[Federal Register Volume 87, Number 182 (Wednesday, September 21, 2022)]
[Notices]
[Pages 57732-57741]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-20371]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95780; File No. SR-PEARL-2022-39]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Trading 
Permit Fees in the MIAX PEARL Options Fee Schedule

September 15, 2022.

[[Page 57733]]

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 12, 2022, 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 Options 
Fee Schedule (the ``Fee Schedule'') to amend its monthly Trading Permit 
\3\ fees for Members.\4\
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    \3\ The term ``Trading Permit'' means a permit issued by the 
Exchange that confers the ability to transact on the Exchange. See 
Exchange Rule 100.
    \4\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of Exchange 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See Exchange Rule 100 and the 
Definitions Section of the Fee Schedule.
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    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
Pearl's principal office, and at the Commission's Public Reference 
Room.

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

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

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule to amend the amount 
and calculation of the monthly Trading Permit fees for Members. 
Currently, the Exchange assesses Trading Permit fees based upon the 
monthly total volume executed by the Member and its Affiliates \5\ on 
the Exchange across all origin types, not including Excluded 
Contracts,\6\ as compared to the Total Consolidated Volume (``TCV'') 
\7\ in all MIAX Pearl-listed options. This Trading Permit fee structure 
has been in place since 2018.\8\ The Exchange adopted a tier-based fee 
structure based upon the volume-based tiers detailed in the definition 
of ``Non-Transaction Fees Volume-Based Tiers'' \9\ in the Definitions 
section of the Fee Schedule. The Exchange also assesses Trading Permit 
fees based upon the type of interface used by the Member to connect to 
the Exchange--the FIX Interface \10\ and/or the MEO Interface.\11\
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    \5\ ``Affiliate'' means (i) an affiliate of a Member of at least 
75% common ownership between the firms as reflected on each firm's 
Form BD, Schedule A, or (ii) the Appointed Market Maker of an 
Appointed EEM (or, conversely, the Appointed EEM of an Appointed 
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market 
Maker (who does not otherwise have a corporate affiliation based 
upon common ownership with an EEM) that has been appointed by an EEM 
and an ``Appointed EEM'' is an EEM (who does not otherwise have a 
corporate affiliation based upon common ownership with a MIAX Pearl 
Market Maker) that has been appointed by a MIAX Pearl Market Maker, 
pursuant to the following process. A MIAX Pearl Market Maker 
appoints an EEM and an EEM appoints a MIAX Pearl 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 Fee Schedule.
    \6\ ``Excluded Contracts'' means any contracts routed to an away 
market for execution. See the Definitions Section of the Fee 
Schedule.
    \7\ ``TCV'' means total consolidated volume calculated as the 
total national volume in those classes listed on MIAX Pearl for the 
month for which the fees apply, excluding consolidated volume 
executed during the period 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 Fee 
Schedule.
    \8\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
    \9\ See the Definitions Section of the Fee Schedule for the 
monthly volume thresholds associated with each Tier.
    \10\ ``FIX Interface'' means the Financial Information Exchange 
interface for certain order types as set forth in Exchange Rule 516. 
See the Definitions Section of the Fee Schedule and Exchange Rule 
100.
    \11\ ``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 the Definitions Section of the Fee Schedule and Exchange 
Rule 100.
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    The Exchange now proposes to amend the calculation and amount of 
Trading Permit fees for Members by moving away from a volume tier-based 
fee structure for Electronic Exchange Members \12\ (``EEMs'') to 
harmonize the tier-based structure for Market Maker \13\ with that of 
its affiliates, Miami International Securities Exchange, LLC (``MIAX'') 
and MIAX Emerald, LLC (``MIAX Emerald''). Specifically, the Exchange 
proposes to adopt a flat monthly Trading Permit fee for EEMs that 
connect through either the FIX and/or MEO Interface and to adopt a 
tiered Trading Permit fee structure for Market Makers. Each of these 
changes are described below.
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    \12\ The term ``Electronic Exchange Member'' or ``EEM'' means 
the holder of a Trading Permit who is a Member representing as agent 
Public Customer Orders or Non-Customer Orders on the Exchange and 
those non-Market Maker Members conducting proprietary trading. 
Electronic Exchange Members are deemed ``members'' under the 
Exchange Act. See the Definitions Section of the Fee Schedule and 
Exchange Rule 100.
    \13\ The term ``Market Maker'' or ``MM'' means a Member 
registered with the Exchange for the purpose of making markets in 
options contracts traded on the Exchange and that is vested with the 
rights and responsibilities specified in Chapter VI of the Exchange 
Rules. See the Definitions Section of the Fee Schedule and Exchange 
Rule 100.
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EEM Trading Permit Fees
    First, the Exchange proposes to move away from a volume tier-based 
fee structure for EEM Trading Permit fees and charge EEMs (other than 
Clearing Firms) a flat monthly Trading Fee for connecting through the 
FIX Interface and/or MEO Interface.
    All Members are able to use either interface based on their 
business models and needs. The FIX Interface is the industry-wide 
uniform message format and provides lower bandwidth, less capacity, and 
fewer Exchange resources. EEMs who are primarily order flow providers, 
are the only users of the FIX Interface.\14\ The MEO Interface is the 
more robust interface offering lower

[[Page 57734]]

latency and higher throughput. The Exchange offers three time-in-force 
modifiers: \15\ Day Limit (``Day''), Immediate-Or-Cancel (``IOC''), and 
Good `Til Cancelled (``GTC'').\16\ While all order types are available 
for use on either interface, only the time-in-force modifiers of IOC 
and Day are available on the MEO Interface.\17\ The MEO Interface 
allows the submission of Cancel-Replacement orders,\18\ which allow for 
the immediate cancellation of a previously received order and the 
replacement of that order with a new order with new terms and 
conditions.\19\
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    \14\ The Exchange does not propose to amend the fees for EEM 
Clearing Firms, which is set at $250 per month and not based on the 
amount of volume conducted on the Exchange. The term ``EEM Clearing 
Firm'' means an EEM that solely clears transactions on the Exchange 
and does not connect to the Exchange via either the FIX Interface or 
MEO Interface. See the Definitions Section of the Fee Schedule.
    \15\ See MIAX Pearl Options Exchange User Manual, Section 6, 
Order Types, available at https://www.miaxoptions.com/exchange-functionality/pearl (last visited June 30, 2022).
    \16\ See, e.g., Exchange Rule 516.
    \17\ See preamble to Exchange Rule 516 (noting that not all 
order types and modifiers are available for use on each of the MEO 
Interface and the FIX Interface). See also Section 4.1.1.2 of the 
MEO Interface Specification, available at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf (indicating that the time-in-force 
instructions of IOC and Day are available on the MEO interface).
    \18\ See MIAX Pearl Options Exchange User Manual, Section 6, 
Interfaces and Liquidity Types, available at https://www.miaxoptions.com/exchange-functionality/pearl (last visited May 
16, 2022).
    \19\ See Exchange Rule 516(d).
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    Specifically, the Exchange proposes to assess a flat monthly fee of 
$1,000 for EEMs that connect through the FIX Interface and a flat 
monthly fee of $3,000 for EEMs that connect through the MEO Interface. 
The Exchange proposes to charge a higher fee for EEMs that elect to use 
the MEO Interface due to it being the more robust interface offering 
lower latency and higher throughput. The Exchange also proposes to 
provide an EEM that chooses the MEO Interface Trading Permit with 
access to the FIX Interface at no additional cost. The Exchange does 
not propose to amend the Trading Permit fee for EEM Clearing Firms, 
which will remain at $250 per month.\20\
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    \20\ The term ``EEM Clearing Firm'' means an EEM that solely 
clears transactions on the Exchange and does not connect to the 
Exchange via either the FIX Interface or MEO Interface. See the 
Definitions Section of the Fee Schedule.
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    Market Makers only use the MEO Interface because it provides 
functionality that is necessary for Market Makers in satisfying their 
market making obligations.
Market Maker Trading Permit Fees
    The Exchange proposes to amend the calculation and amounts of 
monthly Trading Permit fees for Market Makers to harmonize its fee 
structure with that of its affiliates, MIAX and MIAX Emerald.\21\ The 
Exchange also notes that this proposal is substantially based on the 
recent filing by BOX Exchange LLC (``BOX'') to adopt monthly 
``Participant'' fees for BOX's market makers based on options classes 
assigned, which filing has since passed the 60-day suspension 
deadline.\22\
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    \21\ See MIAX Fee Schedule, Section (3)(b) and MIAX Emerald Fee 
Schedule, Section (3)(b).
    \22\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17).
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    The amount of the monthly Trading Permit fees for Market Makers 
would be based on the lesser of either the per class traded or 
percentage of total national average daily volume (``ADV'') measurement 
based on classes traded by volume. The amount of monthly Market Maker 
Trading Permit fee would be based upon the number of classes in which 
the Market Maker was registered to quote on any given day within the 
calendar month, or upon the class volume percentages.
    Specifically, the Exchange proposes to adopt the following Trading 
Permit fees for Market Makers: (i) $3,000 for Market Maker 
registrations in up to 10 option classes or up to 20% of option classes 
by national ADV; (ii) $5,000 for Market Maker registrations in up to 40 
option classes or up to 35% of option classes by ADV; (iii) $7,000 for 
Market Maker registrations in up to 100 option classes or up to 50% of 
option classes by ADV; and (iv) $9,000 for Market Maker registrations 
in over 100 option classes or over 50% of option classes by ADV up to 
all option classes listed on MIAX Pearl. For example, if Market Maker 1 
elects to quote the top 40 option classes which consist of 58% of the 
total national average daily volume in the prior calendar quarter, the 
Exchange would assess $5,000 to Market Maker 1 for the month which is 
the lesser of `up to 40 classes' and `over 50% of classes by volume up 
to all classes listed on MIAX Pearl'. If Market Maker 2 elects to quote 
the bottom 1000 option classes which consist of 10% of the total 
national average daily volume in the prior quarter, the Exchange would 
assess $3,000 to Market Maker 2 for the month which is the lesser of 
`over 100 classes' and `up to 20% of classes by volume.'
    A Market Maker is determined to be registered in a class if that 
Market Maker has been registered in one or more series in that class. 
The Exchange will assess MIAX Pearl Market Makers the monthly Market 
Maker Trading Permit fee based on the greatest number of classes listed 
on MIAX Pearl that the MIAX Pearl Market Maker registered to quote in 
on any given day within a calendar month. The class volume percentage 
is based on the total national ADV in classes listed on MIAX Pearl in 
the prior calendar quarter. Newly listed option classes are excluded 
from the calculation of the monthly Market Maker Trading Permit fee 
until the calendar quarter following their listing, at which time the 
newly listed option classes will be included in both the per class 
count and the percentage of total national ADV.
    The Exchange also proposes to adopt an alternative lower Trading 
Permit fee for Market Makers who fall within the 2nd, 3rd and 4th 
levels of the Market Maker Trading Permit fee table: (i) Market Maker 
registrations in up to 40 option classes or up to 35% of option classes 
by volume; (ii) Market Maker registrations in up to 100 option classes 
or up to 50% of option classes by volume; and (iii) Market Maker 
registrations in over 100 option classes or over 50% of option classes 
by volume up to all option classes listed on MIAX Pearl. In particular, 
the Exchange proposes to adopt footnote ``**'' following the Market 
Maker Trading Permit fee table for these Monthly Trading Permit tier 
levels, if the Market Maker's total monthly executed volume during the 
relevant month is less than 0.040% of the total monthly TCV for MIAX 
Pearl-listed option classes for that month, then the fee will be $3,500 
instead of the fee otherwise applicable to such level.
    The purpose of the alternative lower fee designated in proposed 
footnote ``**'' is to provide a lower fixed cost to those Market Makers 
who are willing to quote the entire Exchange market (or substantial 
amount of the Exchange market), as objectively measured by either 
number of classes assigned or national ADV, but who do not otherwise 
execute a significant amount of volume on the Exchange. The Exchange 
believes that, by offering lower fixed costs to Market Makers that 
execute less volume, the Exchange will retain and attract smaller-scale 
Market Makers, which are an integral component of the option 
marketplace, but have been decreasing in number in recent years, due to 
industry consolidation and lower market maker profitability. Since 
these smaller-scale Market Makers utilize less Exchange capacity due to 
lower overall volume executed, the Exchange believes it is reasonable 
and equitable to offer such Market Makers a lower fixed cost. The 
Exchange notes that the Exchange's affiliates, MIAX and MIAX Emerald, 
provide similar alternative lower Trading Permit fees for Market Makers 
who quote the entire MIAX and MIAX Emerald markets (or substantial 
amount of those markets), as objectively measured by either number of 
classes assigned or national ADV, but who do

[[Page 57735]]

not otherwise execute a significant amount of volume on MIAX or MIAX 
Emerald.\23\ The Exchange also notes that other options exchanges 
assess certain of their membership fees at different rates, based upon 
a member's participation on that exchange (as described in the table 
below), and, as such, this concept is not new or novel. The proposed 
changes to the Trading Permit fees for Market Makers who fall within 
the 2nd, 3rd and 4th levels of the fee table are based upon a business 
determination of current Market Maker assignments and trading volume.
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    \23\ See MIAX Fee Schedule, Section (3)(b) and MIAX Emerald Fee 
Schedule, Section (3)(b).
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* * * * *
    As illustrated by the table below, the Exchange notes that the 
proposed fees for the Exchange's Trading Permits are in line with, or 
cheaper than, the similar trading permit and membership fees charged by 
other options exchanges. The Exchange believes other exchanges' 
membership and trading permit fees are useful examples of alternative 
approaches to providing and charging for membership and provides the 
table for comparison purposes only to show how the Exchange's proposed 
fees compare to fees currently charged by other options exchanges for 
similar membership and trading permits.

------------------------------------------------------------------------
                                      Monthly membership/trading permit
             Exchange                                fee
------------------------------------------------------------------------
MIAX Pearl Options (as proposed)..  EEM Trading Permit fees:
                                    $1,000 for EEMs that connect via the
                                     FIX Interface.
                                    $3,000 for EEMs that connect via the
                                     MEO Interface.
                                    Market Maker Trading Permit fees:
                                    --$3,000 for Market Maker
                                     Assignments in up to 10 option
                                     classes or up to 20% of option
                                     classes by national ADV.
                                    --$5,000 for Market Maker
                                     Assignments in up to 40 option
                                     classes or up to 35% of option
                                     classes by ADV.
                                    --$7,000 for Market Maker
                                     Assignments in up to 100 option
                                     classes or up to 50% of option
                                     classes by ADV.
                                    --$9,000 for Market Maker
                                     Assignments in over 100 option
                                     classes or over 50% of option
                                     classes by ADV up to all option
                                     classes listed on MIAX Pearl.
BOX Options Exchange LLC (``BOX'')  Participant Fee: $1,500.
 \24\.                              Electronic Market Maker Trading
                                     Permit Fees:
                                    Tier 1 (up to and including 10
                                     classes): $4,000.
                                    Tier 2 (up to and including 40
                                     classes): $6,000.
                                    Tier 3 (up to and including 100
                                     classes): $8,000.
                                    Tier 4 (over 100 classes): $10,000.
NYSE Arca, Inc. (``NYSE Arca'')     Options Trading Permits:
 \25\.                              Office and Clearing Firms: $1,000.
                                    Market Makers: 1st OTP--$8,000 for
                                     up to 60 plus the bottom 45% of
                                     option issues.
                                    2nd OTP--Additional $6,000 for up to
                                     150 plus the bottom 45% of option
                                     issues.
                                    3rd OTP--Additional $5,000 for up to
                                     500 plus the bottom 45% of option
                                     issues.
                                    4th OTP--Additional $4,000 for up to
                                     1,100 plus the bottom 45% of option
                                     issues.
                                    5th OTP--Additional $3,000 for all
                                     option issues.
                                    6th-9th OTP--Additional $2,000.
                                    10th or more OTPs--$500 for all
                                     options issues.
NYSE American, LLC (``NYSE          ATP Trading Permits:
 American'') \26\.                  Clearing Member: $1,000.
                                    Order Flow Provider: $1,000.
                                    Market Makers: $8,000 for up to 60
                                     plus the bottom 45% of option
                                     issues.
                                    Additional $6,000 for up to 150 plus
                                     the bottom 45% of option issues.
                                    Additional $5,000 for up to 500 plus
                                     the bottom 45% of option issues.
                                    Additional $4,000 for up to 1,100
                                     plus the bottom 45% of option
                                     issues.
                                    Additional $3,000 for all option
                                     issues.
                                    Additional $2,000 for 6th to 9th
                                     ATPs (plus additional fee for
                                     premium products).
                                    Additional $500 for the 10th or more
                                     ATPs.
Nasdaq PHLX LLC (``Nasdaq PHLX'')   Streaming Quote Trader (``SQT'')
 \27\.                               permit fees:
                                    Tier 1 (up to 200 option classes):
                                     $0.00.
                                    Tier 2 (up to 400 option classes):
                                     $2,200.
                                    Tier 3 (up to 600 option classes):
                                     $3,200.
                                    Tier 4 (up to 800 option classes):
                                     $4,200.
                                    Tier 5 (up to 1,000 option classes):
                                     $5,200.
                                    Tier 6 (up to 1,200 option classes):
                                     $6,200.
                                    Tier 7 (all option classes): $7,200.
                                    Remote Market Maker Organization
                                     (``RMMO'') permit fees:
                                    Tier 1 (less than 100 option
                                     classes): $5,000.
                                    Tier 2 (more than 100 and less than
                                     999 option classes): $8,000.
                                    Tier 3 (1,000 or more option
                                     classes): $11,000.
Nasdaq ISE LLC (``Nasdaq ISE'')     Access Fees:
 \28\.                              Electronic Access Members
                                     (``EAMs''): $500.
                                    Primary Market Maker: $5,000 per
                                     membership.
                                    Competitive Market Maker: $2,500 per
                                     membership.
Cboe Exchange, Inc. (``Cboe'')      Electronic Trading Permit Fees:
 \29\.                              Market Maker: $5,000.
                                    Electronic Access Permit: $3,000.
                                    Clearing TPH Permit: $2,000.

[[Page 57736]]

 
Cboe C2 Exchange, Inc. (``Cboe      Access Permit Fees for Market
 C2'') \30\.                         Makers: $5,000.
                                    Electronic Access Permits: $1,000.
Cboe BZX Exchange, Inc. (``Cboe     $500 where member has an ADV < 5,000
 BZX Options'') \31\.                contracts traded \32\.
                                    $1,000 where member has an ADV >=
                                     5,000 contracts traded.
------------------------------------------------------------------------

    The proposed rule change is immediately effective.
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    \24\ See BOX fee schedule, Section 1, available at https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-June-1-2022-1.pdf 
(last visited June 29, 2022). BOX's Participant Fee is the analog to 
the Exchange's Trading Permit fee for Members who use the FIX 
interface. BOX's Electronic Market Maker Trading Permit fee is the 
analog for the Exchange's Trading Permit fee for Members who use the 
MEO interface. BOX had an average daily market share of 7.36% for 
the month of August 2022, as of August 31, 2022. See Market at a 
Glance, available at https://www.miaxoptions.com/ (last visited 
August 31, 2022).
    \25\ See NYSE Arca Options Fees and Charges, OTP Trading 
Participant Rights, p.1, available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf (last visited July 12, 2022). 
NYSE Arca recently increased this Options Trading Permit Fees 
approximately 45%. See Securities Exchange Act Release No. 95142 
(June 23, 2022), 87 FR 38786 (June 29, 2022) (SR-NYSEArca-2022-36). 
Under the new fee structure, it effectively costs a Market Maker 
$26,000 per month to trade all options issues on NYSE Arca. NYSE 
Arca's Options Trading Permit fee is the analog to the Exchange's 
Trading Permit fee for Members who use the FIX interface. NYSE 
Arca's Options Trading Permit fee for Market Makers is the analog 
for the Exchange's Trading Permit fee for Members who use the MEO 
interface.
    \26\ See NYSE American Options Fee Schedule, Section III, 
Monthly Trading Permit, Rights, Floor Access and Premium Product 
Fees, p. 23-24, available at https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf 
(last visited August 31, 2022). Under this fee structure, it 
effectively costs a Market Maker $26,000 per month to trade all 
options issues on NYSE American. NYSE American's ATP Trading Permit 
fee for Clearing Members and Order Flow Providers is the analog for 
the Exchange's Trading Permit fee for Members that use the FIX 
interface. NYSE American's ATP Trading Permit fee for Market Makers 
is the analog for the Exchange's Trading Permit fee for Members that 
use the MEO interface.
    \27\ See Nasdaq PHLX Options 7 Pricing Schedule, Section 8. 
Membership Fees, available at https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207 (last visited August 31, 
2022). Nasdaq PHLX Options' SQT and RMMO fees is the analog to the 
Exchange's Trading Permit fee for Members that use the MEO 
Interface.
    \28\ See Nasdaq ISE Options 7 Pricing Schedule, Section 8.A. 
Access Services, available at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207 (last visited August 31, 2022). 
Nasdaq ISE Options' EAM Access Fee is the analog to the Exchange's 
Trading Permit fee for Members that use the FIX Interface. Nasdaq 
ISE Options' Primary and Competitive Market Maker Access Fees are 
the analog to the Exchange's Trading Permit fee for Members that use 
the MEO Interface.
    \29\ See Cboe Fee Schedule, Electronic Trading Permit Fees, 
available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf (last visited August 31, 2022). Cboe's 
Electronic Access Permit fee and Clearing TPH fee are the analog to 
the Exchange's Trading Permit fee for Members that use the FIX 
Interface. Cboe's Market Maker Permit fee is the analog to the 
Exchange's Trading Permit fee for Members that use the MEO 
Interface.
    \30\ See Cboe C2 Fee Schedule, Access Fees, available at https://www.cboe.com/us/options/membership/fee_schedule/ctwo/ (last visited 
August 31, 2022). C2's Market Maker Access Permit fee is the analog 
to the Exchange's Trading Permit fee for Members that use the MEO 
Interface. C2's Electronic Access Permit fee is the analog to the 
Exchange's Trading Permit fee for Members that use the FIX 
Interface.
    \31\ See ``Membership Fees'' section of the Cboe BZX Options Fee 
Schedule, available at https://www.cboe.com/us/options/membership/fee_schedule/bzx (last visited August 31, 2022). The Exchange 
understands Cboe BZX Options charges the same Membership Fee to all 
of its Options Members.
    \32\ Under the Exchange's tiered structure, a Member may trade 
approximately 106,000 more contracts on the Exchange than on Cboe 
BZX Options and continue to qualify for the Exchange's lowest tier. 
For example, a Member would qualify for Tier 1 of the Exchange's 
tiered pricing structure where that Member's total volume as a 
percentage of TCV is between 0.00% and 0.30%. Assuming an average of 
37 million contracts are traded each day during a month, that Member 
would qualify for Tier 1 where that Member traded less than 111,000 
contracts that day and be charged $500, the same fee as Cboe BZX 
Options, where that Member connects via the FIX Interface. On Cboe 
BZX Options, the Exchange understands that same member would no 
longer qualify for their lowest tier when their ADV equals or 
exceeds 5,000 contracts and be charged a fee of $1,000 for that 
month.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act, in general, and Section 
6(b)(4) and 6(b)(5) of the Act,\33\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees, and other 
charges among Exchange Members and other persons using its facilities 
and does not unfairly discriminate between customers, issuers, brokers 
or dealers.
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    \33\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange commenced operations in February 2017 \34\ and adopted 
its initial fee schedule that waived fees for Trading Permits to trade 
on the Exchange.\35\ Although trading permit fees were waived, an 
initial fee structure was put in place to communicate the Exchange's 
intent to charge trading permit fees in the future. As a new exchange 
entrant, the Exchange chose to offer Trading Permits free of charge to 
encourage market participants to trade on the Exchange and experience, 
among things, the quality of the Exchange's technology and trading 
functionality. This practice is not uncommon. New exchanges often do 
not charge fees or charge lower fees for certain services such as 
memberships/trading permits to attract order flow to an exchange, and 
later amend their fees to reflect the true value of those services, 
absorbing all costs to provide those services in the meantime. Allowing 
new exchange entrants time to build and sustain market share through 
various pricing incentives before increasing non-transaction fees 
encourages market entry and promotes competition. It also enables new 
exchanges to mature their markets and allow market participants to 
trade on the new exchanges without fees serving as a potential barrier 
to attracting memberships and order flow.\36\
---------------------------------------------------------------------------

    \34\ See MIAX PEARL Successfully Launches Trading Operations, 
dated February 6, 2017, available at https://www.miaxoptions.com/sites/default/files/alert-files/MIAX_Press_Release_02062017.pdf.
    \35\ See Securities Exchange Act Release No. 80061 (February 17, 
2017), 82 FR 11676 (February 24, 2017) (SR-PEARL-2017-10).
    \36\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (stating, ``[t]he 
Exchange established this lower (when compared to other options 
exchanges in the industry) Participant Fee in order to encourage 
market participants to become Participants of BOX. . .''). See also 
Securities Exchange Act Release No. 90076 (October 2, 2020), 85 FR 
63620 (October 8, 2020) (SR-MEMX-2020-10) (``MEMX Membership Fee 
Proposal'') (proposing to adopt the initial fee schedule and stating 
that ``[u]nder the initial proposed Fee Schedule, the Exchange 
proposes to make clear that it does not charge any fees for 
membership, market data products, physical connectivity or 
application sessions.''). MEMX has seen its market share increase 
and recently proposed to adopt a membership fee and fees for 
connectivity. See Securities Exchange Act Release Nos. 93927 
(January 7, 2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19) 
(proposing to adopt membership fees); and 95299 (July 15, 2022), 87 
FR 43563 (July 21, 2022) (SR-MEMX-2022-17) (proposing to adopt fees 
for connectivity). See also, e.g., Securities Exchange Act Release 
No. 88211 (February 14, 2020), 85 FR 9847 (February 20, 2020) (SR-
NYSENAT-2020-05), available at https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2020/SR-NYSENat-2020-05.pdf (initiating market data fees for the NYSE National exchange 
after initially setting such fees at zero).
---------------------------------------------------------------------------

    Later in 2018, as the Exchange's market share increased,\37\ the 
Exchange adopted nominal fees for Trading Permits along with a tiered-
volume based fee credit, known as the Trading Permit Fee Credit, and a 
Monthly

[[Page 57737]]

Volume Credit.\38\ At that time, the Exchange chose to adopt a volume 
tier-based fee for Trading Permits along with the type of interface 
used--FIX or MEO--as a way to provide different choices regarding how 
potential Members could access the Exchange's System. This was for 
business and competitive reasons and to provide choice regarding 
Trading Permits and membership that had not previously existed. The 
Exchange now proposes to move away from the volume tier-based Trading 
Permit fee structure and align its Trading Permit fees with its 
affiliates, MIAX and MIAX Emerald, as well as other options exchanges 
by assessing Market Makers Trading Permit fees based on options classes 
assigned and assessing EEMs a flat monthly Trading Permit fee based on 
interface used.
---------------------------------------------------------------------------

    \37\ The Exchange experienced a monthly average trading volume 
of 3.94% for the month of March 2018. See Market at a Glance, 
available at www.miaxoptions.com (last visited (August 31, 2022).
    \38\ See supra note 8. The Exchange notes that it has since 
filed to remove these credits.
---------------------------------------------------------------------------

    The Exchange recently reviewed its current Trading Permit fees. In 
its review, the Exchange determined that the calculation and amount of 
Trading Permit fees would need to be amended, and volume tier-based 
Trading Permit fees for all Member types is no longer appropriate. 
Specifically, the Exchange found that Market Makers and EEMs using the 
MEO Interface were benefitting from lower MEO Interface Trading Permit 
fees while (1) consuming the most bandwidth and resources of the 
network; (2) transacting the vast majority of the volume on the 
Exchange; and (3) requiring the high touch network support services 
provided by the Exchange and its staff. The Exchange notes that Broker 
Dealers, Professional Customers, and Priority Customers \39\ that use 
the FIX Interface take up significantly less Exchange resources and 
costs. Further, the Exchange notes that Market Makers and EEMs using 
the MEO Interface account for greater than 99% of message traffic over 
the network, while other non-Market Maker market participants account 
for less than 1% of message traffic over the network. In the Exchange's 
experience, most Exchange Members do not have a business need for the 
high performance MEO Interface required by Market Makers. The 
Exchange's high performance MEO Interface (including employee support 
for such interface), provides unparalleled system throughput and the 
capacity to handle 10.8 million quotes per second and average round 
trip latency rate of approximately 30.76 microseconds for a single 
quote. Over the period from March 2022 through May 2022, the Exchange 
processed 1.3 billion messages via the FIX Interface (0.33% of total 
messages received). Over that same time period, the Exchange processed 
386.1 billion messages (99.67% of total messages received) over the MEO 
Interface, almost entirely from Market Maker message traffic (which 
equals approximately 6 billion messages per day over that time period) 
(386.1 billion messages divided 64 trading days from March through May 
2022).
---------------------------------------------------------------------------

    \39\ The term ``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 accounts(s). The 
number of orders shall be counted in accordance with Interpretation 
and Policy .01 of Exchange Rule 100. See the Definitions Section of 
the Fee Schedule and Exchange Rule 100, including Interpretation and 
Policy .01.
---------------------------------------------------------------------------

    Additionally, in order to achieve consistent, premium quote and 
order throughput performance, the Exchange must build out and maintain 
an MEO infrastructure that has the capacity to handle the message rate 
requirements beyond those billions of daily messages. These billions of 
messages per day consume the Exchange's resources and significantly 
contribute to the overall expense for quote and MEO order storage and 
MEO throughput capabilities. Given this difference in utilization rate, 
the Exchange believes that it is reasonable, equitable, and not 
unfairly discriminatory that Market Makers and EEMs using the MEO 
Interface begin to pay for a higher portion of the system costs 
(compared to other Exchange Member types).
    The Exchange notes that while Market Makers continue to account for 
a vast majority of the increased costs and resources placed on the 
Exchange and its systems (as discussed herein), Market Makers continue 
to be valuable market participants on the exchanges as the options 
market is a quote driven industry. The Exchange recognizes the value 
that Market Makers bring to the Exchange. In fact, the Exchange 
provides Market Makers transactional volume-based discounts and rebates 
to incentivize Market Makers to direct order flow to the Exchange to 
obtain the benefit of the rebate, which will in turn benefit all market 
participants by increasing liquidity on the Exchange.\40\ The proposed 
Trading Permit fees discussed herein are meant to strike a balance 
between offsetting the costs to which Market Makers place on the 
Exchange and continuing to incentivize Market Makers to access and make 
a market on the Exchange.
---------------------------------------------------------------------------

    \40\ For example, Market Makers may qualify for higher Tier 3 
rebates as follows: (i) Maker rebates of ($0.44) in SPY, QQQ and IWM 
options for their Market Maker Origin when trading against Origins 
not Priority Customer, and (ii) Maker rebates of ($0.42) in SPY, QQQ 
and IWM options for their Market Maker Origin when trading against 
Priority Customer Origins, if the Market Maker executes at least 
1.10% in SPY when adding liquidity. This is compared to a lower 
Professional Customer Tier 3 rebate of ($0.40) for options 
transactions in the same classes. See Fee Schedule, Section (1)(a), 
footnote ``[lozf].''
---------------------------------------------------------------------------

    In its review of Trading Permit fees, the Exchange found that since 
2018, Market Makers were paying nearly the same Trading Permit fees as 
EEMs that used the MEO Interface despite Market Makers consuming the 
most resources on the Exchange's system and contributing to increased 
costs for the Exchange. As such, the Exchange proposes to establish 
higher, separate electronic Trading Permit fees for Market Makers that 
are more aligned with the costs and resources that Market Makers 
continue to place on the Exchange and its systems and will align the 
Trading Permit fees with those of the majority of other options 
exchanges at similar or lower rates.\41\
---------------------------------------------------------------------------

    \41\ See supra notes 24 to 32.
---------------------------------------------------------------------------

    Additionally, the Exchange believes that the proposed change will 
better align the Exchange's Trading Permit fees with rates charged by 
its affiliates and competing options exchanges in the industry for 
similar Trading Permits for such market participants. As such, the 
Exchange believes the proposed Market Maker Trading Permit fees are 
reasonable in that they are lower than comparable fees at other options 
exchanges.\42\ Further, the Exchange believes that the proposal is 
reasonably designed to continue to compete with other options exchanges 
by incentivizing market participants to register as Market Makers on 
the Exchange in a manner than enables the Exchange to improve its 
overall competitiveness and strengthen market quality for all market 
participants. As stated above, the Exchange believes the proposed 
Market Maker Trading Permit fees are an appropriate balance between 
offsetting the costs to which Market Makers cost the Exchange and 
continuing to incentivize Market Makers to access and make a market on 
the Exchange.
---------------------------------------------------------------------------

    \42\ See id.
---------------------------------------------------------------------------

    The proposed fees are equitable and not unfairly discriminatory as 
the fees apply equally to all Market Makers. As such, all similarly 
situated Market Makers, with the same number of appointments, will be 
subject to the same Market Maker Trading Permit fee. The Exchange also 
believes that assessing lower fees to Market Makers that quote in fewer 
classes is reasonable and appropriate as it will allow the Exchange to 
retain and attract smaller-scale Market Makers, which are an

[[Page 57738]]

integral component of the options industry marketplace. Since these 
smaller Market Makers utilize less bandwidth and capacity on the 
Exchange network due to the lower number of quoted classes, the 
Exchange believes it is reasonable and appropriate to offer such Market 
Makers a lower fee. The Exchange also notes that other options 
exchanges assess permit fees at different rates, based upon a member's 
participation on that exchange,\43\ and, as such, this concept is not 
new or novel.
---------------------------------------------------------------------------

    \43\ See supra notes 24 to 32; see also MIAX Fee Schedule, 
Section (3)(b) and MIAX Emerald Fee Schedule, Section (3)(b).
---------------------------------------------------------------------------

    Further, the Exchange believes the proposed tiered structure of the 
Market Maker Trading Permit fees is reasonable and appropriate. Under 
the proposal, Market Makers will be charged monthly fees based on the 
greatest number of classes quoted on any given trading day in a 
calendar month. Under the proposed fee structure, the fees increase as 
the number of classes quoted by a Market Maker increases. The Exchange 
believes this structure is reasonable and not unfairly discriminatory 
because the Exchange's system requires increased performance and 
capacity in order to provide the opportunity for Market Makers to quote 
in a higher number of options classes on the Exchange. Specifically, 
the more classes that are actively quoted on the Exchange by a Market 
Maker requires increased memory for record retention, increased 
bandwidth for optimized performance, increased functionalities on each 
application layer, and increased optimization with regard to 
surveillance and monitoring of such classes quoted. As such, basing the 
Market Maker Trading Permit fee on the greatest number of classes 
quoted in on any given day in a calendar month is reasonable and 
appropriate when taking into account how the increased number of quoted 
classes directly impact the costs and resources required for the 
Exchange. Further, the Exchange believes that the proposed structure is 
equitable and not unfairly discriminatory as all similarly situated 
Market Makers will be charged the same fee. The Exchange notes that 
another options exchange in the industry calculates Market Maker Permit 
Fees in the same manner.\44\
---------------------------------------------------------------------------

    \44\ See supra notes 24 to 32.
---------------------------------------------------------------------------

    There is no requirement, regulatory or otherwise, that any broker-
dealer connect to and access any (or all of) the available options 
exchanges. One other exchange recently noted in a proposal to amend 
their own trading permit fees that of the 62 market making firms that 
are registered as Market Makers across Cboe, MIAX, and BOX, 42 firms 
access only one of the three exchanges.\45\ Further, the Exchange and 
its affiliates, MIAX and MIAX Emerald, have a total of 47 members. Of 
those 47 total members, 35 are members of all three exchanges, four are 
members of only two (2) exchanges, and eight (8) are members of only 
one exchange. Of those that are Market Makers today on the Exchange, 
two (2) are not registered as Market Makers on MIAX and one (1) is not 
registered as a Market Maker on MIAX Emerald. Broken down even further, 
of those Market Makers that use the MEO Interface and reached the 
Exchange's top tier for the Trading Permit fee for June 2022, one (1) 
Market Maker was only a Member of the Exchange and not its two 
affiliates, MIAX and MIAX Emerald. The above data evidences that a 
Market Maker need not be a Member of all options exchanges, let alone 
the Exchange and its two affiliates, and market makers elect to do so 
based on their own business decisions and need to directly access each 
exchange's liquidity pool. Not only is there not an actual regulatory 
requirement to connect to every options exchange, the Exchange believes 
there is also no ``de facto'' or practical requirement as well, as 
further evidenced by the market maker membership analysis of the 
options exchanges discussed above. Indeed, Market Makers choose if and 
how to access a particular exchange and because it is a choice, the 
Exchange must set reasonable pricing, otherwise prospective market 
makers would not connect and existing Market Makers would disconnect 
from the Exchange.
---------------------------------------------------------------------------

    \45\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change to Amend the 
Fee Schedule on the BOX Options Market LLC Facility To Adopt 
Electronic Market Maker Trading Permit Fees). The Exchange believes 
that BOX's observation demonstrates that market making firms can, 
and do, select which exchanges they wish to access, and, 
accordingly, options exchanges must take competitive considerations 
into account when setting fees for such access.
---------------------------------------------------------------------------

    The Exchange believes that elasticity of demand for Exchange 
Membership exists when it comes to purchasing a Trading Permit and, as 
evidenced by the below data, prior fee proposals have resulted in 
Members terminating their memberships.\46\ For example, over the course 
of those prior filings, three Members terminated their memberships in 
the time since the proposed fee increase first went into effect. In 
June 2021, the month immediately preceding the initial implementation 
of the prior proposed fee change, the Exchange had 20 users of the MEO 
Interface and 28 users of the FIX Interface. These numbers remained 
stagnant until August 2021, where one Member that utilized the MEO 
Interface ceased utilizing the MEO Interface and again in December 2021 
where one Member that utilized the FIX Interface ceased utilizing the 
FIX Interface. These numbers again remained stagnant until March 2022, 
where another Member that utilized the FIX Interface ceased utilizing 
the FIX Interface. This resulted in 19 users of the MEO Interface and 
26 users of the FIX Interface. Further, other exchanges have also 
experienced termination of memberships if their members deem permit or 
membership fees to be unreasonable or excessive. For example, the 
Exchange notes that a BOX participant modified its access to BOX in 
connection with the implementation of a proposed change to BOX's permit 
fees.\47\ The absence of new memberships coupled with the termination 
of two memberships on the Exchange, as well as similar membership 
changes on another options exchange in relation to a trading permit fee 
increase, clearly shows that elasticity of demand exists.
---------------------------------------------------------------------------

    \46\ See Securities Exchange Act Release No. 95419 (August 4, 
2022), 87 FR 48702 (August 10, 2022) (SR-PEARL-2022-30).
    \47\ According to BOX, a Market Maker on BOX terminated its 
status as a Market Maker in response to BOX's proposed modification 
of Market Maker trading permit fees. See Securities Exchange Act 
Release No. 94894 (May 11, 2022), 87 FR 29987 (May 17, 2022) (SR-
BOX-2022-17). BOX noted, and the Exchange agrees, that this Market 
Maker's decision demonstrates that Market Makers can, and do, alter 
their membership status if they deem permit fees at an exchange to 
be unsuitable for their business needs, thus demonstrating the 
competitive environment for Market Maker permit fees and the 
constraints on options exchanges when setting Market Maker permit 
fees.
---------------------------------------------------------------------------

    The Exchange notes that there are material costs associated with 
providing the infrastructure and headcount to fully-support access to 
the Exchange. The Exchange incurs technology expenses related to 
establishing and maintaining Information Security services, enhanced 
network monitoring and customer reporting associated with its network 
technology. While some of the expense is fixed, much of the expense is 
not fixed, and thus increases as the expenses associated with access 
services for Market Makers increases. For example, new Market Makers to 
the Exchange may require the purchase of additional hardware to support 
those Members as well as enhanced monitoring and reporting of customer 
performance that the Exchange provides. Further, as the total number of 
Market Makers increase, the Exchange may need to increase its data 
center

[[Page 57739]]

footprint and consume more power, resulting in increased costs charged 
by their third-party data center provider. Accordingly, the cost to the 
Exchange to provide access to its Market Makers is not fixed. The 
Exchange believes the proposed Market Maker Trading Permit fees are 
reasonable in order to offset a portion of the costs to the Exchange 
associated with providing access to Market Makers to its quote and 
order infrastructure.
    The Exchange believes that charging higher fees to Market Makers, 
who connect solely through the MEO Interface, and EEMs that use the MEO 
Interface, is not unfairly discriminatory because Market Makers 
continue to account for the vast majority of network capacity 
utilization and trading activity on the Exchange and the MEO Interface 
provides higher throughput and enhanced functionality compared to the 
FIX Interface, justifying the increased cost. MEO Interface users 
account for the majority of expenses placed on the Exchange's systems. 
The MEO Interface also provides additional functionality that Market 
Makers and EEMs using the MEO Interface use to fulfill their market 
making obligations. The Exchange offers three time-in-force modifiers: 
\48\ Day Limit (``Day''), Immediate-Or-Cancel (``IOC''), and Good `Til 
Cancelled (``GTC'').\49\ While all order types are available for use on 
either interface, only the time-in-force modifiers of IOC and Day are 
available on the MEO Interface.\50\ Market Makers utilize the time-in-
force of Day on orders to be posted on the MIAX Pearl Options Book \51\ 
and to meet Market Makers' continuous quoting obligations under 
Exchange Rule 605(d).\52\ EEMs using the MEO Interface and Market 
Makers that primarily remove liquidity tend to be more latency 
sensitive and utilize the time-in-force of IOC on orders when looking 
to remove liquidity from the MIAX Pearl Options Book. The MEO Interface 
allows the submission of Cancel-Replacement orders,\53\ which allow for 
the immediate cancellation of a previously received order and the 
replacement of that order with a new order with new terms and 
conditions.\54\ Cancel-Replacement orders are primarily used by Market 
Makers as part of their continuous quoting obligations. Market Makers 
use only the MEO Interface due to its lower latency, higher throughput, 
available time-in-force instructions and order types that assist them 
in satisfying their market making obligations. Market Makers do not use 
the FIX Interface due to the unavailability of the above functionality. 
While EEMs primarily use the FIX Interface, certain EEMs choose to use 
the MEO Interface due to its enhanced functionality and based on their 
own business models. The MEO Interface is the more robust interface 
offering lower latency and higher throughput. Market Makers use only 
the MEO Interface.
---------------------------------------------------------------------------

    \48\ See MIAX Pearl Options Exchange User Manual, Section 6, 
Order Types, available at https://www.miaxoptions.com/exchange-functionality/pearl (last visited June 30, 2022).
    \49\ See, e.g., Exchange Rule 516.
    \50\ See preamble to Exchange Rule 516 (noting that not all 
order types and modifiers are available for use on each of the MEO 
Interface and the FIX Interface). See also Section 4.1.1.2 of the 
MEO Interface Specification, available at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf (indicating that the time-in-force 
instructions of IOC and Day are available on the MEO interface).
    \51\ The term ``Book'' means the electronic book of buy and sell 
orders and quotes maintained by the System. See Exchange Rule 100.
    \52\ Only the time-in-force modifiers of IOC and Day are 
available on the MEO Interface. See Exchange Rule 516 (noting that 
not all order types and modifiers are available for use on each of 
the MEO Interface and the FIX Interface). See also MIAX Pearl 
Options Exchange MEO Interface Specification, Section 4.1.1.2, 
available at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf (indicating that the time-in-
force instructions of IOC and Day are available on the MEO 
interface).
    \53\ See MIAX Pearl Options Exchange User Manual, Section 6, 
Interfaces and Liquidity Types, available at https://www.miaxoptions.com/exchange-functionality/pearl (last visited May 
16, 2022).
    \54\ See Exchange Rule 516(d).
---------------------------------------------------------------------------

    The Exchange notes that while Market Maker users of the MEO 
Interface continue to account for a vast majority of the increased 
System usage placed on the Exchange, Market Makers continue to be 
valuable market participants on the exchanges as the options market is 
a quote driven industry. The Exchange recognizes the value that Market 
Makers bring to the Exchange. The Exchange proposes higher, separate 
fees for users of the MEO Interface that are more aligned with the 
costs and resources that Market Makers continue to place on the 
Exchange and its systems.
    Users of the MEO Interface, therefore, receive greater value than 
Users of the FIX Interface due to its higher throughput, lower latency, 
and available functionality. As the above data shows, the Exchange also 
expends much more resources to support the MEO Interface than it does 
to support the FIX Interface. Trading Permit fees for Members who 
connect through the MEO Interface are, therefore, higher than the 
Trading Permit fees for Members who connect through the FIX Interface. 
The proposed pricing structure also accounts for the corresponding use 
of the MEO and FIX Interfaces and proportionate pull on Exchange 
resources.
    The Exchange believes that the proposed Market Maker Trading Permit 
fees are reasonable, equitable, and not unfairly discriminatory. The 
Exchange believes that the reasonableness of its proposed fees is 
demonstrated by the very fact that such fees are in line with, and in 
some cases lower than, the costs of similar access fees at other 
exchanges.\55\ The Exchange notes these fees were similarly filed with 
the Commission and neither suspended nor disapproved.\56\ The proposed 
fees are fair and equitable and not unfairly discriminatory because 
they apply equally to all Market Makers and access to the Exchange is 
offered on terms that are not unfairly discriminatory. The Exchange 
designed the fee rates in order to provide objective criteria for 
Market Makers of different sizes and business models that best matches 
their quoting activity on the Exchange. The Exchange believes that the 
proposed fee rates and criteria provide an objective and flexible 
framework that will encourage Market Makers to be appointed and quote 
in option classes while also equitably allocating the fees in a 
reasonable manner amongst Market Maker appointments to account for 
quoting and trading activity.
---------------------------------------------------------------------------

    \55\ See supra notes 24 to 32.
    \56\ The Exchange presumes that the fees of other exchanges are 
reasonable, as required by the Exchange Act in the absence of any 
suspension or disapproval order by the Commission providing 
otherwise.
---------------------------------------------------------------------------

    The Exchange again notes that it operates in a highly competitive 
market in which market makers can readily favor competing venues if 
they deem fee levels at a particular venue to be excessive. In such an 
environment, the Exchange must continually adjust its fees for services 
and products, in addition to order flow, to remain competitive with 
other exchanges. The Exchange believes that the proposed changes 
reflect this competitive environment.
    The Exchange again notes it is not aware of any reason why Market 
Makers could not simply drop their access to an exchange (or not 
initially access an exchange) if an exchange were to establish prices 
for its non-transaction fees that, in the determination of such Market 
Maker, did not make business or economic sense for such Market Maker to 
access such exchange. The Exchange again notes that no market makers 
are required by rule, regulation, or competitive forces to be a Market 
Maker on the Exchange.
    In sum, the Exchange believes the proposed fees are reasonable and 
reflect a competitive environment, as the Exchange seeks to amend its 
Trading

[[Page 57740]]

Permit fees for Market Makers, while still attracting Market Makers to 
continue to, or seek to, access the Exchange. The Exchange further 
believes the proposed Trading Permit fees discussed herein are an 
appropriate balance between offsetting the costs to which Market Makers 
cost the Exchange and continuing to incentivize Market Makers to access 
and make a market on the Exchange.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes that the proposed Market Maker Trading Permit 
fees do not place certain market participants at a relative 
disadvantage to other market participants because the proposed fees do 
not favor certain categories of market participants in a manner that 
would impose a burden on competition; rather, the fee rates are 
designed in order to provide objective criteria for Market Makers of 
different sizes and business models that best matches their quoting 
activity on the Exchange. Further, the Exchange believes that the 
proposed Market Maker Trading Permit fees will not impose a burden on 
intramarket competition because, when these fees are viewed in the 
context of the overall activity on the Exchange, Market Makers: (1) 
consume the most bandwidth and resources of the network; (2) transact 
the vast majority of the volume on the Exchange; and (3) require the 
high touch network support services provided by the Exchange and its 
staff, including more costly network monitoring, reporting and support 
services, resulting in a much higher cost to the Exchange. The Exchange 
notes that the majority of customer demand comes from Market Makers, 
whose transactions make up a majority of the volume on the Exchange. 
Further, as discussed herein, other Member types (Broker Dealers, 
Professional Customers, and Priority Customers) take up significantly 
less Exchange resources and costs. As such, the Exchange does not 
believe charging Market Makers higher Trading Permit fees than other 
Member types will impose a burden on intramarket competition.
    The Exchange believes that the tiered structure of the proposed 
Market Maker Trading Permit fees will not impose a burden on 
intramarket competition because the tiered structure takes into account 
the number of classes quoted by each individual Market Maker. As 
discussed herein, the Exchange's system requires increased performance 
and capacity in order to provide the opportunity for each Market Maker 
to quote in a higher number of options classes on the Exchange. 
Specifically, the more classes that are actively quoted on the Exchange 
by a Market Maker requires increased memory for record retention, 
increased bandwidth for optimized performance, increased 
functionalities on each application layer, and increased optimization 
with regard to surveillance and monitoring of such classes quoted. As 
such, basing the Market Maker Trading Permit fee on the greatest number 
of classes quoted in on any given day in a calendar month is reasonable 
and appropriate when taking into account how the increased number of 
quoted classes directly impact the costs and resources for the 
Exchange.
Inter-Market Competition
    The Exchange believes the proposed Market Maker Trading Permit fees 
do not place an undue burden on competition on other SROs that is not 
necessary or appropriate. In particular, market making firms are not 
forced to become market makers on all options exchanges. The Exchange 
notes that it has far less Market Makers as compared to the much 
greater number of market makers at other options exchanges. There are a 
number of large market makers that are participants of other options 
exchange but not Members of the Exchange. The Exchange is also unaware 
of any assertion that its existing fee levels or the proposed Market 
Maker Trading Permit fees would somehow unduly impair its competition 
with other options exchanges. To the contrary, if the fees charged are 
deemed too high by a market making firm, they can simply discontinue 
their membership with the Exchange.
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 15 competing options 
venues if they deem fee levels at a particular venue to be excessive. 
Based on publicly-available information, and excluding index-based 
options, no single exchange has more than 11-12% equity options market 
share.\57\ Therefore, no exchange possesses significant pricing power 
in the execution of multiply-listed equity and exchange-traded fund 
(``ETF'') options order flow. As of August 23, 2022, for the month of 
August 2022, the Exchange had a market share of approximately 4.49% of 
executed multiply-listed equity options \58\ and the Exchange believes 
that the ever-shifting market share among exchanges from month to month 
demonstrates that market participants can discontinue or reduce use of 
certain categories of products, or shift order flow, in response to fee 
changes. In such an environment, the Exchange must continually adjust 
its fees and fee waivers to remain competitive with other exchanges and 
to attract order flow to the facility.
---------------------------------------------------------------------------

    \57\ See Market at a Glance, available at www.miaxoptions.com 
(last visited (August 31, 2022).
    \58\ See id.
---------------------------------------------------------------------------

    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 continually 
review, and consider adjusting, its fees and credits to remain 
competitive with other exchanges. For the reasons described above, the 
Exchange believes that the proposed rule change reflects 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,\59\ and Rule 19b-4(f)(2) \60\ 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.
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \60\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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:

[[Page 57741]]

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-2022-39 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-PEARL-2022-39. 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-PEARL-2022-39 and should be submitted on 
or before October 12, 2022.
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    \61\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\61\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-20371 Filed 9-20-22; 8:45 am]
BILLING CODE 8011-01-P