[Federal Register Volume 86, Number 219 (Wednesday, November 17, 2021)]
[Notices]
[Pages 64280-64283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25014]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93549; File No. SR-EMERALD-2021-39]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Section 1(a)(ii) of the Fee Schedule To Revise the Application of the 
Tier Calculation

November 10, 2021.

    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 October 29, 2021, MIAX Emerald, LLC (``MIAX Emerald'' 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 Emerald 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/emerald, at MIAX's 
principal office, and at the Commission's Public Reference Room.

[[Page 64281]]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Section 1(a)(ii) of the Fee Schedule 
to revise the application of the Tier calculation (defined below).
Background
    The Exchange currently assesses transaction rebates and fees to all 
market participants which are based upon a threshold tier structure 
(``Tier'') that is applicable to transaction fees. Tiers are determined 
on a monthly basis and are based on three alternative calculation 
methods, as defined in Section 1(a)(ii) of the Fee Schedule. The first 
calculation (``Method 1'') is total Member sides, based on % of 
Customer Total Consolidated Volume (``CTCV''); \3\ the second 
calculation (``Method 2'') is total Emerald Market Maker sides volume, 
based on % of CTCV; and the third calculation (``Method 3'') is total 
Priority Customer,\4\ Maker (defined below) sides volume, based on % of 
CTCV. The calculation method that results in the highest Tier achieved 
by the Member \5\ shall apply to all Origin types by the Member. The 
monthly volume thresholds for each method, associated with each Tier, 
are calculated as the total monthly volume executed by the Member in 
all options classes on MIAX Emerald in the relevant Origins and/or 
applicable liquidity, not including Excluded Contracts,\6\ (as the 
numerator) expressed as a percentage of (divided by) CTCV (as the 
denominator). In addition, the per contract transaction rebates and 
fees shall be applied retroactively to all eligible volume once the 
Tier has been reached by the Member. Members that place resting 
liquidity, i.e., orders on the MIAX Emerald System, will be assessed 
the specified ``maker'' rebate or fee (each a ``Maker'') and Members 
that execute against resting liquidity will be assessed the specified 
``taker'' fee or rebate (each a ``Taker'').\7\ Members are also 
assessed lower transaction fees and smaller rebates for order 
executions in standard option classes in the Penny Interval Program \8\ 
(``Penny classes'') than for order executions in standard option 
classes which are not in the Penny Program (``non-Penny classes''), for 
which Members will be assessed higher transaction fees and larger 
rebates.
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    \3\ ``CTCV'' means Customer Total Consolidated Volume calculated 
as the total national volume cleared at The Options Clearing 
Corporation in the Customer range in those classes listed on MIAX 
Emerald for the month for which fees apply, excluding volume cleared 
at the Options Clearing Corporation in the Customer range executed 
during the period of time in which the Exchange experiences an 
Exchange System Disruption (solely in the option classes of the 
affected Matching Engine). See the Definitions Section of the MIAX 
Emerald Fee Schedule. The term ``Exchange System Disruption'' means 
an outage of a Matching Engine or collective Matching Engines for a 
period of two consecutive hour or more, during trading hours. See 
id. A ``Matching Engine'' is a part of the MIAX Emerald 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. Id.
    \4\ ``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.
    \5\ ``Member'' means an individual or organization approved to 
exercise the trading rights associated with a Trading Permit. 
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\ For a Priority Customer complex order taking liquidity in 
both a Penny class and non-Penny class against Origins other than 
Priority Customer, the Priority Customer order will receive a rebate 
based on the Tier achieved.
    \8\ See Securities Exchange Act Release No. 88993 (June 2, 
2020), 85 FR 35145 (June 8, 2020) (SR-EMERALD-2020-05) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Exchange Rule 510, Minimum Price Variations and Minimum 
Trading Increments, To Conform the Rule to Section 3.1 of the Plan 
for the Purpose of Developing and Implementing Procedures Designed 
To Facilitate the Listing and Trading of Standardized Options) (the 
``Penny Program'').
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Proposal
    The Exchange proposes to amend the application of the calculation 
methodology used to determine the applicable Tier for Origin types by 
Member as follows. The Tier applied for a Member and its Affiliates' 
\9\ Priority Customer Origin will solely be determined by Method 3, 
Total Priority Customer, Maker sides volume, based on % of CTCV. The 
Tier applied for a Member and its Affiliates' Market Maker and other 
professional Origins will be the highest Tier achieved among the three 
alternative calculation methods.
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    \9\ ``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 Emerald 
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 
Emerald Market Maker) that has been appointed by a MIAX Emerald 
Market Maker, pursuant to the following process. A MIAX Emerald 
Market Maker appoints an EEM and an EEM appoints a MIAX Emerald 
Market Maker, for the purposes of the Fee Schedule, by each 
completing and sending an executed Volume Aggregation Request Form 
by email to [email protected] no later than 2 business days 
prior to the first business day of the month in which the 
designation is to become effective. Transmittal of a validly 
completed and executed form to the Exchange along with the 
Exchange's acknowledgement of the effective designation to each of 
the Market Maker and EEM will be viewed as acceptance of the 
appointment. The Exchange will only recognize one designation per 
Member. A Member may make a designation not more than once every 12 
months (from the date of its most recent designation), which 
designation shall remain in effect unless or until the Exchange 
receives written notice submitted 2 business days prior to the first 
business day of the month from either Member indicating that the 
appointment has been terminated. Designations will become operative 
on the first business day of the effective month and may not be 
terminated prior to the end of the month. Execution data and reports 
will be provided to both parties. See the Definitions Section of the 
MIAX Emerald Fee Schedule.
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    The Exchange proposes to amend the current text in Section 
1(a)(ii), Tiers and their Application, to read, ``Tiers are determined 
on a monthly basis. Tiers are determined based on three (3) alternative 
calculation methods. The Tier applied for a Member and its Affiliates' 
Priority Customer Origin will solely be determined by Method 3 below. 
The Tier applied for a Member and its Affiliates' Market Maker and 
other professional Origins will be the highest Tier achieved among the 
three alternative calculation methods. Following are the three (3) 
alternative calculation methods:''
    For example, under this proposal, if Member A reaches Tier 2 via 
Total Volume (Method 1); Tier 2 via Market Maker Volume (Method 2); and 
Tier 4 via Priority Customer Maker (Method 3); the effective Tier for 
Member A would be Tier 4 across all Origins. If Member B reaches Tier 3 
via Total Volume

[[Page 64282]]

(Method 1); Tier 4 via Market Maker Volume (Method 2); and Tier 2 via 
Priority Customer Maker (Method 3); their effective Tier will be Tier 4 
for Market Maker and other professional Origins, and Priority Customer 
Origin will remain Tier 2.
    The purpose of adjusting the application of the calculation 
methodology used to determine the applicable Tier for Origin types by 
Member is for business and competitive reasons. The Exchange designed 
the current calculation methodology to encourage Market Maker and 
Priority Customer order flow to the Exchange from its inception. The 
Exchange believes that this proposal continues to incentive all types 
of volume to the Exchange including Market Maker, professional, and 
Priority Customer.
Implementation
    The proposed changes will become effective on November 1, 2021.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \10\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act,\11\ 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,\12\ in that it is designed to 
prevent fraudulent and manipulative 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ 15 U.S.C. 78f(b)(1) and (b)(5).
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    The Exchange believes that its proposal 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.'' \13\ 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 13% of the market share of 
executed volume of multiply-listed equity and exchange-traded fund 
(``ETF'') options trades as of October 26, 2021, for the month of 
October 2021.\14\ Therefore, no exchange possesses significant pricing 
power in the execution of multiply-listed equity and ETF options order 
flow. More specifically, as of October 26, 2021, the Exchange had an 
approximately 4.66% market share of executed volume of multiply-listed 
equity and ETF options for the month of October 2021.\15\ The Exchange 
cannot predict with certainty how the proposed change regarding the 
application of the Tier calculation will affect market participants as 
Members may continually shift among the different Tiers from month to 
month.
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    \13\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
    \14\ See MIAX's ``The Market at a Glance'', available at https://www.miaxoptions.com/ (last visited October 26, 2021).
    \15\ 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's affiliate, MIAX PEARL, LLC (``MIAX Pearl''), 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\ MIAX Pearl 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 MIAX Pearl March 1, 2019 
fee change, to increase certain transaction fees and decrease certain 
transaction rebates, may have contributed to the decrease in MIAX 
Pearl's market share and, as such, the Exchange believes competitive 
forces constrain the Exchange'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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    \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 Exchange believes its proposal to revise the application of the 
Tier calculation to determine the Origin type Tier provides for the 
equitable allocation of reasonable dues and fees and is not unfairly 
discriminatory for the following reasons. The Exchange is only changing 
the application of the Tier calculation for the Tier for Members and 
its Affiliates' Priority Customer Origin, which will solely be 
determined by Priority Customer, Maker sides volume, based on % of CTCV 
(Method 3). The Exchange believes that it is equitable and not unfairly 
discriminatory to calculate the Priority Customer Tier independently 
and to only use the Priority Customer Tier for all Origin types when it 
is the highest of all the Tier calculations as this may incentivize 
Members to increase their Priority Customer volume on the Exchange. An 
increase in Priority Customer order flow to the Exchange would create 
additional liquidity which would benefit all market participants who 
trade on the Exchange.
    The Exchange believes its proposal is consistent with Section 
6(b)(4) of the Act \17\ because it applies equally to all Members of 
the Exchange and similarly situated participants are subject to the 
same Tier calculations and access to the Exchange is offered on terms 
that are not unfairly discriminatory. The Exchange believes its 
proposal may result in increased Priority Customer order flow which 
liquidity benefits all Exchange participants by providing more trading 
opportunities and tighter spreads.
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    \17\ 15 U.S.C. 78f(b)(4).
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    In addition, The Exchange believes that its proposal is consistent 
with Section 6(b) (5) of the Act \18\ because it perfects the 
mechanisms of a free and open market and a national market system and 
protects investors and the public interest because an increase in 
Priority Customer order flow will bring greater volume and liquidity to 
the Exchange, which benefits all market participants by providing more 
trading opportunities and tighter spreads.
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    \18\ 15 U.S.C. 78f(b)(4).
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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 application of the Tier

[[Page 64283]]

calculation should continue to encourage 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.
Intra-Market Competition
    The Exchange does not believe that other market participants at the 
Exchange would be placed at a relative disadvantaged by the proposed 
change to amend the application of the calculation methodology used to 
determine the applicable Tier for Origin types by Member. The proposed 
change is designed to attract additional Priority Customer order flow 
to the Exchange. Accordingly, the Exchange believes that the proposal 
will not impose any burden on competition not necessary or appropriate 
in furtherance of the purposes of the Act because it will continue to 
encourage Priority Customer order flow to the Exchange and an increase 
in Priority Customer order flow will bring greater volume and 
liquidity, which benefits all market participants by providing more 
trading opportunities and tighter spreads.
Inter-Market Competition
    The Exchange 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. 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 exceeded approximately 13% of the market share of 
executed volume of multiply-listed equity and ETF options trades as of 
October 26, 2021, for the month of October 2021.\19\ Therefore, no 
exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
as of October 26, 2021, the Exchange had a market share of 
approximately 4.66% of executed volume of multiply-listed equity and 
ETF options for the month of October 2021.\20\ In such an environment, 
the Exchange must continually adjust its transaction and non-
transaction 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 
provide Priority Customer liquidity and to send order flow to the 
Exchange. To the extent this is achieved, all the Exchange's market 
participants should benefit from the improved market quality.
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    \19\ Supra note 14.
    \20\ See id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\21\ and Rule 19b-4(f)(2) \22\ 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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    \21\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \22\ 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-EMERALD-2021-39 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-EMERALD-2021-39. 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-EMERALD-2021-39 and should be submitted 
on or before December 8, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25014 Filed 11-16-21; 8:45 am]
BILLING CODE 8011-01-P