[Federal Register Volume 85, Number 240 (Monday, December 14, 2020)]
[Notices]
[Pages 80826-80829]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27385]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90590; File No. SR-PEARL-2020-32]


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

December 8, 2020.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on December 2, 2020, MIAX PEARL, LLC (``MIAX 
PEARL'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the fee schedule 
applicable for MIAX PEARL Equities, an equities trading facility of the 
Exchange (the ``Fee Schedule'').\3\ The proposed changes are scheduled 
to become operative on December 2, 2020.
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    \3\ See Exchange Rule 1901.
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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 purpose of the proposed rule change is to amend the Fee 
Schedule applicable to MIAX PEARL Equities to provide pricing for 
securities priced below $1.00 that are executed on MIAX PEARL Equities.
    The Exchange operates in a highly competitive market in which 
market participants can readily direct order flow to competing venues 
if they deem fee levels at a particular venue to be excessive or 
rebates/incentives to be insufficient. More specifically, the Exchange 
is only one of several equities venues (including both registered 
exchanges and various alternative trading systems) to which market 
participants may direct their order flow and execute their trades. 
Indeed, equity trading is currently dispersed across 16 exchanges,\4\ 
31 alternative trading systems,\5\ and numerous broker-dealer 
internalizers and wholesalers, all competing for order flow. Based on 
publicly available information, no single registered equities exchange 
currently has more than approximately 20% of total market share.\6\ 
Thus, in such a low-concentrated and highly competitive market, no 
single equities trading venue possesses significant pricing power in 
the execution of trades, and, the Exchange currently represents a very 
small percentage of the overall market.
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    \4\ See Cboe Global Markets, U.S Equities Market Volume Summary, 
available at https://markets.cboe.com/us/equities/market_share/.
    \5\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of 
alternative trading systems registered with the Commission is 
available at https://www.sec.gov/foia/docs/atslist.htm.
    \6\ See Cboe Global Markets U.S. Equities Market Volume Summary, 
available at http://markets.cboe.com/us/equities/market_share/.
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    The purpose of this proposed fee change is for business and 
competitive reasons. As a new entrant into the equities market, the 
Exchange initially adopted a fee structure that provided that orders in 
securities priced below $1.00 would be free that executed at MIAX PEARL 
Equities, regardless of whether they add or remove liquidity to 
encourage market participants to submit orders to the Exchange. The 
Exchange now proposes to charge a standard fee of 0.30% of the total 
dollar value of any transaction in securities priced below $1.00 that 
removes liquidity from MIAX PEARL Equities. The Exchange also proposes 
to provide a standard rebate of 0.30% of the total dollar value of any 
transaction in securities priced below

[[Page 80827]]

$1.00 that adds displayed or non-displayed liquidity to MIAX PEARL 
Equities.
    The proposed rebate for executed orders that add liquidity in 
securities priced below $1.00 is intended to increase order flow in 
securities priced below $1.00 to MIAX PEARL Equities by incentivizing 
Equity Members \7\ to increase the liquidity-providing orders in 
securities priced below $1.00 they submit to MIAX PEARL Equities, which 
would support price discovery on MIAX PEARL Equities and provide 
additional liquidity for incoming orders. The proposed fee for executed 
orders that remove liquidity from MIAX PEARL Equities is intended to be 
a direct offset of the rebate provided for executed orders that add 
liquidity in securities priced below $1.00 so that MIAX PEARL Equities 
may remain revenue neutral with respect to such transactions while 
attempting to compete with other venues to attract this order flow.
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    \7\ The term ``Equity Member'' means a Member authorized by the 
Exchange to transact business on MIAX PEARL Equities. See Exchange 
Rule 1901.
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    The proposed fee change will become effective on December 2, 2020. 
The Exchange does not propose any other changes to the MIAX PEARL 
Equities Fee Schedule.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \8\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act \9\ in particular, in that 
it is an equitable allocation of reasonable fees and other charges 
among its members and issuers and other persons using its facilities. 
As discussed above, the Exchange operates in a highly fragmented and 
competitive market. The Commission has repeatedly expressed its 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. Market 
participants can readily direct order flow to competing venues if they 
deem fee levels at a particular venue to be excessive or rebates/
incentives to be insufficient. The Exchange believes that the Fee 
Schedule reflects a simple and competitive pricing structure, which is 
designed to incentivize market participants to add aggressively priced 
displayed liquidity and direct their order flow to the Exchange. The 
Exchange believes the proposed rebate and fee structure for orders that 
add or remove liquidity in securities priced below $1.00 would 
incentivize submission of additional liquidity in securities priced 
below $1.00, thereby promoting price discovery and deepen liquidity, 
enhancing order execution opportunities for all Equity Members and 
investors.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    In particular, the Exchange believes that the proposed rebate for 
orders that add liquidity in securities priced below $1.00 is 
reasonable because it would incentivize Equity Members to direct more 
order flow in securities priced below $1.00 to the Exchange. The 
Exchange notes that one other exchange provides the same rebate as 
proposed herein,\10\ and other exchanges provide rebates for liquidity-
adding transactions in securities priced below $1.00, but that these 
are denominated in dollar amounts per share rather than a percentage of 
the total dollar amount of the transaction.\11\ The Exchange expects 
that the proposed rebate for orders that add liquidity in securities 
priced below $1.00 would typically result in a higher overall credit 
for a given transaction than the rebates offered by other exchanges, 
although the Exchange notes that it may also result in a lower overall 
credit for such transactions depending on the number of shares traded 
and the total dollar value of the transaction. The Exchange also 
believes that the proposed fee for orders that remove liquidity in 
securities priced below $1.00 is reasonable because it is in line with 
the fees charged by other exchanges for liquidity-removing transactions 
in securities priced below $1.00.\12\
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    \10\ See SR-MEMX-2020-14 (filed November 30, 2020), available at 
https://info.memxtrading.com/wp-content/uploads/2020/11/SR-MEMX-2020-14.pdf.
    \11\ See, e.g., the Cboe EDGX equities trading fee schedule on 
its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/), which reflects a rebate of 
$0.00009 per share for liquidity-adding transactions in securities 
priced below $1.00 per share; the NYSE Arca equities trading fee 
schedule on its public website (available at https://www.nyse.com/publicdocs/nyse/markets/nysearca/NYSE_Arca_Marketplace_Fees.pdf), 
which reflects a rebate of $0.00004 per share for liquidity-adding 
transactions in securities priced below $1.00 per share.
    \12\ See supra note 10.
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    The Exchange believes that, given the competitive environment in 
which MIAX PEARL Equities currently operates, the proposed pricing 
structure, with an offsetting fee and rebate for executions of 
transactions in securities priced below $1.00 is a reasonable attempt 
to increase liquidity in securities priced below $1.00 on MIAX PEARL 
Equities and improve the MIAX PEARL Equities' market share relative to 
its competitors while remaining revenue neutral with respect to such 
transactions.
    The Exchange also believes that the proposed fee and rebate 
structure applicable to executions of transactions in securities priced 
below $1.00 is equitably allocated and not unfairly discriminatory 
because it applies equally to all Equity Members and is reasonably 
related to the value of MIAX PEARL Equities' market quality associated 
with higher volume. A number of Equity Members currently transact in 
securities priced below $1.00 and they, along with additional Equity 
Members that choose to direct order flow in securities priced below 
$1.00 to the Exchange, would all qualify for the proposed fee and 
rebate. The Exchange believes that maintaining or increasing the 
proportion of transactions in securities priced below $1.00 that are 
executed on MIAX PEARL Equities would benefit all investors by 
deepening the MIAX PEARL Equities' liquidity pool, which would support 
price discovery, promote market transparency and improve investor 
protection, further rendering the proposed changes reasonable and 
equitable.
    Further, the Commission and the courts have repeatedly expressed 
their preference for competition over regulatory intervention in 
determining prices, products, and services in the securities markets. 
In Regulation NMS, while adopting a series of steps to improve the 
current market model, the Commission highlighted the importance of 
market forces in determining prices and SRO revenues and, also, 
recognized that current regulation of the market system ``has been 
remarkably successful in promoting market competition in its broader 
forms that are most important to investors and listed companies.'' \13\
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    \13\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (File No. S7-10-04) (``Regulation 
NMS'').
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    As the Commission itself recognized, the market for trading 
services in NMS stocks has become ``more fragmented and competitive.'' 
\14\ Indeed, equity trading is currently dispersed across 16 
exchanges,\15\ 31 alternative trading systems,\16\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow. 
Based on

[[Page 80828]]

publicly-available information, no single exchange currently has more 
than 20% market share (whether including or excluding auction 
volume).\17\ Therefore, no exchange possesses significant pricing power 
in the execution of equity order flow. More specifically, the Exchange 
only recently launched trading operations on September 25, 2020, and 
thus has a market share of approximately less than 1% of executed 
volume of equities trading.
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    \14\ See Securities Exchange Act Release No. 82873 (March 14, 
2018), 83 FR 13008 (March 26, 2018) (File No. S7-05-18) (Transaction 
Fee Pilot for NMS Stocks).
    \15\ See Cboe Global Markets, U.S Equities Market Volume 
Summary, available at https://markets.cboe.com/us/equities/market_share/.
    \16\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of 
alternative trading systems registered with the Commission is 
available at https://www.sec.gov/foia/docs/atslist.htm.
    \17\ See supra note 6.
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    The Exchange has designed its proposed pricing structure for 
securities priced below $1.00 to balance the need to attract order flow 
as a new exchange entrant with the desire to continue to provide a 
simple pricing structure to market participants. The Exchange believes 
its proposed pricing structure for securities priced below $1.00 
structure enables the Exchange to compete for order flow. The Exchange 
believes that the ever-shifting market share 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 fee changes. With respect to nonmarketable orders which 
provide liquidity on an exchange, Equity Members can choose from any 
one of the 16 currently operating registered exchanges to route such 
order flow. Accordingly, competitive forces reasonably constrain 
exchange transaction fees that relate to orders that would provide 
displayed liquidity on an exchange. Stated otherwise, changes to 
exchange transaction fees can have a direct effect on the ability of an 
exchange to compete for order flow. Given this competitive environment, 
the Exchange's proposed pricing structure for securities priced below 
$1.00 represents a reasonable attempt to attract order flow to a new 
exchange entrant.

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. Rather, the Exchange believes 
that the proposed change would encourage the submission of additional 
order flow to a public exchange, thereby promoting market depth, 
execution incentives and enhanced execution opportunities, as well as 
price discovery and transparency for all Equity Members and non-Equity 
Members. As a result, the Exchange believes that the proposed change 
furthers the Commission's goal in adopting Regulation NMS of fostering 
competition among orders, which promotes ``more efficient pricing of 
individual stocks for all types of orders, large and small.'' \18\
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    \18\ See supra note 13.
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    The Exchange does not believe that the proposed pricing structure 
for securities priced below $1.00 will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. To the contrary, the Exchange believes that the 
proposed pricing structure will increase competition and is intended to 
draw volume to the Exchange. The Exchange believes that the ever-
shifting market share among the exchanges from month to month 
demonstrates that market participants can shift order flow or 
discontinue to reduce use of certain categories of products, in 
response to new or different pricing structures being introduced into 
the market. Accordingly, competitive forces constrain the Exchange's 
transaction fees and rebates, and market participants can readily trade 
on competing venues if they deem pricing levels at those other venues 
to be more favorable. As a new exchange, the Exchange faces intense 
competition from existing exchanges and other non-exchange venues that 
provide markets for equities trading.
    Further, while pricing incentives do cause shifts of liquidity 
between trading centers, market participants make determinations on 
where to provide liquidity or route orders to take liquidity based on 
factors other than pricing, including technology, functionality, and 
other considerations. Consequently, the Exchange believes that the 
degree to which its proposed pricing structure for securities priced 
below $1.00 could impose any burden on competition is extremely 
limited, and does not believe that such pricing structure would burden 
competition of Equity Members or competing venues in a manner that is 
not necessary or appropriate in furtherance of the purposes of the Act.
    The Exchange does not believe that the proposed pricing structure 
for securities priced below $1.00 will impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because the proposed pricing structure for 
securities priced below $1.00 will apply equally to all Equity Members. 
The proposed pricing structure for securities priced below $1.00 is 
intended to encourage market participants to add liquidity to the 
Exchange by providing a rebate that is comparable to those offered by 
other exchanges, which the Exchange believes will help to encourage 
Equity Members to send orders to the Exchange to the benefit of all 
Exchange participants. As the proposed pricing structure for securities 
priced below $1.00 are equally applicable to all market participants, 
the Exchange does not believe there is any burden on intramarket 
competition.

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,\19\ and Rule 19b-4(f)(2) \20\ 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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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \20\ 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:

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2755524b420a44484a4a424953546754424409404851"><span class="__cf_email__" data-cfemail="1664637a733b75797b7b737862655665737538717960">[email protected]</span></a>. Please include 
File Number SR-PEARL-2020-32 on the subject line.

Paper Comments:

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-PEARL-2020-32. This file 
number should be included on the subject line if email is used. To help 
the

[[Page 80829]]

Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-PEARL-2020-32, and should be submitted 
on or before January 4, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27385 Filed 12-11-20; 8:45 am]
BILLING CODE 8011-01-P


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