Document ID: SEC-2017-1030-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2017-06-19T04:00Z

[Federal Register Volume 82, Number 116 (Monday, June 19, 2017)]
[Notices]
[Pages 27910-27912]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-12586]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80914; File No. SR-PEARL-2017-30]

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

June 13, 2017.
    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 June 7, 2017, MIAX PEARL, LLC (``MIAX PEARL'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX PEARL Fee 
Schedule (the ``Fee Schedule'').
    The Exchange initially filed the proposal on May 31, 2017 (SR-
PEARL-2017-27). That filing was withdrawn and replaced with the current 
filing (SR-PEARL-2017-30).
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
PEARL's principal office, and at the Commission's Public Reference 
Room.

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

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

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

1. Purpose
    The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees 
set forth in Section 1(a) of the Fee Schedule to decrease the ``Taker'' 
fee in all Tiers assessable to all orders submitted by a Member for the 
account of a Priority Customer \3\ in SPY options.
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    \3\ ``Priority Customer'' means a person or entity that (i) is 
not a broker or dealer in securities, and (ii) does not place more 
than 390 orders in listed options per day on average during a 
calendar month for its own beneficial account(s). See Exchange Rule 
100, including Interpretations and Policies .01.
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    The Exchange currently assesses tiered transaction rebates and fees 
to all market participants which are based upon the total monthly 
volume executed by the Member \4\ on MIAX PEARL in the relevant, 
respective origin type (not including Excluded Contracts) \5\ expressed 
as a percentage of TCV.\6\ In addition, the per contract transaction 
rebates and fees are applied retroactively to all eligible volume for 
that origin type once the respective threshold tier (``Tier'') has been 
reached by the Member. The Exchange aggregates the volume of Members 
and their Affiliates.\7\ Members that place resting liquidity, i.e., 
orders resting on the book of the MIAX PEARL System,\8\ are paid the 
specified ``maker'' rebate (each a ``Maker''), and Members that execute 
against resting liquidity are assessed the specified ``taker'' fee 
(each a ``Taker''). For opening transactions and ABBO uncrossing 
transactions, per contract transaction rebates and fees are waived for 
all market participants. Finally, Members are assessed lower 
transaction fees and receive lower rebates for order executions in 
standard option classes in the Penny Pilot Program \9\ (``Penny 
classes'') than for order executions in standard option classes which 
are not in the Penny Pilot Program (``Non-Penny classes''), where 
Members are assessed higher transaction fees and receive higher 
rebates.
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    \4\ ``Member'' means an individual or organization that is 
registered with the Exchange pursuant to Chapter II of the Exchange 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See the Definitions Section of 
the Fee Schedule and Exchange Rule 100.
    \5\ ``Excluded Contracts'' means any contracts routed to an away 
market for execution. See the Definitions Section of the Fee 
Schedule.
    \6\ ``TCV'' means total consolidated volume calculated as the 
total national volume in those classes listed on MIAX PEARL for the 
month for which the fees apply, excluding consolidated volume 
executed during the period of time in which the Exchange experiences 
an ``Exchange System Disruption'' (solely in the option classes of 
the affected Matching Engine (as defined below)). The term Exchange 
System Disruption, which is defined in the Definitions section of 
the Fee Schedule, means an outage of a Matching Engine or collective 
Matching Engines for a period of two consecutive hours or more, 
during trading hours. The term Matching Engine, which is also 
defined in the Definitions section of the Fee Schedule, is a part of 
the MIAX PEARL electronic system that processes options orders and 
trades on a symbol-by-symbol basis. Some Matching Engines will 
process option classes with multiple root symbols, and other 
Matching Engines may be dedicated to one single option root symbol 
(for example, options on SPY may be processed by one single Matching 
Engine that is dedicated only to SPY). A particular root symbol may 
only be assigned to a single designated Matching Engine. A 
particular root symbol may not be assigned to multiple Matching 
Engines. The Exchange believes that it is reasonable and appropriate 
to select two consecutive hours as the amount of time necessary to 
constitute an Exchange System Disruption, as two hours equates to 
approximately 1.4% of available trading time per month. The Exchange 
notes that the term ``Exchange System Disruption'' and its meaning 
have no applicability outside of the Fee Schedule, as it is used 
solely for purposes of calculating volume for the threshold tiers in 
the Fee Schedule. See the Definitions Section of the Fee Schedule.
    \7\ ``Affiliate'' means (i) an affiliate of a Member of at least 
75% common ownership between the firms as reflected on each firm's 
Form BD, Schedule A, or (ii) the Appointed Market Maker of an 
Appointed EEM (or, conversely, the Appointed EEM of an Appointed 
Market Maker). An ``Appointed Market Maker'' is a MIAX PEARL Market 
Maker (who does not otherwise have a corporate affiliation based 
upon common ownership with an EEM) that has been appointed by an EEM 
and an ``Appointed EEM'' is an EEM (who does not otherwise have a 
corporate affiliation based upon common ownership with a MIAX PEARL 
Market Maker) that has been appointed by a MIAX PEARL Market Maker, 
pursuant to the process described in the Fee Schedule. See the 
Definitions Section of the Fee Schedule.
    \8\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \9\ See Securities Exchange Act Release Nos. 79778 (January 12, 
2017), 82 FR 6662 (January 19, 2017) (SR-PEARL-2016-01); 80758 (May 
24, 2017), 82 FR 25022 (May 31, 2017) (SR-PEARL-2017-24).
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    Transaction rebates and fees applicable to orders submitted by a 
Member for the account of a Priority Customer are assessed according to 
the following table as of June 1, 2017:

[[Page 27911]]

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                                                                                           Per contract rebates/fees for   Per contract rebates/fees for
                                                                                                   penny classes                 non-penny classes
                  Origin                         Tier              Volume criteria       ---------------------------------------------------------------
                                                                                               Maker           Taker           Maker           Taker
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Priority Customer.........................               1  0.00%-0.05%.................         ($0.25)           $0.38         ($0.85)           $0.87
                                                         2  Above 0.05%-0.35%...........          (0.40)            0.38          (1.05)            0.86
                                                         3  Above 0.35%-0.50%...........          (0.50)            0.38          (1.05)            0.85
                                                         4  Above 0.50%-0.75%...........          (0.53)            0.38          (1.05)            0.84
                                                         5  Above 0.75%.................          (0.54)            0.38          (1.05)            0.84
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    The Exchange notes that, on May 26, 2017, the Exchange filed a 
proposed rule change to decrease the Taker fees for Priority Customer 
orders for options in Penny classes in each Tier to $0.38.\10\ Those 
changes, which became operative on June 1, 2017, are reflected in the 
above table.
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    \10\ See SR-PEARL-2017-25, filed May 26, 2017, and posted on the 
MIAX PEARL Web site: http://www.miaxoptions.com/rule-filings/pearl. 
On June 7, 2017, that filing was withdrawn and replaced with SR-
PEARL-2017-29, filed June 7, 2017, and posted on the MIAX PEARL Web 
site: http://www.miaxoptions.com/rule-filings/pearl.
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    The Exchange now proposes to decrease the Taker fee in all Tiers 
assessable to orders submitted by a Member for the account of a 
Priority Customer \11\ solely in SPY options to $0.35 per contract. 
Accordingly, the Exchange proposes to add a sentence beneath the 
Priority Customer table in the Add/Remove Tiered Rebates/Fees (by way 
of an asterisk to the Taker fee) to state that the Taker fee in the 
table applies ``For all Penny Classes other than SPY. For SPY, the 
Priority Customer Taker Fee shall be $0.35 per contract.''
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    \11\ ``Priority Customer'' means a person or entity that (i) is 
not a broker or dealer in securities, and (ii) does not place more 
than 390 orders in listed options per day on average during a 
calendar month for its own beneficial account(s). See Exchange Rule 
100, including Interpretations and Policies .01.
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    The purpose of decreasing the Taker fee for Priority Customer 
orders in SPY options is for business and competitive reasons to 
attract greater Priority Customer SPY order flow to the Exchange, and 
to match a similar pricing change recently announced by Nasdaq ISE with 
respect to taker fees for priority customer orders in SPY options on 
that exchange.\12\ The Exchange believes that reducing the Taker fee 
for Priority Customer orders in SPY options to $0.35 per contract 
(regardless of the Tier the Member achieves), will incentivize Members 
to send greater Priority Customer SPY option order flow to the Exchange 
due to favorable pricing for this liquidity type.
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    \12\ See SR-ISE-2017-49 (May 31, 2017) http://ise.cchwallstreet.com/contents/pdf/2017/SR-ISE-2017-49.pdf.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \13\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act,\14\ in that it 
is an equitable allocation of reasonable fees and other charges among 
Exchange members and other persons using its facilities, and 6(b)(5) of 
the Act,\15\ in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
    \15\ 15 U.S.C. 78f(b)(1) and (b)(5).
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    The proposed Taker fee decrease applicable to orders submitted by a 
Member for the account of a Priority Customer in SPY options is 
reasonable, equitable and not unfairly discriminatory because all 
Priority Customer SPY option orders are subject to the same Taker fees 
and access to the Exchange is offered on terms that are not unfairly 
discriminatory. The Exchange initially set its Taker fees at the 
various volume levels based upon business determinations and an 
analysis of current Taker fees and volume levels at other exchanges. 
For competitive and business reasons, the Exchange believes that lower 
Taker fees assessable to Priority Customer transactions in SPY options 
in all Tiers will encourage Members to execute more volume in SPY 
options on behalf of Priority Customers since they will be assessed 
reduced fees in all Tiers for Priority Customer orders in SPY options 
which remove liquidity. The Exchange believes for these reasons that 
offering the reduced Taker fees for Priority Customer transactions in 
SPY options in all Tiers is equitable, reasonable and not unfairly 
discriminatory, and thus consistent with the Act.
    The Exchange believes that its proposal to reduce Taker fees 
assessable to transactions solely in SPY options and not to reduce 
Taker fees for other option classes is consistent with other options 
markets that also assess different transaction fees for SPY options as 
compared to other option classes. The Exchange believes that 
establishing different pricing for SPY options for Priority Customers 
is reasonable, equitable, and not unfairly discriminatory because SPY 
options are more liquid than other option classes. Additionally, other 
competing options exchanges differentiate pricing in a similar 
manner.\16\
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    \16\ See supra note 12. See also NASDAQ OMX PHLX LLC Pricing 
Schedule, Section I.
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    Further, the Exchange believes that it is equitable and not 
unfairly discriminatory to assess lower fees to Priority Customer 
orders than to non-Priority Customer orders. A Priority Customer is by 
definition not a broker or dealer in securities, and does not place 
more than 390 orders in listed options per day on average during a 
calendar month for its own beneficial account(s). This limitation does 
not apply to participants on the Exchange whose behavior is 
substantially similar to that of market professionals, including non-
Priority Customers, MIAX PEARL Market Makers, Firms, and Broker-
Dealers, who will generally submit a higher number of orders (many of 
which do not result in executions) than Priority Customers.
    Furthermore, the proposed decrease to the Taker fees in SPY options 
for Priority Customer transactions in all Tiers promotes just and 
equitable principles of trade, fosters cooperation and coordination 
with persons engaged in facilitating transactions in securities, and 
protects investors and the public interest because the proposed 
decrease in the fees will encourage Members to send more Priority 
Customer orders in SPY options to the Exchange even if it is an order 
which takes liquidity since they will be assessed a reduced Taker fee 
in each Tier. To the extent that Priority Customer order flow in SPY

[[Page 27912]]

options is increased by the proposal, market participants will 
increasingly compete for the opportunity to trade on the Exchange, 
including sending more orders which will have the potential to be 
assessed lower fees and higher rebates. The resulting increased volume 
and liquidity will benefit all Exchange participants by providing more 
trading opportunities and tighter spreads.

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

    MIAX PEARL does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed Taker fee decrease 
is intended to encourage liquidity and should enable the Exchange to 
attract and compete for order flow with other exchanges which assess 
higher Priority Customer Taker fees for SPY options.
    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues if they 
deem fee levels at a particular venue to be excessive. In such an 
environment, the Exchange must continually adjust its rebates and fees 
to remain competitive with other exchanges and to attract order flow. 
The Exchange believes that the proposed rule change reflects this 
competitive environment because it modifies the Exchange's fees in a 
manner that encourages market participants to send order flow to the 
Exchange.

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,\17\ and Rule 19b-4(f)(2) \18\ 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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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-PEARL-2017-30 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-PEARL-2017-30. 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 Web site (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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-PEARL-2017-30 and should be 
submitted on or July 10, 2017.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-12586 Filed 6-16-17; 8:45 am]
 BILLING CODE 8011-01-P