[Federal Register Volume 88, Number 200 (Wednesday, October 18, 2023)]
[Notices]
[Pages 71894-71898]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22929]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98734; File No. SR-EMERALD-2023-26]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
Fee Schedule for Purge Ports

October 12, 2023.
    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 29, 2023, MIAX Emerald, LLC (``MIAX Emerald'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the 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 proposes to amend the MIAX Emerald Options Exchange 
Fee Schedule (the ``Fee Schedule'') to amend fees for Purge Ports.\3\
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    \3\ The proposed fee change is based on a recent proposal by 
Nasdaq Phlx LLC (``Phlx'') to adopt fees for purge ports. See 
Securities Exchange Act Release No. 97825 (June 30, 2023), 88 FR 
43405 (July 7, 2023) (SR-Phlx-2023-28).
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    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxglobal.com/markets/us-options/emerald-options/rule-filings, at MIAX'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

[[Page 71895]]

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 is proposing to amend the fees for Purge Ports, which 
is a function enabling Market Makers \4\ to cancel all open quotes or a 
subset of open quotes through a single cancel message. The Exchange 
currently provides Market Makers the option to purchase Purge Ports to 
assist in their quoting activity. Purge Ports provide Market Makers 
with the ability to send purge messages to the Exchange System.\5\ 
Purge Ports are not capable of sending or receiving any other type of 
messages or information. The use of Purge Ports is completely optional 
and no rule or regulation requires that a Market Maker utilize them.
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    \4\ The term ``Market Makers'' refers to Lead Market Makers 
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered 
Market Makers (``RMMs'') collectively. See Exchange Rule 100.
    \5\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
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    Unlike other options exchanges that charge fees for Purge Ports on 
a per port basis,\6\ the Exchange assesses a flat fee of $1,500 per 
month, regardless of the number of Purge Ports. Today, a Market Maker 
may request and be allocated two (2) Purge Ports per Matching Engine to 
which it connects and not all Market Makers connect to all Matching 
Engines. The Exchange now proposes to amend the fee for Purge Ports to 
align more with other exchanges who charge on a per port basis by 
providing two (2) Purge Ports per Matching Engine for a monthly flat 
fee of $600 per month per Matching Engine. The only difference with a 
per port structure being is that Market Makers receive two (2) Purge 
Ports per Matching Engine for the same proposed monthly fee, rather 
than be charged separate fee for each Purge Port. The Exchange proposes 
to charge the proposed fee for Purge Ports per Matching Engine, instead 
on a per Purge Port basis, due to its system architecture which 
provides two (2) Purge Ports per Matching Engine for redundancy 
purposes. In addition, the proposed fee would be lower than what other 
exchanges charge on a per port basis, notwithstanding that the Exchange 
is providing up to two (2) Purge Ports for that same low fee.\7\
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    \6\ See Cboe BXZ Exchange, Inc. (``BZX'') Options Fee Schedule, 
Options Logical Port Fees, Purge Ports ($750 per purge port per 
month); Cboe EDGX Exchange, Inc. (``EDGX'') Options Fee Schedule, 
Options Logical Port Fees, Purge Ports ($750 per purge port per 
month); Cboe Exchange, Inc. (``Cboe'') Fee Schedule ($850 per purge 
port per month). See also Nasdaq GEMX, Options 7, Pricing Schedule, 
Section 6.C.(3). Nasdaq GEMX, LLC (``Nasdaq GEMX'') assesses its 
members $1,250 per SQF Purge Port per month, subject to a monthly 
cap of $17,500 for SQF Purge Ports and SQF Ports, applicable to 
market makers. See also Securities Exchange Act Release No. 97825 
(June 30, 2023), 88 FR 43405 (July 7, 2023) (SR-Phlx-2023-28).
    \7\ Id.
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    Similar to a per port charge, Market Makers would be also able to 
elect the number of Matching Engines they connect to and pay the 
applicable fee. The Exchange believes the proposed fee provides Market 
Makers with flexibility to control their Purge Ports costs based on the 
number of Matching Engines it elects to connect to.
* * * * *
    A logical port represents a port established by the Exchange within 
the Exchange's system for trading and billing purposes. Each logical 
port grants a Member the ability to accomplish a specific function, 
such as order entry, order cancellation, access to execution reports, 
and other administrative information.
    Purge Ports are designed to assist Market Makers \8\ in the 
management of, and risk control over, their quotes, particularly if the 
firm is dealing with a large number of securities. For example, if a 
Market Maker detects market indications that may influence the 
execution potential of their quotes, the Market Maker may use Purge 
Ports to reduce uncertainty and to manage risk by purging all quotes in 
a number of securities. This allows Market Makers to seamlessly avoid 
unintended executions, while continuing to evaluate the market, their 
positions, and their risk levels. Purge Ports are used by Market Makers 
that conduct business activity that exposes them to a large amount of 
risk across a number of securities. Purge Ports enable Market Makers to 
cancel all open quotes, or a subset of open quotes through a single 
cancel message. The Exchange notes that Purge Ports increase efficiency 
of already existing functionality enabling the cancellation of quotes.
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    \8\ Members seeking to become registered as a Market Maker must 
comply with the applicable requirements of Chapter VI of the 
Exchange's Rules.
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    The Exchange operates highly performant systems with significant 
throughput and determinism which allows participants to enter, update 
and cancel quotes at high rates. Market Makers may currently cancel 
individual quotes through the existing functionality, such as through 
the use of a mass cancel message by which a Market Maker may request 
that the Exchange remove all or a subset of its quotations and block 
all or a subset of its new inbound quotations.\9\As a result, Market 
Makers can currently cancel quotes in rapid succession across their 
existing logical ports \10\ or through a single cancel message, all 
open quotes or a subset of open quotes.
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    \9\ See Exchange Rule 519C(a) and (b).
    \10\ Current Exchange port functionality supports cancelation 
rates that exceed one thousand messages per second and the 
Exchange's research indicates that certain market participants rely 
on such functionality and at times utilize such cancelation rates.
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    Similarly, Market Makers may also use cancel-on-disconnect control 
when they experience a disruption in connection to the Exchange to 
automatically cancel all quotes, as configured or instructed by the 
Member or Market Maker.\11\ In addition, the Exchange already provides 
similar ability to mass cancel quotes through the Exchange's risk 
controls, which are offered at no charge that enables Market Makers to 
establish pre-determined levels of risk exposure, and can be used to 
cancel all open quotes.\12\ Accordingly, the Exchange believes that the 
Purge Ports provide an efficient option as an alternative to already 
available services and enhance the Participant's ability to manage 
their risk.
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    \11\ See Exchange Rule 516C(c).
    \12\ See Exchange Rule 532.
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    The Exchange believes that market participants benefit from a 
dedicated purge mechanism for specific Market Makers and to the market 
as a whole. Market Makers will have the benefit of efficient risk 
management and purge tools. The market will benefit from potential 
increased quoting and liquidity as Market Makers may use Purge Ports to 
manage their risk more robustly. Only Market Makers that request Purge 
Ports would be subject to the proposed fees, and other Market Makers 
can continue to operate in exactly the same manner as they do today 
without dedicated Purge Ports, but with the additional purging 
capabilities described above.
Implementation Date
    The proposed fees will be effective October 1, 2023.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with

[[Page 71896]]

section 6(b) of the Act,\13\ in general, and furthers the objectives of 
section 6(b)(5) of the Act,\14\ in particular, in that it is not 
designed to permit unfair discrimination among customers, brokers, or 
dealers. The Exchange also believes that its proposed fee is consistent 
with section 6(b)(4) of the Act \15\ because it represents an equitable 
allocation of reasonable dues, fees and other charges among market 
participants.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed rule change would promote 
just and equitable principles of trade and remove impediments to and 
perfect the mechanism of a free and open market because offering Market 
Makers optional service and flexible fee structures promotes choice, 
flexibility, efficiency, and competition. The Exchange believes Purge 
Ports enhance Market Makers' ability to manage quotes, which would, in 
turn, improve their risk controls to the benefit of all market 
participants. The Exchange believes that Purge Ports foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities because designating Purge Ports for purge messages may 
encourage better use of such ports. This may, concurrent with the ports 
that carry quotes and other information necessary for market making 
activities, enable more efficient, as well as fair and reasonable, use 
of Market Makers' resources. Similar connectivity and functionality is 
offered by options exchanges, including the Exchange's own affiliated 
options exchanges, and other equities exchanges.\16\ The Exchange 
believes that proper risk management, including the ability to 
efficiently cancel multiple quotes quickly when necessary, is similarly 
valuable to firms that trade in the equities market, including Market 
Makers that have heightened quoting obligations that are not applicable 
to other market participants.
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    \16\ See supra notes 3 and 6. See also Securities Exchange Act 
Release No. 77613 (April 13, 2016), 81 FR 23023 (April 19, 2016). 
See also Securities Exchange Act Release Nos. 79956 (February 3, 
2017), 82 FR 10102 (February 9, 2017) (SR-BatsBZX-2017-05); 79957 
(February 3, 2017), 82 FR 10070 (February 9, 2017) (SR-BatsEDGX-
2017-07); 83201 (May 9, 2018), 83 FR 22546 (May 15, 2018) (SR-C2-
2018-006).
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    Purge Ports do not relieve Market Makers of their quoting 
obligations or firm quote obligations under Regulation NMS Rule 
602.\17\ Specifically, any interest that is executable against a 
Member's or Market Maker's quotes that is received by the Exchange 
prior to the time of the removal of quotes request will automatically 
execute. Market Makers that purge their quotes will not be relieved of 
the obligation to provide continuous two- sided quotes on a daily 
basis, nor will it prohibit the Exchange from taking disciplinary 
action against a Market Maker for failing to meet their continuous 
quoting obligation each trading day.\18\
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    \17\ See Exchange Rule 604. See also generally Chapter VI of the 
Exchange's Rules.
    \18\ Id.
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    The Exchange is not the only exchange to offer this functionality 
and to charge associated fees.\19\ The Exchange believes the proposed 
fee for Purge Ports is reasonable because it is lower than that 
currently charged by other exchanges. For example, BZX and EDGX charge 
a fee of $750 per purge port per month, Cboe charges $850 per purge 
port per month, Nasdaq GEMX assesses its members $1,250 per SQF Purge 
Port per month, subject to a monthly cap of $17,500 for SQF Purge Ports 
and SQF Ports.\20\
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    \19\ See supra notes 3 and 6.
    \20\ See supra note 6.
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    The Exchange believes it is reasonable to charge $600 per month for 
Purge Ports as such ports represent targeted enhancement of technology 
and were specially developed to allow for the sending of a single 
message to cancel multiple quotes, thereby assisting firms in 
effectively managing risk. The Exchange also believes that a Member 
that chooses to utilize Purge Ports may, in the future, reduce their 
need for additional ports by consolidating cancel messages to the Purge 
Port and thus freeing up some capacity of the existing logical ports 
and, therefore, allowing for increased message traffic without paying 
for additional logical ports. Purge Ports provide the ability to cancel 
multiple quotes across multiple ports with less messaging from the 
firms using the ports and therefore may create efficiencies for firms 
and provide a more economical solution to their risk management needs. 
In addition, Purge Port requests may cancel quotes submitted over 
numerous ports and contain added functionality to purge only a subset 
of these quotes. Effective risk management is important both for 
individual market participants that choose to utilize risk features 
provided by the Exchange, as well as for the market in general. As a 
result, the Exchange believes that it is appropriate to charge fees for 
such functionality as doing so aids in the maintenance of a fair and 
orderly market.
    The Exchange also believes that its ability to set fees for Purge 
Ports is subject to significant substitution-based forces because 
Market Makers are able to rely on currently available services both 
free and those they receive when using existing trading protocols. If 
the value of the efficiency introduced through the Purge Port 
functionality is not worth the proposed fees, Market Makers will simply 
continue to rely on the existing functionality and not pay for Purge 
Ports. In that regard, Market Makers may currently cancel individual 
quotes through the existing functionality, such as through the use of a 
mass cancel message by which a Market Maker may request that the 
Exchange remove all or a subset of its quotations and block all or a 
subset of its new inbound quotations. Market Makers already can also 
cancel quotes individually and by utilizing Exchange protocols that 
allow them to develop proprietary systems that can send cancel messages 
at a high rate.\21\ In addition, the Exchange already provides similar 
ability to mass cancel quotes through the Exchange's risk controls, 
which are offered at no charge that enables Market Makers to establish 
pre-determined levels of risk exposure, and can be used to cancel all 
open quotes.\22\
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    \21\ Current Exchange port functionality supports cancelation 
rates that exceed one thousand messages per second and the 
Exchange's research indicates that certain Participants rely on such 
functionality and at times utilize such cancelation rates.
    \22\ See Exchange Rule 532.
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    Similarly, Market Makers may use cancel-on-disconnect control when 
they experience a disruption in connection to the Exchange to 
immediately cancel all pending Exchange.\23\ Finally, this existing 
purging functionality will allow Participants to achieve essentially 
the same outcome in canceling quotes as they would by utilizing the 
Purge Ports. Accordingly, the Exchange believes that the proposed Purge 
Ports fee is reasonable because it is related to the efficiency of 
Purge Ports related to other means and services already available which 
are either free or already a part of a fee assessed to the 
Participant's for existing connectivity. Accordingly, because Purge 
Ports provide additional optional functionality, excessive fees would 
simply serve to reduce or eliminate demand for this optional product.
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    \23\ See Exchange Rule 516C(c).
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    The Exchange also believes that offering Purge Ports at the 
Matching Engine level promotes risk management across the industry, and 
thereby facilitates investor protection. Some market participants, in 
particular the larger firms, could and do build similar risk 
functionality (as described above)

[[Page 71897]]

in their trading systems that permit the flexible cancellation of 
quotes entered on the Exchange at a high rate. Offering Matching Engine 
level protections ensures that such functionality is widely available 
to all firms, including smaller firms that may otherwise not be willing 
to incur the costs and development work necessary to support their own 
customized mass cancel functionality.
    As noted above, the Exchange is not the only exchange to offer 
dedicated Purge Ports, and the proposed rate is lower than that charged 
by other exchanges for similar functionality. The Exchange also 
believes that moving to a per Matching Engine fee is reasonable due to 
the Exchange's architecture that provides it the ability to provide two 
(2) Purge Ports per Matching Engine for a fee that would still be lower 
than other exchanges that charge on a per port basis. Generally 
speaking, restricting the Exchange's ability to charge fees for these 
services discourages innovation and competition. Specifically in this 
case, the Exchange's inability to offer similar services to those 
offered by other exchanges, and charge reasonable and equitable fees 
for such services, would put the Exchange at a significant competitive 
disadvantage and, therefore, serve to restrict competition in the 
market--especially when other exchanges assess comparable fees higher 
than those proposed by the Exchange.
    The Exchange believes that the proposed Purge Port fees are 
equitable because the proposed Purge Ports are completely voluntary as 
they relate solely to optional risk management functionality.
    The Exchange also believes that the proposed amendments to its fee 
schedule are not unfairly discriminatory because they will apply 
uniformly to all Market Makers that choose to use the optional Purge 
Ports. Purge Ports are completely voluntary and, as they relate solely 
to optional risk management functionality, no Market Maker is required 
or under any regulatory obligation to utilize them. All Market Makers 
that voluntarily select this service option will be charged the same 
amount for the same services. All Market Makers have the option to 
select any connectivity option, and there is no differentiation among 
Market Makers with regard to the fees charged for the services offered 
by 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. Purge Ports are completely 
voluntary and are available to all Market Makers on an equal basis at 
the same cost. While the Exchange believes that Purge Ports provide a 
valuable service, Market Makers can choose to purchase, or not 
purchase, these ports based on their own determination of the value and 
their business needs. No Market Makers is required or under any 
regulatory obligation to utilize Purge Ports. Accordingly, the Exchange 
believes that Purge Ports offer appropriate risk management 
functionality to firms that trade on the Exchange without imposing an 
unnecessary or inappropriate burden on competition.
    Furthermore, the Exchange operates in a highly competitive 
environment, and its ability to price the Purge Ports is constrained by 
competition among exchanges that offer similar functionality. As 
discussed, there are currently a number of similar offers available to 
market participants for higher fees at other exchanges. Proposing fees 
that are excessively higher than established fees for similar 
functionality would simply serve to reduce demand for the Purge Ports, 
which as discussed, market participants are under no obligation to 
utilize. It could also cause firms to shift trading to other exchanges 
that offer similar functionality at a lower costs, adversely impacting 
the overall trading on the Exchange and reducing market share. In this 
competitive environment, potential purchasers are free to choose which, 
if any, similar product to purchase to satisfy their need for risk 
management. As a result, the Exchange believes this proposed rule 
change permits fair competition among national securities exchanges.
    The Exchange also does not believe the proposal would cause any 
unnecessary or in appropriate burden on intermarket competition as 
other exchanges are free to introduce their own purge port 
functionality and lower their prices to better compete with the 
Exchange's offering. The Exchange does not believe the proposed rule 
change would cause any unnecessary or inappropriate burden on 
intramarket competition. Particularly, the proposal would apply 
uniformly to any market participant, in that it does not differentiate 
between Market Makers. The proposal would allow any interested Market 
Makers to purchase Purge Port functionality based on their business 
needs.

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,\24\ and Rule 19b-4(f)(2) \25\ 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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    \24\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \25\ 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 (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#3341465f561e505c5e5e565d4740734056501d545c45"><span class="__cf_email__" data-cfemail="bac8cfd6df97d9d5d7d7dfd4cec9fac9dfd994ddd5cc">[email protected]</span></a>. Please include 
file number SR-EMERALD-2023-26 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-EMERALD-2023-26. 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 (https://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

[[Page 71898]]

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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-EMERALD-2023-26 and should 
be submitted on or before November 8, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22929 Filed 10-17-23; 8:45 am]
BILLING CODE 8011-01-P


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