port'' or ``FXD'' means a messaging interface 
that provides real-time order activities of firms' MEO and FOI orders. 
MIAX PEARL Equities offers two types of FXD ports: (1) Standard FIX 
Drop; and (2) FIX Order by Order Drop. FXD Ports may be used by 
Equities Market Makers, Order Entry Firms and clearing firms. FXD is 
currently offered by the Exchange for options trading and provided for 
in the Exchange's Options Fee Schedule.
     ``MENI'' means the MIAX Express Network Interconnect, 
which is a network infrastructure which provides Equity Members and 
non-Members network connectivity to the trading platforms, market data 
systems, test systems, and disaster recovery facilities of the 
Exchange. The MENI consists of the low latency and ultra-low latency 
(``ULL'') connectivity options set forth in the Exchange's Fee 
Schedule. MENI is currently offered by the Exchange for options trading 
and provided for in the Exchange's Options Fee Schedule.
     ``MEO Interface'' or ``MEO'' means a binary order 
interface for certain order types as set forth in Rule 516 into the 
MIAX PEARL System. See Exchange Rule 100.
     ``Service Bureau'' means a technology provider that offers 
and supplies technology and technology services to a trading firm that 
does not have its own proprietary system.
     ``Standard FIX Drop'' means an FXD Port that only sends 
trade information, including Execution Reports and Trade Cancel/Correct 
messages. Standard FIX Drop is currently offered by the Exchange for 
options trading and provided for in the Exchange's Options Fee 
Schedule.
     ``Third Party Vendor'' means a subscriber of MIAX PEARL 
Equities' market and other data feeds, which they in turn use for 
redistribution purposes.
     ``Waiver Period'' means, for each applicable fee, the 
period of time from the initial effective date of the MIAX PEARL 
Equities Fee Schedule until such time that MIAX PEARL has an effective 
fee filing establishing the applicable fee. MIAX PEARL Equities 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.
Proposed Access Fees
    To provide market participants with a better understanding of how 
the Exchange has established the levels of the Proposed Access Fees, 
the Exchange is providing information in this proposal regarding the 
costs incurred by the Exchange to provide services associated with the 
Proposed Access Fees, including the Exchange's cost allocation 
methodology (information that explains the Exchange's rationale for 
determining that it was reasonable to allocate certain expenses 
described in this filing towards the total cost to the Exchange to 
provide the services associated with the Proposed Access Fees). The 
Exchange is also providing an analysis of its expected revenues and 
profitability (following the proposed fee change) for the services 
associated with the Proposed Access Fees.
    In order to determine the Exchange's costs for providing the 
services associated with the Proposed Access Fees, the Exchange 
conducted an extensive review in which the Exchange analyzed every 
expense item in the Exchange's general expense ledger to determine 
whether each such expense relates to the services associated with the 
Proposed Access Fees, and, if such expense did so relate, what portion 
(or percentage) of such expense actually supports those services. The 
sum of all such portions of expenses represents the total cost of the 
Exchange to provide the services associated with the Proposed Access 
Fees. For the avoidance of doubt, no expense amount was allocated 
twice.
    Since MIAX PEARL Equities did not exist in 2019 (operations only 
just launched on September 25, 2020), the Exchange's most recent 
publicly available financial statement (2019 Audited Unconsolidated 
Financial Statement) is not an accurate reflection of the total annual 
costs associated with the development and operation of MIAX PEARL 
Equities. Accordingly, the Exchange believes it is more appropriate to 
justify its fees using cost figures that are isolated specifically for 
MIAX PEARL Equities on an annualized basis, utilizing its 2020 actual 
(to date) and projected (for the remainder) costs, as described herein. 
The purpose of presenting it in this manner is to provide greater 
transparency into the Exchange's actual and expected revenues, costs, 
and profitability associated with providing the services associated 
with the Proposed Access Fees. Based on this analysis, the Exchange 
believes that the Proposed Access Fees are fair and reasonable because 
they will permit recovery of less than all of the Exchange's costs for 
providing the services associated with the Proposed Access Fees and 
will not result in excessive pricing or supra-competitive profit when 
comparing the Exchange's total annual expense

[[Page 81973]]

associated with providing the services associated with the Proposed 
Access Fees versus the total projected annual revenue the Exchange will 
collect for providing those services.
Connectivity Fees
    Specifically, proposed Sections 2a) and b) of the Fee Schedule 
describe network connectivity fees for the 1 Gigabit (``Gb'') ultra-low 
latency (``ULL'') fiber connection and the 10Gb ULL fiber connection, 
which are to be charged to both Equity Members and non-Members of MIAX 
PEARL Equities for connectivity to the Exchange's primary/secondary 
facility. The Exchange also proposes to adopt network connectivity fees 
for the 1Gb ULL and 10Gb ULL fiber connections for connectivity to the 
Exchange's disaster recovery facility.
    The Exchange will offer to both Equity Members and non-Members 
various bandwidth alternatives for connectivity to MIAX PEARL Equities, 
to its primary and secondary facilities, which consists of a 1Gb ULL 
fiber connection and a 10Gb ULL fiber connection. The Exchange also 
offers to both Equity Members and non-Members various bandwidth 
alternatives for connectivity to the disaster recovery facility of MIAX 
PEARL Equities, which consists of a 1Gb ULL fiber connection and a 10Gb 
ULL connection.
    The Exchange proposes to establish the monthly network connectivity 
fees for such connections for both Equity Members and non-Members. The 
Exchange proposes to adopt the following fees for connectivity to MIAX 
PEARL Equities' primary/secondary facility for both Equity Members and 
non-Members: (a) $1,000 for the 1Gb ULL connection; and (b) $3,500 for 
the 10Gb ULL connection. The Exchange proposes to adopt the following 
fees for connectivity to MIAX PEARL Equities' disaster recovery 
facility for both Equity Members and non-Members: (a) $1,000 for the 
1Gb ULL connection; and (b) $3,000 for the 10Gb ULL connection.
    Monthly network connectivity fees for Equity Members and non-
Members for connectivity with the primary/secondary facility will be 
assessed in any month the Equity Member or non-Members is credentialed 
to use any of the MIAX PEARL Equities Application Programming 
Interfaces (``APIs'') or market data feeds in the production 
environment and will be pro-rated when an Equity Member or non-Member 
makes a change to the connectivity (by adding or deleting connections) 
with such pro-rated fees based on the number of trading days that the 
Equity Member or non-Member has been credentialed to utilize any of the 
MIAX PEARL Equities' APIs or market data feeds in the production 
environment through such connection, divided by the total number of 
trading days in such month multiplied by the applicable monthly rate. 
Monthly network connectivity fees for Equity Members and non-Members 
for connectivity to the Disaster Recovery Facility will be assessed in 
each month during which the Equity Member or non-Member has established 
connectivity to the Disaster Recovery Facility.
    Proposed Section 2)c) of the Fee Schedule, Pass-Through of External 
Connectivity Fees, provides for the pass through of external 
connectivity fees (described below) to Equity Members and non-Members 
that establish connections with MIAX PEARL Equities through a third-
party. Fees assessed to MIAX PEARL Equities by third-party external 
vendors on behalf of an Equity Member or non-Member connecting to MIAX 
PEARL Equities (including cross-connects), will be passed through to 
the Equity Member or non-Member. The external connectivity fees passed 
through can include one-time set-up fees, monthly charges, and other 
fees charged to MIAX PEARL Equities by a third-party for the benefit of 
an Equity Member or non-Member.
Port Fees
    Proposed Section 2)d), Port Fees, of the Fee Schedule describes 
fees for access and services used by Equity Members and non-Members. 
MIAX PEARL Equities provides three Port types: (i) The Financial 
Information Exchange Port (``FIX Port''), which allows Equity Members 
to send orders and other messages using the FIX protocol; \13\ (ii) the 
MIAX Express Orders Interface (``MEO Port''), which allows Equity 
Members order entry capabilities to all MIAX PEARL Equities Matching 
Engines; \14\ and (iii) the FIX Drop Port (``FXD Port''), which 
provides real-time order activities firms' MEO and FOI orders. MIAX 
PEARL Equities offers two types of FXD ports: (1) Standard FIX Drop; 
\15\ and (2) FIX Order by Order.\16\ FXD Ports may be used by Equities 
Market Makers \17\, Order Entry Firms \18\ and clearing firms.
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    \13\ ``FIX Order Interface'' or ``FOI'' means the Financial 
Information Exchange interface for certain order types as set forth 
in Exchange Rule 2614. See the Definitions section of the Fee 
Schedule.
    \14\ Each MEO interface will have one Full Service Port 
(``FSP'') and one Purge Port. ``Full Service Port'' or ``FSP'' means 
an MEO port that supports all MEO order input message types. See the 
Definitions section of the Fee Schedule. Purge Ports are described 
in Exchange Rule 2618(a)(7)(b).
    \15\ ``Standard FIX Drop'' means an FXD Port that only sends 
trade information, including Execution Reports and Trade Cancel/
Correct messages. See the Definitions section of the Fee Schedule.
    \16\ ``FIX Order by Order'' means a type of FXD Port that sends 
all order activities other than reject message, including Execution 
Reports and Trade Cancel/Correct messages. See the Definitions 
section of the Fee Schedule.
    \17\ The term ``Equities Market Maker'' shall mean an Equity 
Member that acts as a Market Maker in equity securities, pursuant to 
Chapter XXVI. See Exchange Rule 1901.
    \18\ The term ``Equities Order Entry Firm'', ``Order Entry 
Firm'', or ``OEF'', shall mean those Equity Members representing 
orders as agent on MIAX PEARL Equities and those non-Equity Market 
Maker Members conducting proprietary trading. See Exchange Rule 
1901.
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    The Exchange proposes to assess monthly Port fees to Equity Members 
in each month the Equity Member is credentialed to use a Port in the 
production environment. MIAX PEARL Equities has primary and secondary 
data centers and a disaster recovery center. Each Port provides access 
to all Exchange data centers for a single fee. The Exchange notes that, 
unless otherwise specifically set forth in the Fee Schedule, the Port 
fees include the information communicated through the Port. That is, 
unless otherwise specifically set forth in the Fee Schedule, there is 
no additional charge for the information that is communicated through 
the Port apart from what the user is assessed for each Port. The 
Exchange proposes to assess Port Fees for FIX Ports, MEO Ports, and FXD 
Ports as set forth in the following table:
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    \19\ Purge Ports are described in Exchange Rule 2618(a)(7)(b).

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                                         Monthly port fees includes connectivity to the primary, secondary and
            Type of port                                    disaster recovery data centers
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FIX Port [supcaret].................  Per Port:
                                         1st-5th Fee Waived for the Waiver Period.
                                         6th-10th Fee Waived for the Waiver Period.
                                         11th-25th Fee Waived for the Waiver Period.
                                         26th-50th $450.

[[Page 81974]]

 
                                         51st-75th $400.
                                         76th-100th $350.
                                         101st or more $300.
MEO Port [supcaret]*................  Per Port:
                                         1st-5th Fee Waived for the Waiver Period.
                                         6th-10th Fee Waived for the Waiver Period.
                                         11th-25th Fee Waived for the Waiver Period.
                                         26th-50th $450.
                                         51st-75th $400.
                                         76th-100th $350.
                                         101st or more $300.
FXD Port [supcaret].................  Fee Waived for the Waiver Period.
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[supcaret] Each port will have access to all Matching Engines.
* The rates set forth above for MEO Ports entitle an Equity Member to one (1) FSP and one (1) Purge Port \19\
  for all Matching Engines for a single port fee.

     MEO and FIX Ports are counted separately for the tiers in 
the table.
    The Exchange proposes to waive the fee for the 1st through the 25th 
FIX Ports and MEO Ports that Equity Members are credentialed to use, as 
well as the fees for all FXD Ports, for the Waiver Period.\20\ For all 
Port fees that the Exchange initially proposes to be subject to the 
Waiver Period, the Exchange will submit a rule filing to the Commission 
to establish the fee amount and any related requirements, and provide 
notice to terminate the applicable Waiver Period. Even though most of 
the Port fees are waived during the Waiver Period, the Exchange 
believes that is appropriate to provide market participants with the 
overall structure of the fee by outlining the structure on the Fee 
Schedule without setting forth a specific fee amount in certain areas, 
so that there is general awareness that the Exchange intends to assess 
such a fee in the future, should the Waiver Period terminate and the 
Exchange establish an applicable fee.
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    \20\ ``Waiver Period'' means, for each applicable fee, the 
period of time from the initial effective date of the MIAX PEARL 
Equities Fee Schedule until such time that MIAX PEARL has an 
effective fee filing establishing the applicable fee. MIAX PEARL 
Equities 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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Equity Member and Non-Member Technical Support Request Fee
    Proposed Section 2)e), Member and Non-Member Technical Support 
Request Fee, of the Fee Schedule describes the technical support 
request fee to be charged to both Equity Members and non-Members that 
request technical support at any of the MIAX PEARL Equities data 
centers. MIAX PEARL Equities proposes to charge a fee of $200 per hour 
for requested technical support. The Exchange intends to provide Equity 
Members and non-Members access to the Exchange's on-site data center 
personnel for technical support as a convenience to the Equity Members 
and non-Members to test or otherwise assess their connectivity to the 
Exchange. Currently, the Exchange charges the same fee amount for the 
same services for options trading, as well as at its affiliate option 
exchanges, Miami International Securities Exchange, LLC (``MIAX'') and 
MIAX Emerald, LLC (``MIAX Emerald'').\21\
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    \21\ See MIAX Fee Schedule, Section 5)f), Member and non-Member 
Technical Support Request Fee; MIAX PEARL Fee Schedule, Section 
5)f), Member and non-Member Technical Support Request Fee; and MIAX 
Emerald Fee Schedule, Section 5)f), Member and non-Member Technical 
Support Request Fee.
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Market Data Fees
    Proposed Sections 3)a)-c) describe the fee to be charged for the 
Exchange's proprietary market data products. MIAX PEARL Equities 
intends to offer the following three proprietary market data products: 
(a) Top of Market (``ToM'') feed; (b) Depth of Market (``DoM'') feed; 
and (c) the Historical Market Data feed.
    The ToM feed is a data feed that contains the price and aggregate 
size of displayed top of book quotations, order execution information, 
and administrative messages for orders entered on MIAX PEARL Equities. 
The DOM feed is a data feed that contains the displayed price and size 
of each order entered on MIAX PEARL Equities, as well as order 
execution information, order cancellations, order modifications, order 
identification numbers, and administrative messages.
    The Exchange proposes to provide under Sections 3)a) and 3)b) of 
the Fee Schedule that the ToM and DoM would be offered free of charge 
during the Waiver Period. Even though the fees for the ToM and DoM data 
feeds are waived during the Waiver Period, the Exchange believes that 
is appropriate to provide market participants with notice of these 
feeds on the Fee Schedule without setting forth a specific fee amount, 
so that there is general awareness that the Exchange intends to assess 
such a fee in the future, should the Waiver Period terminate and the 
Exchange establish an applicable fee.
    The Exchange will also offer Historical Data for MIAX PEARL 
Equities, which is a data product that offers historical market data 
for orders entered on MIAX PEARL Equities upon request. The Exchange 
proposes to charge a modest fee for the Historical Data, which will be 
based on the cost incurred by the Exchange in providing that data. 
Proposed Section 3)c) of the Fee Schedule describes the fee to be 
charged market participants that request Historical Data from MIAX 
PEARL Equities. Historical Data is intended to aid market participants 
in analyzing trade and volume data, evaluating historical trends in the 
trading activity of a particular security, and enabling those market 
participants to test trading models and analytical strategies. 
Specifically, Historical Data includes all data that is captured and 
disseminated on ToM and DoM feeds and is available on a T+1 basis.\22\
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    \22\ See Fee Schedule, Section 3)c).
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    The Exchange will only assess the fee for Historical Data on a user 
(whether Equity Member or non-Member) that specifically requests such 
Historical Data. Historical Data will be uploaded onto an Exchange-
provided device, which the Exchange will incur a cost to procure and 
provide to those that request the data.
    The Exchange proposed to charge a flat fee of $500 per device 
requested. Each device shall have a maximum storage capacity of 8 
terabytes. Users may request up to six months of

[[Page 81975]]

Historical Data per device, subject to the device's storage capacity. 
Historical Data will be made available beginning from the time of 
launch of MIAX PEARL Equities on September 25, 2020 (always on a T+1 
basis). However, only the most recent six months of Historical Data 
shall be available for purchase from the request date.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \23\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \24\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among Exchange Members and 
issuers and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposal 
furthers the objectives of Section 6(b)(5) of the Act \25\ 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 customer, issuers, brokers and dealers.
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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(4).
    \25\ 15 U.S.C. 78f(b)(5).
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    On March 29, 2019, the Commission issued its Order Disapproving 
Proposed Rule Changes to Amend the Fee Schedule on the BOX Market LLC 
Options Facility to Establish BOX Connectivity Fees for Participants 
and Non-Participants Who Connect to the BOX Network (the ``BOX 
Order'').\26\ On May 21, 2019, the Commission issued the Staff Guidance 
on SRO Rule Filings Relating to Fees.\27\
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    \26\ See Securities Exchange Act Release No. 85459 (March 29, 
2019), 84 FR 13363 (April 4, 2019) (SR-BOX-2018-24, SR-BOX-2018-37, 
and SR-BOX-2019-04).
    \27\ See Staff Guidance on SRO Rule Filings Relating to Fees 
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
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    The Exchange believes that the Proposed Fees are consistent with 
the Act because they (i) are reasonable, equitably allocated, not 
unfairly discriminatory, and not an undue burden on competition; (ii) 
comply with the BOX Order and the Guidance; (iii) are supported by 
evidence (including data and analysis), constrained by significant 
competitive forces; and (iv) are supported by specific information 
(including quantitative information), fair and reasonable because they 
will permit recovery of the Exchange's costs (less than all) and will 
not result in excessive pricing or supra-competitive profit. 
Accordingly, the Exchange believes that the Commission should find that 
the Proposed Fees are consistent with the Act.
    MIAX PEARL Equities launched trading on September 25, 2020. As of 
November 2020, MIAX PEARL Equities averaged only 0.05% daily market 
share of the U.S. equities market.\28\ The Exchange is not aware of any 
evidence that a market share of approximately 0.05% provides the 
Exchange with anti-competitive pricing power. If the Exchange were to 
attempt to establish unreasonable pricing, then no market participant 
would join or connect, and existing market participants would 
disconnect.
---------------------------------------------------------------------------

    \28\ See U.S. Equities Market Volume Summary available at 
https://markets.cboe.com/us/equities/market_statistics/ (last 
visited November 30, 2020).
---------------------------------------------------------------------------

    Separately, the Exchange is not aware of any reason why market 
participants could not simply drop their connections to an exchange (or 
not connect to an exchange) if an exchange were to establish prices for 
its non-transaction fees that, in the determination of such market 
participant, did not make business or economic sense for such market 
participant to connect to such exchange. No market participant is 
required by rule, regulation, or competitive forces to be a Member of 
the Exchange or MIAX PEARL Equities. As evidence of the fact that 
market participants can and do disconnect from exchanges based on non-
transaction fee pricing, R2G Services LLC (``R2G'') filed a comment 
letter after BOX's proposed rule changes to increase its connectivity 
fees (SR-BOX-2018-24, SR-BOX-2018-37, and SR-BOX-2019-04).\29\ The R2G 
Letter stated, ``[w]hen BOX instituted a $10,000/month price increase 
for connectivity; we had no choice but to terminate connectivity into 
them as well as terminate our market data relationship. The cost 
benefit analysis just didn't make any sense for us at those new 
levels.'' \30\ Accordingly, this example shows that if an exchange sets 
too high of a fee for connectivity and/or other non-transaction fees 
for its relevant marketplace, market participants can choose to 
disconnect from such exchange.
---------------------------------------------------------------------------

    \29\ See Letter from Stefano Durdic, R2G, to Vanessa Countryman, 
Acting Secretary, Commission, dated March 27, 2019 (the ``R2G 
Letter'').
    \30\ See id.
---------------------------------------------------------------------------

    The Exchange believes its proposal to include a Definitions section 
in the Fee Schedule promotes just and equitable principles of trade, 
removes impediments to and perfects the mechanism of a free and open 
market and a national market system, and, in general protects investors 
and the public interest and is not designed to permit unfair 
discrimination between customers, issuers, brokers and dealers. The 
Exchange believes that the proposal to adopt a Definitions section in 
the beginning of the Fee Schedule will provide greater clarity to 
Equity Members, non-Members, market participants and the public 
regarding the Exchange's fees and rebates, and it is in the public 
interest for the Fee Schedule to be transparent, comprehensive and 
user-friendly so as to eliminate the potential for confusion.
    The Exchange believes that its proposal is consistent with Section 
6(b)(4) of the Act, in that the Proposed Fees are fair, equitable and 
not unreasonably discriminatory, because the fees, as proposed, are 
constrained by significant competitive forces. The U.S. equity 
securities markets are highly competitive (there are currently 16 
equity markets) and a reliance on competitive markets is an appropriate 
means to ensure equitable and reasonable prices.
    The Exchange believes that its proposal is consistent with Section 
6(b)(4) of the Act because the Proposed Access Fees will permit 
recovery (less than all) of the Exchange's costs and will not result in 
excessive or supra-competitive profit. The Proposed Access Fees will 
allow the Exchange to recover a portion (less than all) of the costs 
incurred by the Exchange associated with providing and maintaining the 
necessary hardware and other infrastructure as well as network 
monitoring and support services in order to provide the services 
associated with the Proposed Access Fees. The Exchange believes that it 
is reasonable and appropriate to establish its fees charged for the 
services associated with the Proposed Access Fees at levels that will 
partially offset the costs to the Exchange associated with maintaining 
and enhancing a state-of-the-art exchange network infrastructure in the 
U.S. equities industry.
    The costs associated with building out and maintaining a state-of-
the-art network infrastructure are extensive. This is due to several 
factors, including costs associated with maintaining and expanding a 
team of highly-skilled network engineers, fees charged by the 
Exchange's third-party data center operator, costs associated with 
projects and initiatives designed to improve overall network 
performance and stability through the Exchange's

[[Page 81976]]

research and development (``R&D'') efforts, and costs associated with 
fully-supporting advances in infrastructure and expansion of network 
level services, including customer monitoring, alerting and reporting. 
The Exchange incurs significant technology expense related to 
establishing and maintaining Information Security services, enhanced 
network monitoring and customer reporting, as well as Regulation SCI 
mandated processes, associated with its network technology. While some 
of the expense is fixed, much of the expense is not fixed, and thus 
increases as the number of connections and ports increase. For example, 
new 1Gb ULL and 10Gb ULL connections require the purchase of additional 
hardware to support those connections as well as enhanced monitoring 
and reporting of customer performance that the Exchange and its 
affiliates provide. Further, 10Gb ULL connections require the purchase 
of specialized, more costly hardware. As the total number of all 
connections increase, the Exchange needs to increase its data center 
footprint and consume more power, resulting in increased costs charged 
by its third-party data center providers. Accordingly, the cost to the 
Exchange to provide access to its network and trading infrastructure is 
not entirely fixed.
    Further, because the costs of operating a data center are 
significant and not economically feasible for the Exchange, the 
Exchange does not operate its own data centers, and instead contracts 
with a third-party data center provider. The Exchange notes that 
larger, well-established exchange operators own/operate their data 
centers, which offers them greater control over their data center 
costs. Because those exchanges own and operate their data centers as 
profit centers, the Exchange is subject to additional costs. Fees for 
the services associated with the Proposed Access Fees, which are 
charged for accessing the Exchange's data center network 
infrastructure, are directly related to the network and offset such 
costs.
    Further, the Exchange invests significant resources in network R&D 
to continuously improve the overall performance and stability of its 
network. For example, the Exchange has a number of network monitoring 
tools (some of which were developed in-house, and some of which are 
licensed from third-parties), that continually monitor, detect, and 
report network performance, many of which serve as significant value-
adds to Equity Members and enable the Exchange to provide a high level 
of customer service. These tools detect and report performance issues, 
and thus enable the Exchange to proactively notify an Equity Member 
(and the SIPs) when the Exchange detects a problem with an Equity 
Member's connectivity. In fact, the Exchange's affiliate options 
exchanges, MIAX and MIAX Emerald, often receive inquiries from other 
industry participants regarding the status of networking issues outside 
of the Exchange's own network environment that are impacting the 
industry as a whole via the SIPs, including inquiries from regulators, 
because the Exchange has a superior, state-of the-art network that, 
through its enhanced monitoring and reporting solutions, often detects 
and identifies industry-wide networking issues ahead of the SIPs. The 
Exchange also incurs costs associated with the maintenance and 
improvement of existing tools and the development of new tools.
    Also, routine R&D projects to improve the performance of the 
network's hardware infrastructure result in additional cost. In sum, 
the costs associated with maintaining and enhancing a state-of-the-art 
exchange network in the U.S. equity securities industry is a 
significant expense for the Exchange that is projected to increase 
year-over-year, and thus the Exchange believes that it is reasonable to 
offset a portion of those costs through establishing the Proposed 
Access Fees, which are designed to recover those costs, as described 
herein. Overall, the Proposed Access Fees are projected to offset only 
a portion of the Exchange's services associated with the Proposed 
Access Fees. The Exchange invests in and offers a superior network 
infrastructure as part of its overall exchange services offering, 
resulting in significant costs associated with maintaining this network 
infrastructure, which are directly tied to the amount of the Proposed 
Access Fees that must be charged to access it, in order to recover 
those costs. The Exchange only has four primary sources of revenue: 
Transaction fees, access fees (of which the Proposed Access Fees 
constitute the majority), regulatory fees, and market data fees. 
Accordingly, the Exchange must cover all of its expenses from these 
four primary sources of revenue.
    The Exchange believes that the Proposed Access Fees are fair and 
reasonable because they will not result in excessive pricing or supra-
competitive profit, when comparing the total annual expense of MIAX 
PEARL Equities for providing the services associated with the Proposed 
Access Fees versus the total projected annual revenue of the Exchange 
for providing those services. For 2020, the total annual expense \31\ 
for providing the services associated with the Proposed Access Fees for 
MIAX PEARL Equities is projected to be approximately $8.4 million. The 
$8.4 million in projected total annual expense is comprised of the 
following, all of which are directly related to the services associated 
with the Proposed Access Fees by MIAX PEARL Equities to its Equity 
Members and non-Members: (1) Third-party expense, relating to fees paid 
by MIAX PEARL Equities to third-parties for certain products and 
services; and (2) internal expense, relating to the internal costs of 
MIAX PEARL Equities to provide the services associated with the 
Proposed Access Fees. The $8.4 million in projected total annual 
expense is directly related to the services associated with the 
Proposed Access Fees and not any other product or service offered by 
the Exchange. It does not include general costs of operating matching 
systems and other trading technology, and no expense amount was 
allocated twice.
---------------------------------------------------------------------------

    \31\ The Exchange notes that the total expense figures for each 
of the external and internal expenses described herein relate only 
to the Exchange's equities market. No expense relating to the 
Exchange's options market is included in this filing.
---------------------------------------------------------------------------

    As discussed, the Exchange conducted an extensive review in which 
the Exchange analyzed every expense item in the Exchange's general 
expense ledger (this includes over 150 separate and distinct expense 
items) to determine whether each such expense relates to the services 
associated with the Proposed Access Fees, and, if such expense did so 
relate, what portion (or percentage) of such expense actually supports 
those services, and thus bears a relationship that is, ``in nature and 
closeness,'' directly related to those services. The sum of all such 
portions of expenses represents the total cost of the Exchange to 
provide the services associated with the Proposed Access Fees.
    For 2020, total actual and projected third-party expense, relating 
to fees paid by the Exchange to third-parties for certain products and 
services for the Exchange to be able to provide the services associated 
with the Proposed Access Fees, was $1,492,112. This includes, but is 
not limited to, a portion of the fees paid to: (1) Equinix, for data 
center services, for the primary, secondary, and disaster recovery 
locations of the MIAX PEARL Equities trading system infrastructure; (2) 
Zayo Group Holdings, Inc. (``Zayo'') for connectivity services (fiber 
and bandwidth connectivity) linking MIAX PEARL Equities' office 
locations in

[[Page 81977]]

Princeton, New Jersey and Miami, Florida to all data center locations; 
(3) Secure Financial Transaction Infrastructure (``SFTI''), which 
supports connectivity and feeds for the entire equity securities 
industry; (4) various other services providers (including Thompson 
Reuters, NYSE, Nasdaq, Internap, and Options IT), which provide 
content, connectivity services, infrastructure services, and market 
data services; and (5) various other hardware and software providers 
(including Dell and Cisco, which support the production environment).
    For clarity, only a portion of all fees paid to such third-parties 
is included in the third-party expense herein (only the portions that 
actually support the services associated with the Proposed Access 
Fees), and no expense amount is allocated twice. Accordingly, the 
Exchange does not allocate its entire information technology and 
communication costs to the services associated with the Proposed Access 
Fees.
    The Exchange believes it is reasonable to allocate such third-party 
expense described above towards the total cost to the Exchange to 
operate and support the network, including providing the services 
associated with the Proposed Access Fees. In particular, the Exchange 
believes it is reasonable to allocate the identified portions of the 
Equinix expense because Equinix operates the data centers (primary, 
secondary, and disaster recovery) that host the Exchange's network 
infrastructure, which enables the services associated with the Proposed 
Access Fees. This includes, among other things, the necessary storage 
space, which continues to expand and increase in cost, power to operate 
the network infrastructure, and cooling apparatuses to ensure the 
Exchange's network infrastructure maintains stability. Without these 
services from Equinix, the Exchange would not be able to operate and 
support the network and provide the services associated with the 
Proposed Access Fees to Equity Members and non-Members and their 
customers. The Exchange did not allocate all of the Equinix expense 
toward the cost of providing the services associated with the Proposed 
Access Fees, only the portions which the Exchange identified as being 
specifically mapped to operating and supporting the network, 
approximately 73% of the total Equinix expense (68% allocated towards 
the cost of providing the provision of network connectivity and 5% 
allocated towards the cost of providing ports). The Exchange believes 
these allocations are reasonable because they represent the Exchange's 
actual cost to operate and support the network, and not any other 
service, as supported by its cost review.
    The Exchange believes it is reasonable to allocate the identified 
portions of the Zayo expense because Zayo provides the internet, fiber 
and bandwidth connections with respect to the network, linking MIAX 
PEARL Equities with the Exchange's affiliates, MIAX and MIAX Emerald, 
as well as the data center and disaster recovery locations. As such, 
all of the trade data flow through Zayo's infrastructure over the 
Exchange's network. Without these services from Zayo, the Exchange 
would not be able to operate and support the network and provide the 
services associated with the Proposed Access Fees to Equity Members and 
non-Members and their customers. The Exchange did not allocate all of 
the Zayo expense toward the cost of providing the services associated 
with the Proposed Access Fees, only the portions which the Exchange 
identified as being specifically mapped to operating and supporting the 
network, approximately 66% of the total Zayo expense (62% allocated 
towards the cost of providing the provision of network connectivity and 
4% allocated towards the cost of providing ports). The Exchange 
believes these allocations are reasonable because they represent the 
Exchange's actual cost to operate and support the network, and not any 
other service, as supported by its cost review.
    The Exchange believes it is reasonable to allocate the identified 
portions of the SFTI expense and various other service providers' 
(including Thompson Reuters, NYSE, Nasdaq, Internap, and Options IT) 
expense because those entities provide connectivity and feeds for the 
entire U.S. securities industry as well as the content, connectivity 
services, infrastructure services, and market data services for 
critical components of the network. Without these services from SFTI 
and various other service providers, the Exchange would not be able to 
operate and support the network and provide the services associated 
with the Proposed Access Fees to Equity Members and non-Members and 
their customers. The Exchange did not allocate all of the SFTI and 
other service providers' expense toward the cost of providing the 
services associated with the Proposed Access Fees, only the portions 
which the Exchange identified as being specifically mapped to operating 
and supporting the network, approximately 94% of the total SFTI and 
other service providers' expense (89% allocated towards the cost of 
providing the provision of network connectivity and 5% allocated 
towards the cost of providing ports). The Exchange believes these 
allocations are reasonable because they represent the Exchange's actual 
cost to operate and support the network, and not any other service, as 
supported by its cost review.
    The Exchange believes it is reasonable to allocate the identified 
portion of the other hardware and software provider expense because 
this includes costs for dedicated hardware licenses for switches and 
servers, as well as dedicated software licenses for security monitoring 
and reporting across the network. Without this hardware and software, 
the Exchange would not be able to operate and support the network and 
provide the services associated with the Proposed Access Fees to Equity 
Members and non-Members and their customers. The Exchange did not 
allocate all of the hardware and software provider expense toward the 
cost of providing the services associated with the Proposed Access 
Fees, only the portions which the Exchange identified as being 
specifically mapped to operating and supporting the network, 
approximately 57% of the total hardware and software provider expense 
(54% allocated towards the cost of providing the provision of network 
connectivity and 3% allocated towards the cost of providing ports). The 
Exchange believes these allocations are reasonable because they 
represent the Exchange's actual cost to operate and support the 
network, and not any other service, as supported by its cost review.
    For 2020, total projected internal expense, relating to the 
internal costs of the Exchange to provide the services associated with 
the Proposed Access Fees, is projected to be $6,905,858. This includes, 
but is not limited to, costs associated with: (1) Employee compensation 
and benefits for full-time employees that support the services 
associated with the Proposed Access Fees, including staff in network 
operations, trading operations, development, system operations, 
business, etc., as well as staff in general corporate departments (such 
as legal, regulatory, and finance) that support those employees and 
functions; (2) depreciation and amortization of hardware and software 
used to provide the services associated with the Proposed Access Fees, 
including equipment, servers, cabling, purchased software and 
internally developed software used in the production environment to 
support those services for trading; and (3) occupancy costs for leased 
office space for staff that support the services associated with the

[[Page 81978]]

Proposed Access Fees. The breakdown of these costs is more fully-
described below.
    For clarity, only a portion of all such internal expenses are 
included in the internal expense herein (only the portions that support 
the services associated with the Proposed Access Fees), and no expense 
amount is allocated twice. Accordingly, the Exchange does not allocate 
its entire costs contained in those line items to the services 
associated with the Proposed Access Fees.
    The Exchange believes it is reasonable to allocate such internal 
expense described above towards the total cost to the Exchange to 
operate and support the network, including providing the services 
associated with the Proposed Access Fees. In particular, MIAX PEARL 
Equities' employee compensation and benefits expense relating to 
providing the services associated with the Proposed Access Fees is 
projected to be $4,317,667, which is only a portion of the $13,492,708 
total projected expense for employee compensation and benefits. The 
Exchange believes it is reasonable to allocate the identified portions 
of each expense because they include the time spent by employees of 
several departments, including Technology, Back Office, Systems 
Operations, Networking, Business Strategy Development (who create the 
business requirement documents that the Technology staff use to develop 
network features and enhancements), Trade Operations, Finance (who 
provide billing and accounting services relating to the network), and 
Legal (who provide legal services relating to the network, such as rule 
filings and various license agreements and other contracts). As part of 
the extensive cost review conducted by the Exchange, the Exchange 
reviewed the amount of time spent by each employee on matters relating 
to the operation and support of the network, including the services 
associated with the Proposed Access Fees. Without these employees, the 
Exchange would not be able to operate and support the network and 
provide the services associated with the Proposed Access Fees to Equity 
Members and non-Members and their customers. The Exchange did not 
allocate all of the employee compensation and benefits expense toward 
the cost of providing the services associated with the Proposed Access 
Fees, only that portion which the Exchange identified as being 
specifically mapped to operating and supporting the network, 
approximately 32% of the total employee compensation and benefits 
expense (29% allocated towards the cost of providing the provision of 
network connectivity and 3% allocated towards the cost of providing 
ports). The Exchange believes these allocations are reasonable because 
they represent the Exchange's actual cost to operate and support the 
network, and not any other service, as supported by its cost review.
    MIAX PEARL Equities' depreciation and amortization expense relating 
to providing the services associated with the Proposed Access Fees is 
projected to be $2,131,411, which is only a portion of the $2,664,264 
total projected expense for depreciation and amortization. The Exchange 
believes it is reasonable to allocate the identified portions of such 
projected expense because such expense includes the actual cost of the 
computer equipment, such as dedicated servers, computers, laptops, 
monitors, information security appliances and storage, and network 
switching infrastructure equipment, including switches and taps that 
were purchased to operate and support the network. Without this 
equipment, the Exchange would not be able to operate the network and 
provide the services associated with the Proposed Access Fees to Equity 
Members and non-Members and their customers. The Exchange did not 
allocate all of the projected depreciation and amortization expense 
toward the cost of providing the services associated with the Proposed 
Access Fees, only the portions which the Exchange identified as being 
specifically mapped to operating and supporting the network, 
approximately 80% of the total depreciation and amortization expense 
(76% allocated towards the cost of providing the provision of network 
connectivity and 4% allocated towards the cost of providing ports). The 
services associated with the Proposed Access Fees would not be possible 
without relying on such equipment. The Exchange believes these 
allocations are reasonable because they represent the Exchange's actual 
cost to operate and support the network, and not any other service, as 
supported by its cost review.
    MIAX PEARL Equities' occupancy expense relating to providing the 
services associated with the Proposed Access Fees is projected to be 
$456,780, which is only a portion of the $878,423 total projected 
expense for occupancy. The Exchange believes it is reasonable to 
allocate the identified portions of such projected expense because such 
expense represents the portion of the Exchange's cost to rent and 
maintain a physical location for the Exchange's staff who operate and 
support the network, including providing the services associated with 
the Proposed Access Fees. These amounts consist primarily of rent for 
the Exchange's Princeton, New Jersey office, as well as various related 
costs, such as physical security, property management fees, property 
taxes, and utilities. The Exchange operates its Network Operations 
Center (``NOC'') and Security Operations Center (``SOC'') from its 
Princeton, New Jersey office location. A centralized office space is 
required to house the staff that operates and supports the network. The 
Exchange currently has approximately 150 employees (and continues to 
increase its headcount to support the network as the Exchange, and its 
affiliates, grow the network). Approximately two-thirds of the 
Exchange's staff are in the Technology department, and the majority of 
those staff members have some role in the operation and performance of 
the network. Without this office space, the Exchange would not be able 
to operate and support the network and provide the services associated 
with the Proposed Access Fees to Equity Members and non-Members and 
their customers. Accordingly, the Exchange believes it is reasonable to 
allocate the identified portions of its occupancy expense because such 
amounts represent the Exchange's actual cost to house the equipment and 
personnel who operate and support the Exchange's network infrastructure 
for the services associated with the Proposed Access Fees. The Exchange 
did not allocate all of the projected occupancy expense toward the cost 
of providing the services associated with the Proposed Access Fees, 
only the portions which the Exchange identified as being specifically 
mapped to operating and supporting the network, approximately 52% of 
the total occupancy expense (48% allocated towards the cost of 
providing the provision of network connectivity and 4% allocated 
towards the cost of providing ports). The Exchange believes these 
allocations are reasonable because they represent the Exchange's actual 
cost to operate and support the network, and not any other service, as 
supported by its cost review.
    The Exchange's monthly revenue for the Proposed Access Fees is 
based on the following purchases by Equity Members and non-Members 
during the most recent billing cycle: (i) 12 1Gb ULL connections; (ii) 
81 10Gb ULL connections; and (iii) 103 MEO Ports. The monthly revenue 
from Port fees is subject to change from month to month depending on 
the number of Ports purchased. Accordingly, the Exchange's total 
monthly Port revenue was $22,800

[[Page 81979]]

and total 1 Gb and 10Gb ULL connectivity was $288,000.
    Accordingly, based on the facts and circumstances presented, the 
Exchange believes that its provision of the services associated with 
the Proposed Access Fees will not result in excessive pricing or supra-
competitive profit. To illustrate, the Exchange's monthly revenue 
associated with the Proposed Access Fees was approximately $310,800 for 
its most recent billing cycle ($22,800 + 288,000 = $310,800). Total 
projected revenue associated with the Proposed Access Fees for the 
remaining one month of 2020 is approximately $300,000. Therefore, total 
revenue for the Exchange's most recent billing cycle for the provision 
of services associated with the Proposed Access Fees is $310,800. Total 
projected expense for the Exchange for the provision of services 
associated with the Proposed Access Fees is approximately $700,000. 
Accordingly, the provision of the services associated with the Proposed 
Access Fees will not result in excessive pricing or supra-competitive 
profit (rather, it will result in a monthly loss of $389,200 for its 
most recent billing cycle).
    On a going-forward, fully-annualized basis, the Exchange projects 
that its annualized revenue for providing the services associated with 
the Proposed Access Fees would be approximately $3,600,000 per annum, 
based on a most recently completed billing cycle. The Exchange projects 
that its annualized expense for providing the services associated with 
the Proposed Access Fees would be approximately $8,400,000 per annum. 
Accordingly, on a fully-annualized basis, the Exchange believes its 
total projected revenue for the providing the services associated with 
the Proposed Access Fees will not result in excessive pricing or supra-
competitive profit, as the Exchange will incur a loss of $4,800,000 on 
the Proposed Access Fees ($3.6 million-$8.4 million = ($4.8 million per 
annum)).
    For the avoidance of doubt, none of the expenses included herein 
relating to the services associated with the Proposed Access Fees 
relate to any other services offered by MIAX PEARL Equities. Stated 
differently, no expense amount of the Exchange is allocated twice.
    The Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to allocate the respective percentages of each expense 
category described above towards the total cost to the Exchange of 
operating and supporting the network, including providing the services 
associated with the Proposed Access Fees, because the Exchange 
performed a line-by-line item analysis of all the expenses of the 
Exchange, and has determined the expenses that directly relate to 
operation and support of the network, including the services associated 
with the Proposed Access Fees. Further, the Exchange notes that, 
without the specific third-party and internal items listed above, the 
Exchange would not be able to operate and support the network, 
including the services associated with the Proposed Access Fees to 
Equity Members and non-Members and their customers. Each of these 
expense items, including physical hardware, software, employee 
compensation and benefits, occupancy costs, and the depreciation and 
amortization of equipment, have been identified through a line-by-line 
item analysis to be integral to the operation and support of the 
network. The Proposed Access Fees are intended to recover the 
Exchange's costs (less than all) of operating and supporting the 
network, including providing the services associated with the Proposed 
Access Fees.
    Accordingly, the Proposed Access Fees are fair and reasonable 
because they do not result in excessive pricing or supra-competitive 
profit, when comparing the actual network operation and support costs 
to the Exchange versus the projected revenue for the services 
associated with the Proposed Access Fees.
    The Exchange notes that other equities exchanges have similar 
connectivity alternatives for their participants, including similar 
low-latency connectivity. For example, the Nasdaq Stock Market LLC 
(``Nasdaq''), Nasdaq PHLX LLC (``Phlx''), and Nasdaq ISE, LLC (``ISE'') 
all offer a 1Gb, 10Gb and 10Gb low latency ethernet connectivity 
alternatives to each of their participants.\32\ NYSE Arca, Inc. (``NYSE 
Arca''), NYSE American LLC (``NYSE American''), NYSE Chicago, Inc. 
(``NYSE Chicago'') and NYSE National, Inc. (``NYSE National'') all 
offer a 1Gb and 10Gb low latency ethernet connectivity alternatives to 
each of their participants.\33\ The Exchange notes that all the other 
equities exchanges described above charge higher rates for such similar 
connectivity to primary and secondary facilities. While the Exchange's 
proposed connectivity fees are substantially lower than the fees 
charged by Nasdaq, Phlx, ISE, NYSE America, NYSE Arca, NYSE Chicago and 
NYSE National, the Exchange believes that it can offer significant 
value to Equity Members over other exchanges in terms of network 
monitoring and reporting, which the Exchange believes is a competitive 
advantage, and differentiates its access services versus access 
services at other exchanges. Additionally, the Exchange's proposed 
connectivity fees to its disaster recovery facility are within the 
range of the fees charged by other exchanges for similar connectivity 
alternatives.\34\ The Exchange also notes that other equities exchanges 
have similar port alternatives for their participants, with similar or 
substantially higher fees.\35\
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    \32\ See Nasdaq, Phlx and ISE General Rules, General 8, Section 
1(b). Nasdaq, Phlx and ISE each charge a monthly fee of $2,500 for 
each 1Gb connection, $10,000 for each 10Gb connection and $15,000 
for each 10Gb Ultra connection, which is the equivalent of the 
Exchange's 10Gb ULL connection.
    \33\ See NYSE American Fee Schedule, NYSE Arca Fee Schedule, 
NYSE Chicago Fee Schedule and NYSE National Fee Schedule, Co-
Location Fees. NYSE American, NYSE Arca, NYSE Chicago and NYSE 
National each charge a monthly fee of $5,000 for each 1Gb circuit 
and $22,000 for each 10Gb LX circuit, which is the equivalent of the 
Exchange's 10Gb ULL connection.
    \34\ See Cboe EDGA Exchange, Inc. (``EDGA'') and Cboe EDGX 
Exchange, Inc. (``EDGX'') Fee Schedules, Physical Connectivity Fees, 
(charging a monthly fee of $2,000 for a 1Gb disaster recovery 
network access port and a monthly fee of $6,000 for a 10Gb disaster 
recovery network access port).
    \35\ See Nasdaq Fee Schedule, Equity Rules, Equity 7, Pricing 
Schedule, Ports (charging $575 per FIX port per month); Phlx Fee 
Schedule, Equity Rules, Equity 7, Pricing Schedule, Section 3 Nasdaq 
PSX Fees (charging $400 per FIX port per month); EDGX Fee Schedule, 
Logical Port Fees (charging $550 per Logical Port per month and $650 
per Purge port per month).
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Historical Data
    The Exchange believes the proposed fee for Historical Data is a 
reasonable allocation of its costs and expenses among its Equity 
Members and other persons using its facilities since it is recovering 
the costs associated with distributing such data should an Equity 
Member request Historical Data. Access to the Exchange is provided on 
fair and non-discriminatory terms. The Exchange believes the proposed 
fee for Historical Data is equitable and not unfairly discriminatory 
because the fee level results in a reasonable and equitable allocation 
of fees amongst users for similar services. Moreover, the decision as 
to whether or not to purchase Historical Data is entirely optional to 
all users. Potential purchasers are not required to purchase the 
Historical Data, and the Exchange is not required to make the 
Historical Data available. Purchasers may request the data at any time 
or may decline to purchase such data. The allocation of fees among 
users is fair and reasonable because, if the market deems the proposed 
fees to be unfair or

[[Page 81980]]

inequitable, firms can diminish or discontinue their use of this data.
    The Exchange believes that the proposed fee for Historical Data is 
consistent with Section 6(b)(4) of the Act because the Proposed Access 
Fees will permit recovery of the Exchange's costs and will not result 
in excessive or supra-competitive profit. The proposed fee for 
Historical Data will allow the Exchange to recover a portion (less than 
all) of the costs incurred by the Exchange associated with providing 
and maintaining the necessary hardware and other infrastructure as well 
as network monitoring and support services in order to provide 
Historical Data. The Exchange believes that it is reasonable and 
appropriate to establish a fee for Historical Data at a level that will 
partially offset the costs to the Exchange associated with maintaining 
and providing Historical Data. For example, Historical Market Data is 
uploaded onto an Exchange-provided device. Each device shall have a 
maximum storage capacity of 8 terabytes. The Exchange incurs costs in 
providing the device, storing the historical data, and utilizing 
resources to upload the data onto the device. Specifically, the device 
provided by the Exchange costs approximately $200 to $300. Moreover, 
the Exchange tracks the number of hours spent by Exchange personnel 
procuring Historical Data. Based on the Exchange's average cost per 
full-time employee (``FTE''), the Exchange represents that its cost to 
provide this service is reasonably related to (and often exceeds) the 
amount of the Historical Data fee the Exchange proposes to charge. 
Accordingly, the proposed fee would enable the Exchange to recover a 
material portion of such cost.
    The Exchange also notes that its proposed fee is identical to that 
it charges today for options historical data and less than that charged 
by other exchanges for their own historical data. For example, all four 
of the Cboe equity exchanges charge a fee of $500 for one month of 
historical data and $2,500 for one terabyte drive of data.\36\
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    \36\ See, e.g., Cboe BZX Exchange, Inc. fee schedule available 
at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
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    Further, in adopting Regulation NMS, the Commission granted self-
regulatory organizations and broker-dealers increased authority and 
flexibility to offer new and unique market data to the public. It was 
believed that this authority would expand the amount of data available 
to consumers, and also spur innovation and competition for the 
provision of market data:

    [E]fficiency is promoted when broker-dealers who do not need the 
data beyond the prices, sizes, market center identifications of the 
NBBO and consolidated last sale information are not required to 
receive (and pay for) such data when broker-dealers may choose to 
receive (and pay for) additional market data based on their own 
internal analysis of the need for such data.\37\
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    \37\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).

    By removing ``unnecessary regulatory restrictions'' on the ability 
of exchanges to sell their own data, Regulation NMS advanced the goals 
of the Act and the principles reflected in its legislative history. If 
the free market should determine whether proprietary data is sold to 
broker-dealers at all, it follows that the price at which such data is 
sold should be set by the market as well.
    In July, 2010, Congress adopted H.R. 4173, the Dodd-Frank Wall 
Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank Act''), 
which amended Section 19 of the Act. Among other things, Section 916 of 
the Dodd-Frank Act amended paragraph (A) of Section 19(b)(3) of the Act 
by inserting the phrase ``on any person, whether or not the person is a 
member of the self-regulatory organization'' after ``due, fee or other 
charge imposed by the self-regulatory organization.'' As a result, all 
SRO rule proposals establishing or changing dues, fees or other charges 
are immediately effective upon filing regardless of whether such dues, 
fees or other charges are imposed on members of the SRO, non-members, 
or both. Section 916 further amended paragraph (C) of Section 19(b)(3) 
of the Act to read, in pertinent part, ``At any time within the 60-day 
period beginning on the date of filing of such a proposed rule change 
in accordance with the provisions of paragraph (1) [of Section 19(b)], 
the Commission summarily may temporarily suspend the change in the 
rules of the self-regulatory organization made thereby, 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 this title. If the Commission takes such 
action, the Commission shall institute proceedings under paragraph 
(2)(B) [of Section 19(b)] to determine whether the proposed rule should 
be approved or disapproved.''
    The Exchange believes that these amendments to Section 19 of the 
Act reflect Congress's intent to allow the Commission to rely upon the 
forces of competition to ensure that fees for market data are 
reasonable and equitably allocated. Although Section 19(b) had formerly 
authorized immediate effectiveness for a ``due, fee or other charge 
imposed by the self-regulatory organization,'' the Commission adopted a 
policy and subsequently a rule stating that fees for data and other 
products available to persons that are not members of the self-
regulatory organization must be approved by the Commission after first 
being published for comment. At the time, the Commission supported the 
adoption of the policy and the rule by pointing out that unlike 
members, whose representation in self-regulatory organization 
governance was mandated by the Act, non-members should be given the 
opportunity to comment on fees before being required to pay them, and 
that the Commission should specifically approve all such fees. The 
Exchange believes that the amendment to Section 19 reflects Congress's 
conclusion that the evolution of self-regulatory organization 
governance and competitive market structure have rendered the 
Commission's prior policy on non-member fees obsolete. Specifically, 
many exchanges have evolved from member-owned, not-for-profit 
corporations into for-profit, investor-owned corporations (or 
subsidiaries of investor-owned corporations). Accordingly, exchanges no 
longer have narrow incentives to manage their affairs for the exclusive 
benefit of their members, but rather have incentives to maximize the 
appeal of their products to all customers, whether members or non-
members, so as to broaden distribution and grow revenues. Moreover, the 
Exchange believes that the change also reflects an endorsement of the 
Commission's determinations that reliance on competitive markets is an 
appropriate means to ensure equitable and reasonable prices. Simply 
put, the change reflects a presumption that all fee changes should be 
permitted to take effect immediately, since the level of all fees are 
constrained by competitive forces.
    Selling proprietary market data, such as Historical Data, is a 
means by which exchanges compete to attract business. To the extent 
that exchanges are successful in such competition, they earn trading 
revenues and also enhance the value of their data products by 
increasing the amount of data they provide. The need to compete for 
business places substantial pressure upon exchanges to keep their fees 
for both executions and data reasonable.\38\

[[Page 81981]]

The Exchange therefore believes that the fees for Historical Data are 
properly assessed on Members and Non-Member users.
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    \38\ See Sec. Indus. Fin. Mkts. Ass'n (SIFMA), Initial Decision 
Release No. 1015, 2016 SEC LEXIS 2278 (ALJ June 1, 2016) (finding 
the existence of vigorous competition with respect to non-core 
market data).
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    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoalition v. SEC, No. 09-1042 (D.C. Cir. 
2010), although reviewing a Commission decision made prior to the 
effective date of the Dodd-Frank Act, upheld the Commission's reliance 
upon competitive markets to set reasonable and equitably allocated fees 
for market data:

    In fact, the legislative history indicates that the Congress 
intended that the market system `evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed' and that the SEC wield its regulatory power `in those 
situations where competition may not be sufficient,' such as in the 
creation of a `consolidated transactional reporting system.' \39\
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    \39\ NetCoalition, at 15 (quoting H.R. Rep. No. 94-229, at 92 
(1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323).

    The court's conclusions about Congressional intent are therefore 
reinforced by the Dodd-Frank Act amendments, which create a presumption 
that exchange fees, including market data fees, may take effect 
immediately, without prior Commission approval, and that the Commission 
should take action to suspend a fee change and institute a proceeding 
to determine whether the fee change should be approved or disapproved 
only where the Commission has concerns that the change may not be 
consistent with the Act.
Pass-Through of External Connectivity Fees
    The Exchange believes that the proposed pass-through of external 
connectivity fees constitutes an equitable allocation of fees, and is 
not unfairly discriminatory, because it allows the Exchange to recover 
costs associated with offering access through the network connections, 
responding to customer requests, configuring MIAX PEARL Equities' 
systems, programming API user specifications and administering the 
various services. Access to the MIAX PEARL Equities market is offered 
on fair and non-discriminatory terms.
    The Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to pass-through External Connectivity fees to Equity 
Members and non-Members that establish connections with MIAX PEARL 
Equities through a third-party. MIAX PEARL Equities will only pass-
through the actual costs it is charged by third-party external vendors. 
The Exchange believes it is reasonable and equitable to recover costs 
charged it on behalf of an Equity Member or non-Member that establishes 
connections with MIAX PEARL Equities through a third party. Other 
exchanges, including EDGX and EDGA, charge a fee for similar services 
to their members and non-members.
Technical Support Request Fee
    The Exchange believes that the proposed Technical Support Request 
fee is fair, equitable and not unreasonably discriminatory, because it 
is assessed equally to all Equity Members and non-Members who request 
technical support. Furthermore, Equity Members and non-Members are not 
required to use the service but instead it is offered as a convenience 
to all Equity Members and non-Members. The proposed fee is reasonably 
designed because it will permit both Equity Members and non-Members to 
request the use of the Exchange's on-site data center personnel as 
technical support and as a convenience in order to test or otherwise 
assess their connectivity to the Exchange and the fee is within the 
range of the fee charged by other exchanges for similar services and is 
identical to the same fee assessed by the Exchange today for options as 
well as the Exchange's affiliates, MIAX and MIAX Emerald.
    Further, The Exchange tracks the number of hours spent by Exchange 
personnel providing the aforementioned services. Based on the 
Exchange's average cost per FTE, the Exchange represents that its cost 
to provide this service is reasonably related to (and often exceeds) 
the amount of the proposed fee. Accordingly, the proposed fee would 
enable the Exchange to recover a material portion of such cost.
* * * * *
    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues. In such an environment, the Exchange must establish 
fees that are competitive with other exchanges. For the reasons 
described above, the Exchange believes that the proposed fees in the 
MIAX PEARL Equities Fee Schedule appropriately reflect this competitive 
environment.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the Proposed Fees do not place certain 
market participants at a relative disadvantage to other market 
participants because the pricing of the Proposed Fees is associated 
with relative usage of the various market participants and does not 
impose a barrier to entry to smaller participants. The Exchange 
believes the Proposed Fees do not favor certain categories of market 
participants in a manner that would impose a burden on competition; 
rather, the allocation of the Proposed Fees reflects the network and 
access resources consumed by various market participants.
    The Exchange believes the Proposed Fees do not place an undue 
burden on competition on other SROs that is not necessary or 
appropriate. MIAX PEARL Equities launched trading operations on 
September 25, 2020 and has a market share of only approximately 0.05%, 
with significantly less members than other SROs. Additionally, other 
equity exchanges have similar connectivity and port alternatives for 
their participants, including similar low-latency connectivity, but 
with much higher rates to connect.\40\ The Exchange is also unaware of 
any assertion that the Proposed Fees would somehow unduly impair its 
competition with other equities exchanges. To the contrary, if the fees 
charged are deemed too high by market participants, they can simply not 
connect to the Exchange or not use the services associated with the 
Proposed Access Fees.
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    \40\ See supra notes 32 through 36.
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    While the Exchange recognizes the distinction between connecting to 
an exchange and trading at the exchange, the Exchange notes that it 
plans to operate in a highly competitive market in which market 
participants can readily connect and trade with venues they desire. In 
such an environment, the Exchange must continually adjust its fees to 
remain competitive with other exchanges. The Exchange believes that the 
Proposed Fees reflect this competitive environment.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\41\ and Rule

[[Page 81982]]

19b-4(f)(2) \42\ thereunder. At any time within 60 days of the filing 
of the proposed rule change, the Commission summarily may temporarily 
suspend such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act. If the Commission takes such action, the Commission shall 
institute proceedings to determine whether the proposed rule should be 
approved or disapproved.
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    \41\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \42\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-PEARL-2020-33 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-2020-33. 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-2020-33 and should be submitted on 
or before January 7, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27730 Filed 12-16-20; 8:45 am]
BILLING CODE 8011-01-P