[Federal Register Volume 87, Number 99 (Monday, May 23, 2022)]
[Notices]
[Pages 31269-31275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-10962]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94929; File No. SR-PEARL-2022-21]


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

May 17, 2022.
    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 May 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 fee schedule (the 
``Fee Schedule'') applicable to MIAX Pearl Equities, an equities 
trading facility of the Exchange.
    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 Exchange's 
Fee Schedule to adopt a new tiered pricing structure, ``Market Quality 
Tiers'' or ``MQ Tiers,'' designed to improve market quality on the 
Exchange in certain specific securities, the ``Market Quality 
Securities'' or ``MQ Securities,'' and more generally in the form of an 
enhanced rebate for executions of displayed orders in securities priced 
at or above $1.00 per share that add liquidity to the Exchange (such 
orders, ``Added Displayed Volume'') for Members that meet certain 
minimum quoting requirements across a specified number of securities, 
as further described below. The Exchange originally filed this proposal 
on April 29, 2022 (SR-PEARL-2022-17). On May 12, 2022, the Exchange 
withdrew SR-PEARL-2022-17 and resubmitted this proposal.
    The Exchange first notes that it 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 incentives to be insufficient. More specifically, the 
Exchange is only one of 16 registered equities exchanges, as well as a 
number of alternative trading systems and other off-exchange venues, to 
which market participants may direct their order flow. Based on 
publicly available information, no single registered equities exchange 
currently has more than approximately 17% of the total market share of 
executed volume of equities trading, and the Exchange currently 
represents approximately 1% of the overall market share.\3\
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    \3\ See MIAX's ``The Market at a Glance'', available at https://www.miaxoptions.com/ (last visited April 27, 2022).
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    Additionally, in response to the competitive environment, the 
Exchange also offers tiered pricing, which provides Equity Members \4\ 
(``Members'') with opportunities to qualify for higher rebates or lower 
fees when certain volume criteria and thresholds are met. Tiered 
pricing provides an incremental incentive for Members to strive for 
higher tier levels, which provides increasingly higher benefits or 
discounts

[[Page 31270]]

for satisfying increasingly more stringent criteria.
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    \4\ The term ``Equity Member'' is a Member authorized by the 
Exchange to transact business on MIAX Pearl Equities. See Exchange 
Rule 1901.
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Adoption of Market Quality Tiers
    The Exchange proposes to adopt a new tiered pricing incentive, 
referred to by the Exchange as the ``Market Quality Tiers'' (or ``MQ 
Tiers''), in the form of an enhanced rebate for executions of Added 
Displayed Volume for Members that qualify for the incentive by meeting 
certain minimum quoting requirements across a specified number of 
securities, as further described below. The proposed MQ Tiers are 
designed to encourage Members to improve market quality by quoting at 
the NBBO \5\ for a significant portion of the day (as defined below) on 
the Exchange in certain specific securities, referred to by the 
Exchange as MQ Securities and in all securities more generally.\6\ By 
analyzing volume statistics and time at the NBBO the Exchange has 
identified a number of securities for which it intends to improve these 
metrics (the MQ Securities). The list of MQ Securities is published on 
the Exchange's website. The Exchange believes the MQ Tiers will benefit 
the Exchange and investors by providing improved trading conditions for 
all market participants through narrower bid-ask spreads and increased 
depth of liquidity available at the NBBO in a broad base of securities, 
including the MQ Securities.
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    \5\ With respect to the trading of equity securities, the term 
``NBB'' shall mean the national best bid, the term ``NBO'' shall 
mean the national best offer, and the term ``NBBO'' shall mean the 
national best bid and offer. See Exchange Rule 1901.
    \6\ The Exchange notes that it will aggregate each Member's 
MPIDs and view quotes by Member Firm to determine the number of 
securities in which the Member meets the quoting requirements for 
that day.
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    The Exchange currently provides a standard rebate of $0.0029 per 
share for executions of Added Displayed Volume.\7\ The Exchange now 
proposes to introduce a tiered pricing structure in which it will 
provide an enhanced rebate for executions of Added Displayed Volume to 
Members that meet certain quoting requirements. Specifically, the 
Exchange proposes to provide an enhanced rebate of $0.0032 in Tier 1 of 
the Market Quality Tiers for executions of Added Displayed Volume \8\ 
if the Member's Percent Time at NBBO \9\ is at least 25% in an average 
of at least 250 securities, at least 50 of which must be MQ Securities, 
per trading day during the month. Similarly, the Exchange proposes to 
provide an enhanced rebate of $0.0034 in Tier 2 of the Market Quality 
Tiers for executions of Added Displayed Volume if the Member's Percent 
Time at NBBO is at least 25% in an average of at least 1,000 
securities, at least 100 of which must be MQ Securities, per trading 
day during the month.
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    \7\ The Exchange notes that the standard rebate of $0.0029 per 
share for executions of Added Displayed Volume in securities priced 
at or above $1.00, applicable to Liquidity Indicator Codes AA, AB, 
and AC, is not changing under this proposal.
    \8\ The incentives provided for in the Market Quality Tiers will 
be applicable to the following Liquidity Indicator Codes: AA, AB, 
and AC. See section 1(b) Liquidity Indicator Codes and Associated 
Fees of the Exchange's Fee Schedule available on its public website 
(available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_04012022_b.pdf).
    \9\ As proposed, the term ``Percent Time at NBBO'' means the 
aggregate of the percentage of time during regular trading hours 
where a Member has a displayed order of at least one round lot at 
the national best bid (``NBB'') or the national best offer 
(``NBO'').
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    As noted above, to qualify for the incentive provided for in Tier 1 
of the Market Quality Tiers, a Member must meet the quoting requirement 
in an average of at least 250 securities traded on the Exchange (the 
``Tier 1 Securities Requirement''), at least 50 of which must be MQ 
Securities (the ``Tier 1 MQ Securities Requirement''), per trading day 
during the month. To qualify for the incentive provided for in Tier 2 
of the Market Quality Tiers, a Member must meet the quoting requirement 
in an average of at least 1,000 securities traded on the Exchange (the 
``Tier 2 Securities Requirement''), at least 100 of which must be MQ 
Securities (the ``Tier 2 MQ Securities Requirement''), per trading day 
during the month. The Tier 1 Securities Requirement and the Tier 2 
Securities Requirement, collectively the ``Securities Requirement'' and 
the Tier 1 MQ Securities Requirement and Tier 2 MQ Securities 
Requirement, collectively the ``MQ Securities Requirement'' is referred 
to under this proposal as the ``Incentive Criteria.'' The proposed MQ 
Tiers are designed to enhance market quality both in a broad manner 
with respect to all securities traded on the Exchange, through the 
Securities Requirement, and in a targeted manner with respect to 
certain designated securities in which the Exchange specifically seeks 
to inject additional quoting competition (i.e., the MQ Securities), 
through the MQ Securities Requirement. The number of MQ Securities in 
which a Member meets the quoting requirement will be counted toward 
both the Securities Requirement and the MQ Securities Requirement. In 
order to determine whether a Member meets the applicable Securities 
Requirements during a month, the average number of securities in which 
such a Member meets the quoting requirement per trading day during the 
month will be calculated by summing the number of securities in which 
the Member met the quoting requirement for each trading day during the 
month then dividing the resulting sum by the total number of trading 
days in the month.\10\
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    \10\ As an example, in a month with 20 trading days, if a Member 
satisfied the quoting requirement in 125 securities (of which 25 
were MQ Securities) for ten of the trading days in the month, and 
satisfied the quoting requirement in 375 securities (of which 75 
were MQ Securities) for the other ten trading days in the month, 
such Member would meet the quoting requirement in an average of 250 
securities (i.e., ((125 x 10) + (375 x 10))/20), inclusive of an 
average of 50 MQ Securities (i.e., ((25 x 10) + (75 x 10))/20), per 
trading day during the month. Therefore, such Member would meet the 
applicable Securities Requirements during the month and would 
qualify for the Tier 1 incentive for that month under this proposal.
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    In addition, for the purposes of determining qualification for the 
MQ Tiers, the Exchange will exclude: (1) Any trading day that the 
Exchange's system experiences a disruption that lasts for more than 60 
minutes during Regular Trading Hours; (2) any day with a scheduled 
early market close; and (3) the ``Russell Reconstitution Day'' 
(typically the last Friday in June). The Exchange will exclude any 
trading day that the Exchange's system experiences a disruption that 
lasts for more than 60 minutes during Regular Trading Hours, any day 
with a scheduled early market close, and the Russell Reconstitution Day 
when determining both the numerator (i.e., the number of securities in 
which a Member has met the quoting requirement for each trading day 
during the month) and the denominator (i.e., the total number of 
trading days in the month) for purposes of calculating the average 
number of securities in which such Member meets the quoting requirement 
per trading day during the month.
    As further detail regarding such proposed exclusions, an Exchange 
system disruption may occur, for example, where a certain group of 
securities traded on the Exchange is unavailable for trading due to an 
Exchange system issue. Similarly, the Exchange may be able to perform 
certain functions with respect to accepting and processing orders, but 
may have a failure to another significant process, such as routing to 
other market centers, that would lead Members that rely on such process 
to avoid utilizing the Exchange until the Exchange's entire system was 
operational. The Exchange believes that these types of Exchange system 
disruptions could preclude Members from participating on the Exchange 
to the extent that they might have otherwise participated on such days, 
and thus, the Exchange believes it

[[Page 31271]]

is appropriate to exclude such days when determining whether a Member 
meets the applicable Securities Requirements during a month to avoid 
penalizing Members that might otherwise have met such requirements. 
Additionally, the Exchange believes that scheduled early market 
closures, which typically are the day before, or the day after, a 
holiday, may preclude some Members from participating on the Exchange 
at the same level that they might otherwise. For similar reasons, the 
Exchange believes it is appropriate to exclude the Russell 
Reconstitution Day in the same manner, as the Exchange believes that 
the Russell Reconstitution Day typically has extraordinarily high, and 
abnormally distributed, trading volumes and the Exchange believes this 
change to normal activity may affect a Member's ability to meet the 
quoting requirement across various securities on that day. The Exchange 
notes that the exclusion of any day during which the Exchange's system 
experiences a disruption that lasts for more than 60 minutes during 
Regular Trading Hours, any day with a scheduled early market close, and 
the Russell Reconstitution Day is consistent with the methodologies 
used by other exchanges when calculating certain Member trading and 
other volume metrics for purposes of determining whether Members 
qualify for certain pricing incentives, and the Exchange believes 
application of this methodology is similarly appropriate for the 
proposed MQ Tiers pricing incentive.\11\
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    \11\ See e.g., the CBOE BZX Exchange, Inc. (``Cboe BZX'') 
equities trading fee schedule on its public website (available at 
https://www.cboe.com/us/equities/membership/fee_schedule/bzx/); the 
Cboe EDGX Exchange, Inc. (``Cboe EDGX'') equities trading fee 
schedule available on its public website (available at https://www.cboe.com/us/equities/membership/fee_schedule/edgx/); and the 
MEMX LLC, (``MEMX'') equities trading fee schedule on its public 
website (available at https://info.memxtrading.com/fee-schedule/).
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    A Member that qualifies for the enhanced rebate under MQ Tier 1 by 
meeting the requirements described above during a particular month will 
receive an enhanced rebate of $0.0032 per share for all executions of 
Added Displayed Volume (unless a higher rebate applies) \12\ during 
that month. This proposed rebate is $0.0003 higher than the standard 
rebate ($0.0029) that would otherwise be applicable to such executions. 
Similarly, a Member that qualifies for the enhanced rebate under MQ 
Tier 2 by meeting the requirements described above during a particular 
month will receive an enhanced rebate of $0.0034 per share for all 
executions of Added Displayed Volume (unless a higher rebate applies) 
during that month. This proposed rebate is $0.0005 higher than the 
standard rebate ($0.0029) that would otherwise be applicable to such 
executions. The Exchange notes that the proposed enhanced rebate will 
only apply to executions in securities priced at or above $1.00 per 
share; executions of a qualifying Member's displayed orders that add 
liquidity to the Exchange in securities priced below $1.00 per share 
will continue to receive the standard rebate applicable to executions 
of such orders on the Exchange (i.e., 0.05% of the total value of the 
transaction).
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    \12\ The Exchange currently provides on its Fee Schedule that, 
``to the extent a Pearl Equity Member qualifies for higher rebates 
and/or lower fees than those provided by a tier for which such a 
Member qualifies, the higher rebate and/or lower fees shall apply.'' 
See the Exchange's Fee Schedule, General Notes section, on its 
public website (available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_04012022_b.pdf).
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    The Exchange is proposing to provide the enhanced rebate for 
executions of Added Displayed Volume for qualifying Members as a means 
of recognizing the value of market participants that consistently quote 
at the NBBO in a large number of securities generally, and in the MQ 
Securities in particular. Given the proposed Incentive Criteria for the 
Market Quality Tiers a Member must make a significant contribution to 
market quality by providing liquidity at the NBBO in a large number of 
securities, including certain designated securities in which the 
Exchange specifically seeks to inject additional quoting competition 
(i.e., the MQ Securities), for a significant portion of the day. 
Through the proposed enhanced rebate for qualifying Members, the 
Exchange hopes to provide improved trading conditions for all market 
participants through narrower bid-ask spreads and increased depth of 
liquidity available at the NBBO for a large number of securities 
generally, including the MQ Securities in particular.
    The Exchange notes that the proposed MQ Tiers are similar in 
structure and purpose to pricing programs at other exchanges that are 
designed to enhance market quality by incentivizing Members to achieve 
minimum quoting standards, including minimum quoting at the NBBO in a 
large number of securities generally, or certain designated securities 
in particular.\13\ The Exchange further notes that, like the proposed 
MQ Tiers, these programs include as an incentive the provision of an 
enhanced rebate for executions of liquidity-adding displayed orders for 
Members that meet the quoting and other requirements of those 
programs.\14\
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    \13\ See e.g., the Nasdaq equities trading fee schedule on its 
public website, (available at http://www.nasdaqtrader.com/trader.aspx?id=pricelisttrading2) and Nasdaq Rule Equity 7, Section 
114(d) describing Nasdaq's Qualified Market Maker Program, which 
provides for an additional rebate (ranging from $0.0001 to $0.0002 
per share) for executions of liquidity-providing displayed orders 
(other than designated retail orders) in securities across all tapes 
priced at or above $1.00 per share for members that, in addition to 
executing transactions that represent a specified percentage of 
consolidated volume and avoiding inefficient order entry practices 
that place excessive burdens on Nasdaq's systems, quote at the NBBO 
at least 25% of the time during regular market hours in an average 
of at least 1,000 securities per day during the month; see also the 
Cboe BZX equities trading fee schedule on its public website, 
(available at https://www.cboe.com/us/equities/membership/fee_schedule/bzx/), which provides for an additional rebate (ranging 
from $0.0001 to $0.0002 per share) under Cboe BZX's Liquidity 
Management Program for executions of liquidity-providing displayed 
orders in Tape B securities priced at or above $1.00 per share for 
members that, in addition to adding a specified percentage of total 
consolidated volume in Tape B securities and meeting certain other 
quoting requirements with respect to a specified number of 
securities designated as ``LMP Securities'' on a list determined by 
Cboe BZX, quote at the NBBO at least 15% of the time during regular 
trading hours in a specified number of such designated LMP 
Securities (or achieve an alternative NBBO quoting standard 
involving a size-setting element with respect to such designated LMP 
Securities.); see also MEMX equities trading fee schedule on its 
public website, (available at https://info.memxtrading.com/fee-schedule/), which provides for a rebate of $0.0033 per share in Tier 
1 under MEMX's Displayed Liquidity Incentive (DLI) Tiers for 
executions of liquidity providing displayed orders in securities 
priced at or above $1.00 per share for members that have an NBBO 
Time of at least 25% in an average of at least 1,000 securities, at 
least 125 must be DLI Target Securities, per trading day during the 
month, and a rebate of $0.0031 per share in Tier 2 for executions of 
liquidity providing displayed orders in securities priced at or 
above $1.00 per share for members that have an NBBO Time of at least 
25% in an average of at least 250 securities, at least 75 of which 
must be DLI Target Securities, per trading day during the month.
    \14\ Id.
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    In addition to the foregoing changes, the Exchange proposes to add 
to the Fee Schedule definitions of the terms, ``Market Quality 
Securities,'' and ``Percent Time at NBBO,'' that are consistent with 
the descriptions of those terms as set forth above, as such terms are 
used above describing the calculation methodology and criteria for 
determining whether a Members qualifies for a rebate under the MQ Tiers 
that the Exchange is proposing to add to the Fee Schedule, as described 
above. The Exchange also proposes to make a minor non-substantive edit 
to the definition of ADAV to remove the parenthetical ``Exchange System 
Disruption'' to avoid confusion as the Exchange has a pre-existing 
definition of Exchange System Disruption. The Exchange also proposes to 
adopt a new paragraph to the General Notes section

[[Page 31272]]

to state that, ``[f]or the purpose of determining qualification for the 
Market Quality Tiers the Exchange will exclude from its calculation: 
(1) Any trading day that the Exchange's system experiences a disruption 
that lasts for more than 60 minutes during regular trading hours; (2) 
any day with a scheduled early market close; and (3) the ``Russell 
Reconstitution Day'' (typically the last Friday in June).'' The 
Exchange believes this adds additional clarity regarding the 
methodology used to determine qualification for the Market Quality 
Tiers.
Implementation
    The proposed changes are immediately effective.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \15\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \16\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among its Members and issuers 
and other persons using its facilities. The Exchange also believes that 
the proposed rule change is consistent with the objectives of Section 
6(b)(5) \17\ requirements that the rules of an exchange be designed to 
prevent fraudulent and manipulative acts and practices, and to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest, and, particularly, is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4).
    \17\ 15 U.S.C 78f(b)(5).
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    The Exchange operates in a highly fragmented and competitive market 
in which market participants can readily direct their order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. More specifically, the 
Exchange is only one of sixteen registered equities exchanges, and 
there are a number of alternative trading systems and other off-
exchange venues, to which market participants may direct their order 
flow. Based on publicly available information, no single registered 
equities exchange currently has more than approximately 17% of the 
total market share of executed volume of equities trading.\18\ Thus, in 
such a low-concentrated and highly competitive market, no single 
equities exchange possesses significant pricing power in the execution 
of order flow, and the Exchange currently represents less than 1% of 
the overall market share. 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, 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.'' \19\
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    \18\ See supra note 3.
    \19\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37499 (June 29, 2005).
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    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. The Exchange believes the 
proposal reflects a reasonable and competitive pricing structure 
designed to incentivize market participants to direct their order flow 
to the Exchange, which the Exchange believes would enhance liquidity 
and market quality in both a broad manner and in a targeted manner with 
respect to the MQ Securities.
Market Quality Tiers
    The proposed Market Quality Tiers are intended to encourage Members 
to promote price discovery and market quality by quoting at the NBBO 
for a significant portion of each day in a large number of securities 
generally, and in MQ Securities in particular, thereby benefiting the 
Exchange and other investors by providing improved trading conditions 
for all market participants through narrower bid-ask spreads and 
increasing the depth of liquidity available at the NBBO in a broad base 
of securities, including the MQ Securities. Additionally, the Exchange 
believes the proposed enhanced rebates for all executions of a 
qualifying Member's Added Displayed Volume will simultaneously 
incentivize such Member to direct additional displayed liquidity-
providing orders to the Exchange in a more general manner to receive 
such enhanced rebate. Thus, the Exchange believes that the proposed 
Market Quality Tiers will promote price discovery and market quality in 
the MQ Securities and more generally on the Exchange, and, further, 
that the resulting tightened spreads and increased displayed liquidity 
will benefit all investors by deepening the Exchange's liquidity pool, 
supporting the quality of price discovery, enhancing quoting 
competition across all exchanges, and promoting market transparency.
    The Exchange believes the proposed enhanced rebate of $0.0032 per 
share provided to Members that qualify for Market Quality Tier 1 
executions of Added Displayed Volume is reasonable, in that it does not 
reflect a disproportionate increase above the standard rebate of 
$0.0029 per share provided to all Members with respect to the provision 
of Added Displayed Volume. Similarly, the Exchange believes the 
proposed enhanced rebate of $0.0034 per share provided to Members that 
qualify for Market Quality Tier 2 executions of Added Displayed Volume 
is reasonable, in that it does not reflect a disproportionate increase 
above the enhanced rebate of $.0.0032 per share provided to qualifying 
Members in Tier 1 with respect to the provision of Added Displayed 
Volume. Moreover, the Exchange believes the proposed enhanced rebate 
associated with Market Quality Tier 2 is a reasonable means to 
incentivize Members to increase their participation on the Exchange as 
it provides Members with an additional opportunity to qualify for an 
enhanced rebate for executions of Added Displayed Volume by satisfying 
more stringent criteria than Tier 1.
    The Exchange further believes that the proposed criteria for Tier 1 
and Tier 2 of the Market Quality Tiers, and the associated enhanced 
rebate for each is reasonable, in that the proposed criteria for Tier 2 
is incrementally more difficult to achieve than that of Tier 1, and 
thus Tier 2 appropriately offers a higher rebate commensurate with the 
corresponding higher volume threshold. Therefore, the Exchange believes 
that the Market Quality Tiers, as proposed, are consistent with an 
equitable allocation of fees and rebates, as the more stringent 
criteria correlates with the corresponding tier's higher rebate.

[[Page 31273]]

    In addition the Exchange believes that it is reasonable and 
consistent with an equitable allocation of fees to pay a higher rebate 
for executions of Added Displayed Volume to Members that qualify for 
one of the Market Quality Tiers with respect to the MQ Securities 
because of the additional commitment to market quality reflected in the 
associated quoting requirements. Such Members benefit all investors by 
promoting price discovery and increasing the depth of liquidity 
available at the NBBO and benefit the Exchange itself by enhancing its 
competitiveness as a market center that attracts actionable orders. 
Further, the Exchange notes that the proposed Market Quality Tiers 
offers a new incentive on the Exchange that would apply uniformly to 
all Members, and any Member may choose to qualify for one of the Market 
Quality Tiers by meeting the associated requirements in any month, 
regardless of the volume of transactions that it executes on the 
Exchange. The Exchange acknowledges that firms that do not post 
displayed liquidity on the Exchange or do so on a smaller scale may not 
have the level of capital necessary to support meeting the proposed 
Incentive Criteria, however, the Exchange believes that the 
requirements are attainable for many market participants who do 
actively quote on the Exchange and are reasonably related to the 
enhanced market quality that the Market Quality Tiers are designed to 
promote. Additionally, the Exchange notes that Members that do not meet 
the proposed Incentive Criteria may still qualify for a rebate that is 
higher than the standard rebate for executions of Added Displayed 
Volume through the Add Volume Tiers Incentive, which does not require a 
Member to consistently quote at the NBBO across a broad range of 
securities. Accordingly, the Exchange believes that it is consistent 
with an equitable allocation of fees and is not unfairly discriminatory 
to pay a higher rebate in comparison with the rebate paid to other 
Members for executions of displayed liquidity providing orders in 
recognition of the benefits to the Exchange and market participants, 
particularly as the magnitude of the additional rebate is not 
unreasonably high, and is instead, reasonably related to such enhanced 
market quality.
    The Exchange also believes that including in the proposed Market 
Quality Tiers criteria a quoting requirement for certain specified 
securities (i.e., the MQ Securities), in addition to the more general 
requirements of 250 securities in Tier 1 and 1,000 securities in Tier 
2, is equitable and not unfairly discriminatory because the Exchange 
has identified the MQ Securities as securities in which it would like 
to inject additional quoting competition, which the Exchange believes 
will generally act to narrow spreads, increase size at the NBBO, and 
increase liquidity depth in such securities, thereby increasing the 
attractiveness of the Exchange as a destination venue with respect to 
such securities. Accordingly, the Exchange believes that this aspect of 
the proposal is reasonable, equitably allocated, and not unfairly 
discriminatory because it is consistent with the overall goals of 
enhancing market quality.
    Furthermore, as noted above, the proposed Market Quality Tiers are 
similar in structure and purpose to pricing programs in place at other 
exchanges that are designed to enhance market quality.\20\ 
Specifically, these programs, like the proposed Market Quality Tiers, 
provide a higher rebate for executions of liquidity-adding displayed 
orders for members that achieve minimum quoting standards, including 
minimum quoting at the NBBO in a large number of securities generally, 
or certain designated securities in particular.\21\ The Exchange also 
notes that the proposed Market Quality Tiers are not dissimilar from 
volume-based rebates and fees which have been widely adopted by 
exchanges \22\ and are equitable and not unfairly discriminatory 
because they are generally open to all members on an equal basis and 
provide higher rebates and/or lower fees that are reasonably related to 
the value of an exchange's market quality. Much like volume-based tiers 
are designed to incentivize higher levels of liquidity provision, the 
proposed Market Quality Tiers are designed to incentivize enhanced 
market quality on the Exchange through tighter spreads, greater size at 
the NBBO, and greater quoting depth in a large number of securities 
generally, and in MQ Securities specifically, through the provision of 
an enhanced rebate for all executions of a qualifying Member's Added 
Displayed Volume, where such rebate will in turn incentivize higher 
levels of displayed liquidity provision in a general manner. 
Accordingly, the Exchange believes that the proposed Market Quality 
Tiers would act to enhance liquidity and competition across exchanges 
in the Market Quality Tiers and enhance liquidity provision in all 
securities on the Exchange more generally by providing a rebate 
reasonably related to such enhanced market quality to the benefit of 
all investors, thereby promoting the principles discussed in Sections 
6(b)(4) and 6(b)(5) of the Act.\23\
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    \20\ See supra note 11.
    \21\ Id.
    \22\ See, e.g., the Cboe BZX equities trading fee schedule on 
its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/); the Cboe EDGX equities 
trading fee schedule on its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/); and the 
MEMX equities trading fee schedule on its public website (available 
at https://info.memxtrading.com/fee-schedule/).
    \23\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange also believes that the calculation methodology and 
criteria for determining whether a Member satisfies the requirements to 
qualify for the Market Quality Tiers, as well as the definitions of 
terms that are used, is reasonable, equitable, and non-discriminatory 
because the definitions are designed to ensure that the Fee Schedule is 
clear and as easily understandable as possible with respect to the 
requirements of the proposed Market Quality Tiers. Additionally, the 
Exchange believes that excluding (1) any trading day that the 
Exchange's system experiences a disruption that lasts for more than 60 
minutes during Regular Trading Hours; (2) any day with a scheduled 
early market close; and (3) the Russell Reconstitution Day, when 
determining whether a Member qualifies for a proposed Market Tier 
during a month is reasonable, equitable, and non-discriminatory 
because, as explained above, the Exchange believes doing so would help 
to avoid penalizing Members that might otherwise have met the 
requirements to qualify for a proposed Market Quality Tier due to 
Exchange system disruptions, abbreviated trading days, and/or abnormal 
market conditions. For similar reasons, the Exchange believes it is 
appropriate to exclude the Russell Reconstitution Day, as the Exchange 
believes the change to normal trading activity as a result of the 
Russell Reconstitution may affect a Member's ability to meet the 
quoting requirement across various securities on that day. The Exchange 
notes that its proposed calculation methodology is consistent with the 
methodologies used by other exchanges when calculating certain member 
trading and other volume metrics for purposes of determining whether 
members qualify for certain pricing incentives.\24\
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    \24\ See supra note 13.
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    For the reasons discussed above, the Exchange submits that the 
proposal satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of 
the Act in that it provides for the equitable allocation of

[[Page 31274]]

reasonable dues, fees and other charges among its Members and other 
persons using its facilities and is not designed to unfairly 
discriminate between customers, issuers, brokers, or dealers. As 
described more fully below in the Exchange's statement regarding the 
burden on competition, the Exchange believes that its transaction 
pricing is subject to significant competitive forces, and that the 
proposed fees and rebates described herein are appropriate to address 
such forces.

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

    The Exchange does not believe that the proposed change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act. Instead, as discussed above, the proposal 
is intended to enhance market quality on the Exchange in a large number 
of securities generally, and in the MQ Securities specifically, and to 
encourage Members to maintain or increase their order flow on the 
Exchange, thereby promoting price discovery and contributing to a 
deeper and more liquid market to the benefit of all market 
participants. As a result, the Exchange believes the proposal would 
enhance its competitiveness as a market that attracts actionable 
orders, thereby making it a more desirable destination venue for its 
customers. For these reasons, the Exchange believes that the proposal 
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.'' \25\
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    \25\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 47396 (June 29, 2005).
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Intramarket Competition
    The Exchange believes that the proposal would incentivize Members 
to promote price discovery and market quality by quoting at the NBBO 
for a significant portion of each day in a large number of securities, 
including the MQ Securities, to maintain or increase their order flow 
on the Exchange, thereby contributing to a deeper and more liquid 
market to the benefit of all market participants and enhancing the 
attractiveness of the Exchange as a trading venue, which the Exchange 
believes, in turn, would continue to encourage market participants to 
direct additional order flow to the Exchange. Greater liquidity 
benefits all Members by providing more trading opportunities and 
encourages Members to send additional orders to the Exchange, thereby 
contributing to robust levels of liquidity, which benefits all market 
participants. The opportunity to qualify for one of the Market Quality 
Tiers and thus receive the corresponding enhanced rebate for executions 
of Added Displayed Volume would be available to all Members that meet 
the associated requirements in any month. Further, as noted above, the 
Exchange believes that the proposed criteria for Tier 1 and Tier 2 
(which has slightly more stringent criteria than Tier 1) of the Market 
Quality Tiers, are attainable for Members and that the respective 
enhanced rebates provided under each tier are reasonably related to the 
enhanced market quality that each tier is designed to promote. As such, 
the Exchange believes the proposed changes would not impose any burden 
on intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Intermarket Competition
    The Exchange believes its proposal will benefit competition, and 
the Exchange notes that it operates in a highly competitive market. 
Members have numerous alternative venues they may participate on and 
direct their order flow to, including fifteen other equities exchanges 
and numerous alternative trading systems and other off-exchange venues. 
As noted above, no single registered equities exchange currently has 
more than 17% of the total market share of executed volume of equities 
trading.\26\ Thus, in such a low-concentrated and highly competitive 
market, no single equities exchange possesses significant pricing power 
in the execution of order flow. Moreover, the Exchange believes that 
the ever-shifting market share among the exchanges from month to month 
demonstrates that market participants can shift order flow in response 
to new or different pricing structures being introduced to the market. 
Accordingly, competitive forces constrain the Exchange's transaction 
fees and rebates generally, including with respect to executions of 
Added Displayed Volume, and market participants can readily choose to 
send their orders to other exchanges and off-exchange venues if they 
deem fee levels at those other venues to be more favorable.
---------------------------------------------------------------------------

    \26\ See supra note 3.
---------------------------------------------------------------------------

    As described above, the proposal is designed to enhance market 
quality on the Exchange and to encourage additional order flow and 
quoting activity on the Exchange and to promote market quality through 
pricing incentives that are comparable to, and competitive with, 
pricing programs in place at other exchanges with respect to executions 
of Added Displayed Volume.\27\ Accordingly, the Exchange believes the 
proposal would not be a burden on, but rather promote, intermarket 
competition by enabling the Exchange to better compete with other 
exchanges that offer similar incentives to market participants that 
enhance market quality and/or achieve certain volume criteria and 
thresholds.
---------------------------------------------------------------------------

    \27\ See supra note 13.
---------------------------------------------------------------------------

    Additionally, the Commission has repeatedly expressed its 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. Specifically, 
in Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \28\ The fact 
that this market is competitive has also long been recognized by the 
courts. In NetCoalition v. Securities and Exchange Commission, the D.C. 
circuit stated: ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their routing agents, have a wide range of choices of where to 
route orders for execution'; [and] `no exchange can afford to take its 
market share percentages for granted' because `no exchange possess a 
monopoly, regulatory or otherwise, in the execution of order flow from 
broker dealers' . . .''.\29\ Accordingly, the Exchange does not believe 
its proposed pricing changes impose any burden on competition that is 
not necessary or appropriate in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \28\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \29\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
---------------------------------------------------------------------------

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

[[Page 31275]]

19(b)(3)(A)(ii) of the Act,\30\ and Rule 19b-4(f)(2) \31\ 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.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \31\ 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:

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#0a787f666f27696567676f647e794a796f69246d657c"><span class="__cf_email__" data-cfemail="295b5c454c044a4644444c475d5a695a4c4a074e465f">[email protected]</span></a>. Please include 
File Number SR-PEARL-2022-21 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-2022-21. 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-2022-21 and should be submitted on 
or before June 13, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10962 Filed 5-20-22; 8:45 am]
BILLING CODE 8011-01-P


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