Document ID: SEC-2022-1066-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2022-08-10T04:00Z

[Federal Register Volume 87, Number 153 (Wednesday, August 10, 2022)]
[Notices]
[Pages 48702-48715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17096]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95419; File No. SR-PEARL-2022-30]

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

August 4, 2022.
    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 July 26, 2022, MIAX PEARL, LLC (``MIAX Pearl'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change as described in Items I, II, and III, below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Pearl Options 
Fee Schedule (the ``Fee Schedule'') to amend its monthly Trading Permit 
\3\ fees for Members \4\ and no longer provide two monthly credits 
associated with Trading Permit and non-transaction fees.
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    \3\ The term ``Trading Permit'' means a permit issued by the 
Exchange that confers the ability to transact on the Exchange. See 
Exchange Rule 100.
    \4\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of Exchange 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See Exchange Rule 100 and the 
Definitions Section of the Fee Schedule.
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    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
Pearl's principal office, and at the Commission's Public Reference 
Room.

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

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

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

1. Purpose
    The Exchange commenced operations in February 2017 \5\ and adopted 
its initial fee schedule that waived fees for Trading Permits to trade 
on the Exchange.\6\ Although the fee was waived, an initial fee 
structure was put in place in communicate our intent to charge a fee in 
the future. As a new exchange entrant, the Exchange chose to offer 
Trading Permits free of charge to encourage market participants to 
trade on the Exchange and experience, among things, the quality of the 
Exchange's technology and trading functionality. This practice is not 
uncommon. Newly-opened exchanges often do not charge fees or charge 
lower fees for certain services such as memberships to attract order 
flow to an exchange, and later amend their fees to reflect the true 
value of those services, absorbing all costs to provide those services 
in the meantime. Allowing new exchange entrants time to build and 
sustain market share through various pricing incentives before 
increasing non-transaction fees encourages market entry and promotes 
competition. It also enables these new exchanges to mature their 
markets and allow market participants to trade on the new exchanges 
without fees serving as a potential barrier to attracting memberships 
and order flow.\7\
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    \5\ See MIAX PEARL Successfully Launches Trading Operations, 
dated February 6, 2017, available at https://www.miaxoptions.com/sites/default/files/alert-files/MIAX_Press_Release_02062017.pdf.
    \6\ See Securities Exchange Act Release No. 80061 (February 17, 
2017), 82 FR 11676 (February 24, 2017) (SR-PEARL-2017-10).
    \7\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (stating, ``[t]he 
Exchange established this lower (when compared to other options 
exchanges in the industry) Participant Fee in order to encourage 
market participants to become Participants of BOX. . .''). See also 
Securities Exchange Act Release No. 90076 (October 2, 2020), 85 FR 
63620 (October 8, 2020) (SR-MEMX-2020-10) (``MEMX Membership Fee 
Proposal'') (proposing to adopt the initial fee schedule and stating 
that ``[u]nder the initial proposed Fee Schedule, the Exchange 
proposes to make clear that it does not charge any fees for 
membership, market data products, physical connectivity or 
application sessions.''). MEMX has seen its market share increase 
and recently proposed to adopt a membership fee and fees for 
connectivity. See Securities Exchange Act Release Nos. 93927 
(January 7, 2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19) 
(proposing to adopt membership fees); and 95299 (July 15, 2022), 87 
FR 43563 (July 21, 2022) (SR-MEMX-2022-17) (proposing to adopt fees 
for connectivity). See also, e.g., Securities Exchange Act Release 
No. 88211 (February 14, 2020), 85 FR 9847 (February 20, 2020) (SR-
NYSENAT-2020-05), available at https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rulefilings/filings/2020/SR-NYSENat-2020-05.pdf (initiating market data fees for the NYSE National exchange 
after initially setting such fees at zero).

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[[Page 48703]]

    Later in 2018, as the Exchange's market share increased,\8\ it 
adopted a nominal fee for Trading Permits along with a tiered-volume 
based fee credit, known as the Trading Permit Fee Credit, and a Monthly 
Volume Credit.\9\ The Exchange has not amended its Trading Permit fees 
since the fees were first adopted in 2018. The Exchange established the 
Trading Permit Fee Credit to continue to attract order flow and 
increase membership by lowering the costs for Members that connect via 
the MEO Interface \10\ and FIX Interface.\11\
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    \8\ The Exchange experienced a monthly average trading volume of 
3.94% for the month of March 2018. See Market at a Glance, available 
at www.miaxoptions.com (last visited (June 22, 2022).
    \9\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
    \10\ ``MEO Interface'' or ``MEO'' means a binary order interface 
for certain order types as set forth in Rule 516 into the MIAX Pearl 
System. See the Definitions Section of the Fee Schedule and Exchange 
Rule 100.
    \11\ ``FIX Interface'' means the Financial Information Exchange 
interface for certain order types as set forth in Exchange Rule 516. 
See the Definitions Section of the Fee Schedule and Exchange Rule 
100.
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    The lower Trading Permit Fees, Trading Permit Fee Credit and 
Monthly Volume Credit have served their purpose of incentivizing market 
participants to trade on the Exchange as the Exchange's market share 
continues to grow and increase since the fee and credits were 
established.\12\ Therefore, the Exchange now proposes to amend the 
monthly Trading Permit fees for Members and to no longer provide two 
monthly credits associated with Trading Permit and non-transaction 
fees. The proposed changes are designed to update the Exchange's 
Trading Permit fees to reflect their current value based on the 
Exchange's market share and ability to deliver value to its customers 
through improved liquidity, enhanced functionality, and resilient 
trading technology, rather than their value when MIAX Pearl was a new 
options exchange entrant seeking to establish itself in a highly 
competitive space over five years ago. The Exchange reviewed similar 
fees charged by other options exchanges when considering the proposed 
fee levels as well as the impact on current Members and whether the 
proposed fee levels would continue to enable the Exchange to attract 
new Members and retain existing Members. The Exchange notes that it 
also socialized the proposed fee increases with current Members prior 
to first implementing the changes. During this process, the Exchange 
decided on price levels that it believes would aid and improve its 
competitive footing and some Members informed the Exchange that they 
anticipated a potential increase due to the lower rates the Exchange 
historically charged and the resiliency and performance of its trading 
platform. Each of these changes are described below.
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    \12\ The Exchange experienced a monthly average trading volume 
of 4.92% for the month of June 2022. See Market at a Glance, supra 
note 8.
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Background
    A Trading Permit confers the right to transact on the Exchange \13\ 
and are available to all Members. The Exchange notes that requiring a 
Trading Permit to trade on the Exchange and charging a monthly fee for 
such is comparable to other monthly membership requirements and 
associated fees charged by other exchanges and is described further 
below. Trading Permits, like membership fees, grant access and allow 
Members to be active on the Exchange, thus providing the ability to 
submit orders and trade on the Exchange, in the manner consistent with 
the membership type. Without a Trading Permit, or ``membership'' as 
referred to by other exchanges, a Member cannot directly trade on the 
Exchange. Therefore, a Trading Permit is a means to directly access the 
Exchange, which offers meaningful value. The Exchange has not amended 
its Trading Permit fees since the fees were first adopted in 2018.\14\
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    \13\ See Exchange Rule 200(a).
    \14\ See supra note 9.
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Removal of Monthly Trading Permit Fee Credits
Monthly Volume Credit
    The Exchange proposes to amend the Definitions section of the Fee 
Schedule to delete the definition and remove the credits applicable to 
the Monthly Volume Credit for Members. The Exchange established the 
Monthly Volume Credit in 2018 \15\ to encourage Members to send 
increased Priority Customer \16\ order flow to the Exchange, which the 
Exchange applied as a metric to the assessment of non-transaction fees 
for that Member. Prior to and during periods when this proposal was not 
in effect, the Exchange applied a different Monthly Volume Credit 
depending on whether the Member connects to the Exchange via the FIX or 
MEO Interface. Prior to and during periods when this proposal was not 
in effect, the Exchange assessed the Monthly Volume Credit to each 
Member that has executed Priority Customer volume along with that of 
its affiliates,\17\ not including Excluded Contracts,\18\ of at least 
0.30% of MIAX Pearl-listed Total Consolidated Volume (``TCV''),\19\ as 
set forth in the following table:
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    \15\ See Market at a Glance, supra note 8.
    \16\ The term ``Priority Customer'' means a person or entity 
that (i) is not a broker or dealer in securities, and (ii) does not 
place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial accounts(s). The 
number of orders shall be counted in accordance with Interpretation 
and Policy .01 of Exchange Rule 100. See the Definitions Section of 
the Fee Schedule and Exchange Rule 100, including Interpretation and 
Policy .01.
    \17\ ``Affiliate'' means (i) an affiliate of a Member of at 
least 75% common ownership between the firms as reflected on each 
firm's Form BD, Schedule A, or (ii) the Appointed Market Maker of an 
Appointed EEM (or, conversely, the Appointed EEM of an Appointed 
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market 
Maker (who does not otherwise have a corporate affiliation based 
upon common ownership with an EEM) that has been appointed by an EEM 
and an ``Appointed EEM'' is an EEM (who does not otherwise have a 
corporate affiliation based upon common ownership with a MIAX Pearl 
Market Maker) that has been appointed by a MIAX Pearl Market Maker, 
pursuant to the following process. A MIAX Pearl Market Maker 
appoints an EEM and an EEM appoints a MIAX Pearl Market Maker, for 
the purposes of the Fee Schedule, by each completing and sending an 
executed Volume Aggregation Request Form by email to 
[email protected] no later than 2 business days prior to 
the first business day of the month in which the designation is to 
become effective. Transmittal of a validly completed and executed 
form to the Exchange along with the Exchange's acknowledgement of 
the effective designation to each of the Market Maker and EEM will 
be viewed as acceptance of the appointment. The Exchange will only 
recognize one designation per Member. A Member may make a 
designation not more than once every 12 months (from the date of its 
most recent designation), which designation shall remain in effect 
unless or until the Exchange receives written notice submitted 2 
business days prior to the first business day of the month from 
either Member indicating that the appointment has been terminated. 
Designations will become operative on the first business day of the 
effective month and may not be terminated prior to the end of the 
month. Execution data and reports will be provided to both parties. 
See the Definitions Section of the Fee Schedule.
    \18\ ``Excluded Contracts'' means any contracts routed to an 
away market for execution. See the Definitions Section of the Fee 
Schedule.
    \19\ ``TCV'' means total consolidated volume calculated as the 
total national volume in those classes listed on MIAX Pearl for the 
month for which the fees apply, excluding consolidated volume 
executed during the period of time in which the Exchange experiences 
an Exchange System Disruption (solely in the option classes of the 
affected Matching Engine). See the Definitions Section of the Fee 
Schedule.

[[Page 48704]]

------------------------------------------------------------------------
                                                                Monthly
                  Type of member connection                      volume
                                                                 credit
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Member that connects via the FIX Interface...................       $250
Member that connects via the MEO Interface...................      1,000
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    If a Member connects via both the MEO Interface and FIX Interface 
and qualifies for the Monthly Volume Credit based upon its Priority 
Customer volume, the greater Monthly Volume Credit shall apply to such 
Member. Prior to and during periods when this proposal was not in 
effect, the Monthly Volume Credit was a single, once-per-month credit 
towards the aggregate monthly total of non-transaction fees assessable 
to a Member.
    The Exchange proposes an amendment to the Definitions section of 
the Fee Schedule to delete the definition and remove the Monthly Volume 
Credit. The Exchange established the Monthly Volume Credit when it 
first launched operations to encourage members to increase their order 
flow by providing a credit to those that exceeded a volume threshold. 
The Exchange believes that the Exchange's existing Priority Customer 
rebates and fees will continue to allow the Exchange to remain highly 
competitive and continue to attract order flow and maintain market 
share even without the Monthly Volume Credit.
Trading Permit Fee Credit
    The Exchange proposes to amend Section (3)(b) of the Fee Schedule 
to remove the Trading Permit fee credit that is denoted in footnote 
``*'' below the Trading Permit fee table. Prior to and during periods 
when this proposal was not in effect, the Trading Permit fee credit was 
applicable to Members that connected via both the MEO and FIX 
Interfaces. Members who connect via both the MEO and FIX Interfaces are 
assessed the rates for both types of Trading Permits, but these Members 
received a $100 monthly credit towards the Trading Permit fees 
applicable to the MEO Interface prior to and during periods when this 
proposal was not in effect. The Exchange proposes to remove the Trading 
Permit fee credit and delete footnote ``*'' from Section (3)(b) of the 
Fee Schedule.
    The Exchange established the Trading Permit fee credit when it 
first launched operations to attract order flow and increase membership 
by lowering the costs for Members that connect via the MEO Interface 
and FIX Interface. The Trading Permit fee credit has achieved its 
purpose and the Exchange now believes that it is appropriate to remove 
this credit in light of the current operating conditions and membership 
population on the Exchange.
Amendments to Monthly Trading Permit Fees
    The Exchange proposes to amend the Fee Schedule to amend the fees 
for Trading Permits. As a self-regulatory organization, the Exchange's 
membership department reviews applicants to ensure that each 
application complies with Exchange Rule 200 as well as other 
requirements for membership.\20\ Applicants must meet the Exchange's 
qualification criteria prior to approval. The new member review 
includes, but is not limited to, the registration and qualification of 
associated persons, financial health of the proposed member, the 
validity of the required clearing relationship, and the history of 
disciplinary matters. Approved new Members are required to comply with 
Exchange's By-Laws and Rules and are subject to regulation by the 
Exchange. The Exchange also has ongoing regulatory responsibilities 
over its Members.
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    \20\ The Exchange's Membership Department must ensure, among 
other things, that an applicant is not statutorily disqualified.
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    The Exchange believes that there are many factors that may cause a 
market participant to decide to become a member of a particular 
exchange. Among various factors, the Exchange believes market 
participants consider: (i) an exchange's available liquidity in options 
series; (ii) trading functionality, latency, reliability, throughout, 
access to liquidity, and determinism offered on a particular market; 
(iii) product offerings; (iv) customer service on an exchange; and (v) 
transactional pricing. The Exchange believes that the decision to 
become a member of an exchange, particularly as a registered market 
maker, is a complex one that is not solely based on non-transactional 
costs assessed by an exchange. Market participants weigh the tradeoff 
between where they choose to deploy liquidity versus where trading 
opportunities exist. Of course, the cost of membership may factor into 
a decision to become a member of a certain exchange, but the Exchange 
believes it is by no means the only factor when comparing exchanges.
    The Exchange assesses Trading Permit fees based upon the monthly 
total volume executed by the Member and its Affiliates on the Exchange 
across all origin types, not including Excluded Contracts, as compared 
to the total TCV in all MIAX Pearl-listed options. The Exchange adopted 
a tier-based fee structure based upon the volume-based tiers detailed 
in the definition of ``Non-Transaction Fees Volume-Based Tiers'' \21\ 
in the Definitions section of the Fee Schedule. The Exchange also 
assesses Trading Permit fees based upon the type of interface used by 
the Member to connect to the Exchange--the FIX Interface and/or the MEO 
Interface.
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    \21\ See the Definitions Section of the Fee Schedule for the 
monthly volume thresholds associated with each Tier.
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    The Exchange has two types of Members, Electronic Exchange Members 
\22\ (``EEMs'') and Market Makers.\23\ The Exchange currently charges 
monthly fees for Trading Permits pursuant to Exchange Rule 200(f), 
which varies based on the interface used by the Member and the Member's 
monthly trading volumes. The Exchange provides two interfaces to access 
the MIAX Pearl System,\24\ the FIX Interface and MEO Interface, and all 
Members are able to use either interface based on their business models 
and needs. The FIX Interface is the industry-wide uniform message 
format and provides lower bandwidth, less capacity, and fewer Exchange 
resources. EEMs, who are primarily order flow providers, are the only 
users of the FIX Interface.\25\ No Market Maker uses the FIX Interface. 
Meanwhile, the MEO Interface is the more robust interface offering 
lower latency and higher throughput. Market Makers only use the MEO 
Interface.
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    \22\ The term ``Electronic Exchange Member'' or ``EEM'' means 
the holder of a Trading Permit who is a Member representing as agent 
Public Customer Orders or Non-Customer Orders on the Exchange and 
those non-Market Maker Members conducting proprietary trading. 
Electronic Exchange Members are deemed ``members'' under the 
Exchange Act. See the Definitions Section of the Fee Schedule and 
Exchange Rule 100.
    \23\ The term ``Market Maker'' or ``MM'' means a Member 
registered with the Exchange for the purpose of making markets in 
options contracts traded on the Exchange and that is vested with the 
rights and responsibilities specified in Chapter VI of the Exchange 
Rules. See the Definitions Section of the Fee Schedule and Exchange 
Rule 100.
    \24\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \25\ The Exchange does not propose to amend the fees for EEM 
Clearing Firms, which is set at $250 per month and not based on the 
amount of volume conducted on the Exchange. The term ``EEM Clearing 
Firm'' means an EEM that solely clears transactions on the Exchange 
and does not connect to the Exchange via either the FIX Interface or 
MEO Interface. See the Definitions Section of the Fee Schedule.
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    Today, seven (7) Members that are registered solely as EEMs elect 
to utilize the MEO Interface. Based on their own business decisions and 
needs, some EEMs may elect to utilize the MEO Interface today due to 
its lower latency

[[Page 48705]]

and higher throughput. Also, six (6) Members are registered as both an 
EEM and Market Maker. These Members may choose to utilize only the MEO 
Interface for acting as either EEM or Market Maker, not only based on 
their own business needs, but also as a means to streamline and 
simplify their architecture between them and the Exchange. Each of 
these Members are able to utilize the FIX Interface for their EEM 
activities and avail themselves to the lower rates if they believe the 
FIX Interface is aligned with their business needs.
    Market Makers only use the MEO Interface because it provides 
functionality that is designed to assist Market Makers in satisfying 
their market making obligations. The Exchange offers three time-in-
force modifiers: \26\ Day Limit (``Day''), Immediate-Or-Cancel 
(``IOC''), and Good `Til Cancelled (``GTC'').\27\ While all order types 
are available for use on either interface, only the time-in-force 
modifiers of IOC and Day are available on the MEO Interface.\28\ Market 
Makers utilize the time-in-force of Day on orders to be posted on the 
MIAX Pearl Options Book \29\ and to meet Market Makers' continuous 
quoting obligations under Exchange Rule 605(d).\30\ Other Market Makers 
that primarily remove liquidity tend to be more latency sensitive and 
utilize the time-in-force of IOC on orders when looking to remove 
liquidity from the MIAX Pearl Options Book. The MEO Interface allows 
the submission of Cancel-Replacement orders,\31\ which allow for the 
immediate cancellation of a previously received order and the 
replacement of that order with a new order with new terms and 
conditions.\32\ Cancel-Replacement orders are primarily used by Market 
Makers as part of their continuous quoting obligations. Market Makers 
only use the MEO Interface due to its lower latency, higher throughput, 
available time-in-force instructions and order types that assist them 
in satisfying their market making obligations. Market Makers do not use 
the FIX Interface due to the unavailability of the above functionality. 
While EEMs primarily use the FIX Interface, certain EEMs chose to use 
the MEO interface due to its enhanced functionality and based on their 
own business models.
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    \26\ See MIAX Pearl Options Exchange User Manual, Section 6, 
Order Types, available at https://www.miaxoptions.com/exchange-functionality/pearl (last visited June 30, 2022).
    \27\ See, e.g., Exchange Rule 516.
    \28\ See preamble to Exchange Rule 516 (noting that not all 
order types and modifiers are available for use on each of the MEO 
Interface and the FIX Interface). See also Section 4.1.1.2 of the 
MEO Interface Specification, available at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf (indicating that the time-in-force 
instructions of IOC and Day are available on the MEO interface).
    \29\ The term ``Book'' means the electronic book of buy and sell 
orders and quotes maintained by the System. See Exchange Rule 100.
    \30\ Only the time-in-force modifiers of IOC and Day are 
available on the MEO Interface. See Exchange Rule 516 (noting that 
not all order types and modifiers are available for use on each of 
the MEO Interface and the FIX Interface). See also MIAX Pearl 
Options Exchange MEO Interface Specification, Section 4.1.1.2, 
available at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf (indicating that the time-in-
force instructions of IOC and Day are available on the MEO 
interface).
    \31\ See MIAX Pearl Options Exchange User Manual, Section 6, 
Interfaces and Liquidity Types, available at https://www.miaxoptions.com/exchange-functionality/pearl (last visited May 
16, 2022).
    \32\ See Exchange Rule 516(d).
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    Current Trading Permit Fees. Prior to and during periods when this 
proposal was not in effect, each Member who connected to the System via 
the FIX Interface was assessed the following monthly Trading Permit 
fees:
    (i) if its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $250;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $350; and
    (iii) if its volume falls within the parameters of Tier 3 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.60%, $450.
    Each Member who connected to the System via the MEO Interface was 
assessed the following monthly Trading Permit fees:
    (i) if its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $300;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $400; and
    (iii) if its volume falls within the parameters of Tier 3 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.60%, $500.
    Proposed Trading Permit Fees. The pull on Exchange resources 
associated with providing ongoing Member support, onboarding/off 
boarding technology requests, monitoring, reporting, and the 
surveillance and retention of increased message traffic due to 
increased trading volumes continue to increase since Trading Permit 
fees were first adopted in 2018.\33\ The Exchange proposes to amend its 
Trading Permit fees as follows. Each Member who connects to the System 
via the FIX Interface will be assessed the following monthly Trading 
Permit fees:
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    \33\ See supra note 9.
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    (i) if its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $500;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, $1,000; and
    (iii) if its volume falls within the parameters of Tier 3 of the 
Non-Transaction Fees Volume-Based Tiers, $1,500.
    Each Member who connects to the System via the MEO Interface will 
be assessed the following monthly Trading Permit fees:
    (i) if its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $2,500;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, $4,000; and
    (iii) if its volume falls within the parameters of Tier 3 of the 
Non-Transaction Fees Volume-Based Tiers, $6,000.
    As discussed above, both the MEO Interface and FIX Interface are 
available to all Members and each Member may choose which interface to 
utilize based on their own business needs. The MEO Interface is 
primarily used by Market Makers due to its robustness, lower latency, 
and higher throughput \34\ and, as discussed below, utilizes greater 
Exchange resources due to the increased volume of message traffic that 
travels through the MEO interface. Trading Permit fees for Members who 
connect through the MEO Interface are, therefore, higher than the 
Trading Permit fees for Members who connect through the FIX Interface. 
The FIX Interface provides lower capacity and bandwidth and, therefore, 
utilizes less Exchange resources. The FIX Interface is primarily used 
by order flow providers who tend to be less latency sensitive and 
submit less orders and messages than Market Makers.
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    \34\ Certain EEMs also choose to use the MEO interface due to 
its enhanced functionality and based on their own business models.
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    The Exchange has not amended its Trading Permit fees since the fees 
were first adopted in 2018.\35\ The Exchange notes that its affiliates, 
Miami International Securities Exchange, LLC (``MIAX'') and MIAX 
Emerald, LLC (``MIAX Emerald''), charge EEMs a similar, fixed flat 
trading permit fee of

[[Page 48706]]

$1,500,\36\ which equals the top tier proposed herein for users of the 
FIX Interface and also entirely consists of EEMs. MIAX and MIAX Emerald 
also charge tiered trading permit fees to Market Makers as the Exchange 
proposes herein for users of the MEO Interface, which also primarily 
consists of Market Makers. However, the Exchange's proposed fees for 
users of the MEO Interface range from $2,500 to $6,000 while the fees 
on MIAX and MIAX Emerald range from $7,000 to $22,000. The Exchange 
also proposes to base its pricing on trading volume while MIAX and MIAX 
Emerald base their trading permit fees on number of options classes 
assigned to the Market Maker or the percentage of volume in option 
classes.\37\ This is due to the difference in options assignments 
between the Exchange, and MIAX and MIAX Emerald. On MIAX and MIAX 
Emerald, Market Makers are assigned by options class, and are required 
to quote nearly all options in the class. On the Exchange, Market 
Makers are assigned by series, not class, and, therefore, trading 
volume is the more equitable and metric by which to gauge their use of 
the Exchange systems and related Trading Permit Fee.
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    \35\ Id.
    \36\ See the MIAX Fee Schedule, Section 3)b) and MIAX Emerald 
Fee Schedule, Section 3)b), available at https://www.miaxoptions.com/fees (last visited June 30, 2022).
    \37\ Both MIAX and MIAX Emerald charge Market Makers a monthly 
fee of $7,000 for up to 10 classes or up to 20% of classes assigned 
by volume, $12,000 for up to 40 classes or up to 35% of classes 
assigned by volume, $17,000 for up to 100 classes or up to 50% of 
classes assigned by volume, or $22,000 for over 100 classes or over 
50% of classes assigned by volume up to all classes listed on MIAX 
or MIAX Emerald, as applicable. Id.
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    As illustrated by the table below, the Exchange notes that the 
proposed fees for the Exchange's Trading Permits are in line with, or 
cheaper than, the similar trading permit and membership fees charged by 
other options exchanges. The below table also illustrates how the 
Exchange has historically undercharged for membership via Trading 
Permits as compared to other options exchanges. The Exchange believes 
other exchanges' membership and trading permit fees are useful examples 
of alternative approaches to providing and charging for membership and 
provides the below table for comparison purposes only to show how the 
Exchange's proposed fees compare to fees currently charged by other 
options exchanges for similar membership.

------------------------------------------------------------------------
                                      Monthly membership/trading permit
             Exchange                                fee
------------------------------------------------------------------------
MIAX Pearl Options (as proposed)..  Trading Permit access via FIX
                                     Interface:
                                    Tier 1: $500.
                                    Tier 2: $1,000.
                                    Tier 3: $1,500.
                                    Trading Permit access via MEO
                                     Interface:
                                    Tier 1: $2,500.
                                    Tier 2: $4,000.
                                    Tier 3: $6,000.
BOX Options Exchange LLC (``BOX'')  Participant Fee: $1,500.
 \38\.
                                    Electronic Market Maker Trading
                                     Permit Fees:
                                    Tier 1 (up to and including 10
                                     classes): $4,000.
                                    Tier 2 (up to and including 40
                                     classes): $6,000.
                                    Tier 3 (up to and including 100
                                     classes): $8,000.
                                    Tier 1 (over 100 classes): $10,000.
NYSE Arca, Inc. (``NYSE Arca'')     Options Trading Permits:
 \39\.
                                    Office and Clearing Firms: $1,000.
                                    Market Makers: 1st OTP--$8,000 for
                                     up to 60 plus the bottom 45% of
                                     option issues.
                                    2nd OTP--Additional $6,000 for up to
                                     150 plus the bottom 45% of option
                                     issues.
                                    3rd OTP--Additional $5,000 for up to
                                     500 plus the bottom 45% of option
                                     issues.
                                    4th OTP--Additional $4,000 for up to
                                     1,100 plus the bottom 45% of option
                                     issues.
                                    5th OTP--Additional $3,000 for all
                                     option issues.
                                    6th-9th OTP--Additional $2,000.
                                    10th or more OTPs--$500 for all
                                     options issues.
NYSE American, LLC (``NYSE          ATP Trading Permits:
 American'') \40\.
                                    Clearing Member: $1,000.
                                    Order Flow Provider: $1,000.
                                    Market Makers: $8,000 for up to 60
                                     plus the bottom 45% of option
                                     issues.
                                    Additional $6,000 for up to 150 plus
                                     the bottom 45% of option issues.
                                    Additional $5,000 for up to 500 plus
                                     the bottom 45% of option issues.
                                    Additional $4,000 for up to 1,100
                                     plus the bottom 45% of option
                                     issues.
                                    Additional $3,000 for all option
                                     issues.
                                    Additional $2,000 for 6th to 9th
                                     ATPs (plus additional fee for
                                     premium products).
Nasdaq PHLX LLC (``Nasdaq PHLX'')   Streaming Quote Trader (``SQT'')
 \41\.                               permit fees:
                                    Tier 1 (up to 200 option classes):
                                     $0.00.
                                    Tier 2 (up to 400 option classes):
                                     $2,200.
                                    Tier 3 (up to 600 option classes):
                                     $3,200.
                                    Tier 4 (up to 800 option classes):
                                     $4,200.
                                    Tier 5 (up to 1,000 option classes):
                                     $5,200.
                                    Tier 6 (up to 1,200 option classes):
                                     $6,200.
                                    Tier 7 (all option classes): $7,200.
                                    Remote Market Maker Organization
                                     (``RMMO'') permit fees:
                                    Tier 1 (less than 100 option
                                     classes): $5,000.
                                    Tier 2 (more than 100 and less than
                                     999 option classes): $8,000.
                                    Tier 3 (1,000 or more option
                                     classes): $11,000.
Nasdaq ISE LLC (``Nasdaq ISE'')     Access Fees:
 \42\.

[[Page 48707]]

 
                                    Electronic Access Members
                                     (``EAMs''): $500.
                                    Primary Market Maker: $5,000 per
                                     membership.
                                    Competitive Market Maker: $2,500 per
                                     membership.
Cboe Exchange, Inc. (``Cboe'')      Electronic Trading Permit Fees:
 \43\.
                                    Market Maker: $5,000.
                                    Electronic Access Permit: $3,000.
                                    Clearing TPH Permit: $2,000.
Cboe C2 Exchange, Inc. (``Cboe      Access Permit Fees for Market
 C2'') \44\.                         Makers: $5,000.
                                    Electronic Access Permits: $1,000.
Cboe BZX Exchange, Inc. (``Cboe     $500 where member has an ADV < 5,000
 BZX Optis'') \45\.                  contracts traded. \46\
                                    $1,000 where member has an ADV >=
                                     5,000 contracts traded.
------------------------------------------------------------------------

Implementation and Procedural History
    The proposed rule change will be immediately effective. The 
Exchange initially filed this proposal on July 1, 2021, with the 
proposed fees being immediately effective.\47\ Between August 2021 and 
February 2022, the Exchange withdrew and refiled the proposed rule 
change, each time to meaningfully attempt to provide additional 
justification for the proposed fee changes, provide enhanced details 
regarding the Exchange's cost methodology, and address questions 
contained in the Commission's suspension orders.\48\ The Commission 
received one comment letter on the filings.\49\ The Commission again 
suspended the proposed fees on February 18, 2022.\50\ The Commission 
received one comment letter on that filing.\51\ The Exchange then 
provided Trading Permits at the lower rates for the month of March 2022 
and absorbed all associated costs with the lower rates.
---------------------------------------------------------------------------

    \38\ See BOX fee schedule, Section 1, available at https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-June-1-2022-1.pdf 
(last visited June 29, 2022). BOX's Participant Fee is the analog to 
the Exchange's Trading Permit fee for Members who use the FIX 
interface. BOX's Electronic Market Maker Trading Permit fee is the 
analog for the Exchange's Trading Permit fee for Members who use the 
MEO interface. BOX had an average daily market share of 6.26% as of 
June 30, 2022. See Market at a Glance, supra note 8.
    \39\ See NYSE Arca Options Fees and Charges, OTP Trading 
Participant Rights, p.1, available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf (last visited July 12, 2022). 
NYSE Arca recently increased this Options Trading Permit Fees 
approximately 45%. See Securities Exchange Act Release No. 95142 
(June 23, 2022), 87 FR 38786 (June 29, 2022) (SR-NYSEArca-2022-36). 
Under the new fee structure, it effectively costs a Market Maker 
$26,000 per month to trade all options issues on NYSE Arca. NYSE 
Arca's Options Trading Permit fee is the analog to the Exchange's 
Trading Permit fee for Members who use the FIX interface. NYSE 
Arca's Options Trading Permit fee for Market Makers is the analog 
for the Exchange's Trading Permit fee for Members who use the MEO 
interface.
    \40\ See NYSE American Options Fee Schedule, Section III, 
Monthly Trading Permit, Rights, Floor Access and Premium Product 
Fees, p. 23-24, available at https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf 
(last visited May 16, 2022). Under this fee structure, it 
effectively costs a Market Maker $26,000 per month to trade all 
options issues on NYSE American. NYSE American's ATP Trading Permit 
fee for Clearing Members and Order Flow Providers is the analog for 
the Exchange's Trading Permit fee for Members that use the FIX 
interface. NYSE American's ATP Trading Permit fee for Market Makers 
is the analog for the Exchange's Trading Permit fee for Members that 
use the MEO interface.
    \41\ See Nasdaq PHLX Options 7 Pricing Schedule, Section 8. 
Membership Fees, available at https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207 (last visited May 16, 2022). 
Nasdaq PHLX Options' SQT and RMMO fees is the analog to the 
Exchange's Trading Permit fee for Members that use the MEO 
Interface.
    \42\ See Nasdaq ISE Options 7 Pricing Schedule, Section 8.A. 
Access Services, available at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207 (last visited May 16, 2022). 
Nasdaq ISE Options' EAM Access Fee is the analog to the Exchange's 
Trading Permit fee for Members that use the FIX Interface. Nasdaq 
ISE Options' Primary and Competitive Market Maker Access Fees are 
the analog to the Exchange's Trading Permit fee for Members that use 
the MEO Interface.
    \43\ See Cboe Fee Schedule, Electronic Trading Permit Fees, 
available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf (last visited June 30, 2022). Cboe's Electronic 
Access Permit fee and Clearing TPH fee are the analog to the 
Exchange's Trading Permit fee for Members that use the FIX 
Interface. Cboe's Market Maker Permit fee is the analog to the 
Exchange's Trading Permit fee for Members that use the MEO 
Interface.
    \44\ See Cboe C2 Fee Schedule, Access Fees, available at https://www.cboe.com/us/options/membership/fee_schedule/ctwo/ (last visited 
June 30, 2022). C2's Market Maker Access Permit fee is the analog to 
the Exchange's Trading Permit fee for Members that use the MEO 
Interface. C2's Electronic Access Permit fee is the analog to the 
Exchange's Trading Permit fee for Members that use the FIX 
Interface.
    \45\ See ``Membership Fees'' section of the Cboe BZX Options Fee 
Schedule, available at https://www.cboe.com/us/options/membership/fee_schedule/bzx (last visited June 30, 2022). The Exchange 
understands Cboe BZX Options charges the same Membership Fee to all 
of its Options Members.
    \46\ Under the Exchange's tiered structure, a Member may trade 
approximately 106,000 more contracts on the Exchange than on Cboe 
BZX Options and continue to qualify for the Exchange's lowest tier. 
For example, a Member would qualify for Tier 1 of the Exchange's 
tiered pricing structure where that Member's total volume as a 
percentage of TCV is between 0.00% and 0.30%. Assuming an average of 
37 million contracts are traded each day during a month, that Member 
would qualify for Tier 1 where that Member traded less than 111,000 
contracts that day and be charged $500, the same fee as Cboe BZX 
Options, where that Member connects via the FIX Interface. On Cboe 
BZX Options, the Exchange understands that same member would no 
longer qualify for their lowest tier when their ADV equals or 
exceeds 5,000 contracts and be charged a fee of $1,000 for that 
month.
    \47\ See Securities Exchange Act Release No. 92366 (July 9, 
2021), 86 FR 37379 (SR-PEARL-2021-32).
    \48\ See Securities Exchange Act Release Nos. 92797 (August 27, 
2021), 86 FR 49399 (September 2, 2021) (SR-PEARL-2021-32) 
(``Suspension Order 1''); 93555 (November 10, 2021), 86 FR 64254 
(November 17, 2021) (SR-PEARL-2021-54); 93895 (January 4, 2022), 87 
FR 1217 (January 10, 2022) (SR-PEARL-2021-59).
    \49\ See Letter from Richard J. McDonald, Susquehanna 
International Group, LLC (``SIG''), to Vanessa Countryman, 
Secretary, Commission, dated September 28, 2021 (``SIG Letter 1'').
    \50\ See Securities Exchange Act Release No. 94287 (February 18, 
2022), 87 FR 10837 (February 25, 2022) (SR-PEARL-2022-05) 
(``Suspension Order 2'').
    \51\ See Letter from Richard J. McDonald, SIG, to Vanessa 
Countryman, Secretary, Commission, dated March 15, 2022 (``SIG 
Letter 2'').
---------------------------------------------------------------------------

    On March 30, 2022, the Exchange withdrew the proposed rule change 
that was previously suspended by the Commission on February 18, 2022. 
After providing Trading Permits at the lower rates for the month of 
March 2022, on March 30, 2022, the Exchange submitted a revised 
proposal for effectiveness beginning April 1, 2022.\52\ This revised 
proposal argued that the proposed fees were constrained by competition 
based on a similar filing for permit/membership fees by MEMX LLC 
(``MEMX'').\53\ The Commission received one comment letter on that 
filing.\54\ The Exchange withdrew this revised proposal and submitted a 
further revised filing providing additional support for its competition 
based

[[Page 48708]]

justification on May 17, 2022.\55\ In response to feedback from 
Commission Staff, the Exchange then withdrew that revised proposal and 
submitted a further revised proposal to provide additional support for 
the proposed fee change and to enhance its competition based 
justification on July 12, 2022.\56\ Again, in response to feedback from 
Commission Staff, the Exchange withdrew that revised proposal and 
submitted this further revised proposal to provide additional support 
for the proposed fee change and to enhance its competition based 
justification on July 26, 2022.
---------------------------------------------------------------------------

    \52\ See Securities Exchange Act Release No. 94696 (April 12, 
2022), 87 FR 22987 (April 18, 2022) (SR-PEARL-2022-09).
    \53\ See Securities Exchange Act Release No. 93927 (January 7, 
2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19) (proposal to 
adopt monthly membership fees).
    \54\ See Letter from Brian Sopinsky, SIG, to Vanessa Countryman, 
Secretary, Commission, dated May 9, 2022 (``SIG Letter 3'').
    \55\ See Securities Exchange Act Release No. 94993 (May 26, 
2022), 87 FR 33518 (June 2, 2022) (SR-PEARL-2022-23).
    \56\ See SR-PEARL-2022-28.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \57\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \58\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees and other charges among its members and issuers and other persons 
using its facilities. The Exchange also believes the proposal furthers 
the objectives of Section 6(b)(5) of the Act in that it is designed to 
promote just and equitable principles of trade, 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 is not designed to permit unfair discrimination between 
customers, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \57\ 15 U.S.C. 78f(b).
    \58\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The proposed changes to the Fee Schedule are reasonable in several 
respects. As a threshold matter, the Exchange is subject to significant 
competitive forces in the market for order flow, which constrains its 
pricing determinations. The fact that the market for order flow is 
competitive has 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 order-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 possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers' . . . .'' \59\
---------------------------------------------------------------------------

    \59\ See NetCoalition, 615 F.3d at 539 (D.C. Cir. 2010) (quoting 
Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 
74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention to determine 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues, and also recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \60\
---------------------------------------------------------------------------

    \60\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Congress directed the Commission to ``rely `on competition, 
whenever possible, in meeting its regulatory responsibilities for 
overseeing the SROs and the national market system.' '' \61\ As a 
result, the Commission has historically relied on competitive forces to 
determine whether a fee proposal is equitable, fair, reasonable, and 
not unreasonably or unfairly discriminatory. ``If competitive forces 
are operative, the self-interest of the exchanges themselves will work 
powerfully to constrain unreasonable or unfair behavior.'' \62\ 
Accordingly, ``the existence of significant competition provides a 
substantial basis for finding that the terms of an exchange's fee 
proposal are equitable, fair, reasonable, and not unreasonably or 
unfairly discriminatory.'' \63\
---------------------------------------------------------------------------

    \61\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep. 
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that 
the national market system evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed.'').
    \62\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \63\ Id.
---------------------------------------------------------------------------

    In its 2019 guidance on fee proposals, Commission staff indicated 
that they would look at factors beyond the competitive environment, 
such as cost, only if a ``proposal lacks persuasive evidence that the 
proposed fee is constrained by significant competitive forces.'' \64\ 
The Commission staff further indicated in its 2019 guidance that an 
exchange can demonstrate competitive forces exist by showing that 
``substantially similar but not identical'' substitutable products or 
services exist and that ``elasticity of demand'' may be evidence that 
competitive forces exist.\65\
---------------------------------------------------------------------------

    \64\ See U.S. Securities and Exchange Commission, ``Staff 
Guidance on SRO Rule filings Relating to Fees,'' (May 21, 2019), 
available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
    \65\ Id.
---------------------------------------------------------------------------

    The Exchange believes that there are many factors that may cause a 
market participant to decide to become a member of a particular 
exchange including: (i) an exchange's available liquidity in options 
series; (ii) trading functionality offered on a particular market; 
(iii) product offerings; (iv) customer service on an exchange; and (v) 
transactional pricing. As discussed above, the Exchange believes that 
the decision to become a member of an exchange, particularly as a 
registered market maker, is a complex one that is not solely based on 
non-transactional costs assessed by an exchange. Market participants 
weigh the tradeoff between where they choose to deploy liquidity versus 
where trading opportunities exist. Of course, the cost of membership, 
ports and market data may factor into a decision to become a member of 
a certain exchange, but the Exchange believes it is by no means the 
only factor when comparing exchanges. In general, there are a number of 
factors that market participants may consider when deciding to become a 
member of the Exchange or any other options exchange.
Market Makers
    Market makers play an important role on options exchanges as they 
provide liquidity. In options markets, registered market makers are 
assigned options series \66\ and are required to quote in those options 
series for a specified time period during the day.\67\ Typically, a 
lead or primary market maker \68\ will be required to quote for a 
longer period of time during the day as compared to other market makers 
registered on an exchange.\69\ Additionally, market makers are 
typically required to quote within a certain width on options 
markets.\70\ Greater liquidity on options

[[Page 48709]]

markets benefits all market participants by providing more trading 
opportunities and attracting greater participation by market makers. An 
increase in the activity of market makers in turn facilitates tighter 
spreads. Market participants are attracted to options markets that have 
ample liquidity and tighter spreads in options series.
---------------------------------------------------------------------------

    \66\ See Exchange Rule 602, Phlx, ISE, Nasdaq GEMX, Inc. 
(``GEMX''), Nasdaq MRX, Inc. (``MRX''), Nasdaq BX, Inc. (``BX'') and 
Nasdaq Options Market (``NOM'') Options 2, Section 3; Cboe Rule 
5.50; BOX Exchange LLC (``BOX'') Rule 8030; MIAX Rule 602; and NYSE 
Arca Rule 6.35-O.
    \67\ See Exchange Rule 604, ISE, GEMX and MRX, Phlx, BX and NOM 
Options 2, Section 5; Cboe Rule 5.52; BOX Rule 8050; MIAX Rule 604; 
and NYSE Arca Rule 6.37A-O.
    \68\ Options markets refer to the primary market maker on an 
exchange in several ways.
    \69\ See Exchange Rule 604, BX Options 2, Section 4; ISE, GEMX 
and MRX, and Phlx Options 2, Section 5; BOX Rule 8055; MIAX Rule 
604; and NYSE Arca Rule 6.37A-O.
    \70\ See BX Options 2, Section 4; ISE, GEMX and MRX, Phlx and 
NOM Options 2, Section 5; and Cboe Rule 5.52; BOX Rule 8040.
---------------------------------------------------------------------------

Trading Functionality
    An exchange's trading functionality attracts market participants 
who may elect, for example, to submit an order into a price improving 
auction,\71\ enter a complex order,\72\ or utilize a particular order 
type.\73\ Different options exchanges offer different trading 
functionality to their members. For example, with respect to priority 
and allocation of an order book, some options exchanges have price/time 
allocation,\74\ some have a size pro-rata allocation,\75\ while other 
exchanges offer both allocation models.\76\ The allocation methodology 
on a particular options exchange's order book may attract certain 
market participants. Also, the manner in which some options markets 
structure their solicitation auction,\77\ or opening process,\78\ may 
be attractive to certain market participants. Finally, some exchanges 
have trading floors \79\ which may accommodate trading for certain 
market participants or trading firms.\80\
---------------------------------------------------------------------------

    \71\ See ISE, GEMX, MRX, Phlx and BX Options 3, Section 13; MIAX 
Rule 515A; Cboe Rule 5.37; and BOX Rules 7150 and 7245. The Exchange 
does not currently offer a price improving auction.
    \72\ See Phlx and ISE Options 3, Section 14; MIAX Rule 518; Cboe 
Rule 5.33; BOX Rule 7240; and NYSE Arca Rule 6.91-O. The Exchange 
does not currently offer complex order functionality.
    \73\ See Exchange Rule 516, ISE, GEMX, MRX, Phlx, BX and NOM 
Options 3, Section 7; MIAX Rule 516; Cboe Rule 5.6; BOX Rule 7110; 
and NYSE Arca Rule 6.62-O.
    \74\ See Exchange Rule 514, Cboe Rule 5.85; BOX Rule 7130; and 
NYSE Arca Rule 6.76-O.
    \75\ See Phlx, ISE, GEMX and MRX Options 3, Section 10; and BOX 
Rule 7135.
    \76\ See BX Options 3, Section 10. While BX's rule permits both 
price/time and size pro-rata allocation, all symbols on BX are 
currently designated as Price/Time. See also BOX Rules 7130 and 
7135. MIAX's rule permits both Price-Time and Pro-Rata allocation. 
See also MIAX Rule 514.
    \77\ See ISE, GEMX and MRX Options 3, Section 11; NYSE American 
Rules 971.1NY and 971.2NY; and Cboe Rule 5.39.
    \78\ See Exchange Rule 503, ISE, GEMX, MRX, Phlx, BX and NOM 
Options 3, Section 8; Cboe Rule 5.31, MIAX Rule 503, BOX Rule 7070, 
and NYSE Arca Rule 6.64-O.
    \79\ Today, Phlx, Cboe, BOX, NYSE Arca, and NYSE American LLC 
have a trading floor. Trading floors require an on-floor presence to 
execute options transactions.
    \80\ There are certain features of open outcry trading that are 
difficult to replicate in an electronic trading environment. The 
Exchange has observed, and understands from various market 
participants, that they have had difficulty executing certain 
orders, such as larger orders and high-risk and complicated 
strategies, in an all-electronic trading configuration without the 
element of human interaction to negotiate pricing for these orders.
---------------------------------------------------------------------------

Product Offerings
    Introducing new and innovative products to the marketplace designed 
to meet customer demands may attract market participants to a 
particular options venue. New products in the options industry may 
allow market participants greater trading and hedging opportunities, as 
well as new avenues to manage risks. The listing of new options 
products enhances competition among market participants by providing 
investors with additional investment vehicles, as well as competitive 
alternatives, to existing investment products. An exchange's 
proprietary product offering may attract order flow to a particular 
exchange to trade a particular options product.\81\
---------------------------------------------------------------------------

    \81\ See, e.g., options on the Nasdaq-100 Index[supreg] 
available on ISE, GEMX and Phlx and Cboe's Market Volatility 
Index[supreg]. Currently, the Exchange does not list any proprietary 
products.
---------------------------------------------------------------------------

Transaction Pricing
    The pricing available on a particular exchange may impact a market 
participant's decision to submit order flow to a particular options 
venue. The options industry is competitive. Clear substitutes to the 
Exchange exist in the market for options security transaction services; 
the Exchange is only one of sixteen options exchanges to which market 
participants may direct their order flow and memberships. Within this 
environment, market participants can freely, and often do, shift their 
order flow and memberships among the Exchange and competing venues in 
response to changes in their respective pricing schedules.
* * * * *
    The Exchange believes the fees in this case are reasonable and 
constrained by competitive forces. Evidence is set forth below showing 
that substitutable products and elasticity of demand exist when it 
comes to purchasing a Trading Permit or membership on an exchange.
Trading Permit Fee Increase
Trading Permit and Similar Membership Fees Are Constrained by 
Competition
    The Exchange's Trading Permit Fees are subject to significant 
competitive forces as evidenced by available substitutes and elasticity 
of demand. As discussed above, the Exchange believes that there are 
many factors that may cause a market participant to decide to become a 
member of a particular exchange including: (i) an exchange's available 
liquidity in options series; (ii) trading functionality, latency, 
reliability, throughout, access to liquidity, and determinism offered 
on a particular market; (iii) product offerings; (iv) customer service 
on an exchange; and (v) transactional pricing. The Exchange believes 
that the decision to become a member of an exchange is a complex one 
that is not solely based on non-transactional costs assessed by an 
exchange.
    The Exchange believes that there is value in being a Member of the 
Exchange and retaining that Membership as the Exchange's market share 
has grown. Exchanges compete with each other for memberships and must 
consider this competitive dynamic when setting fees for memberships, 
such as Trading Permits. In this case, the proposed Trading Permit fees 
are reasonable and constrained by competition because, as illustrated 
by the above table, they are in the range of similar types of 
membership fees charged to analogous categories of market participants 
by other exchanges, including those with similar market share.\82\ The 
proposed monthly Trading Permit fees are also lower than or comparable 
to the membership and trading permit fees imposed by several other 
national securities exchanges that charge such fees.\83\ Should the 
Exchange seek to adopt Trading Permit Fees that are higher than that of 
other exchanges, it would risk losing Members and having them 
potentially connect to the Exchange via other means. Becoming a member 
of the exchange does not ``lock'' a potential member into a market or 
diminish the overall competition for exchange services. The decision to 
become a member of an exchange is made at the beginning of the 
relationship, and is no less subject to competition than trading fees 
or market data.
---------------------------------------------------------------------------

    \82\ See supra notes 38-46 and accompanying text.
    \83\ See id.
---------------------------------------------------------------------------

    Availability of Substitutes. The Commission staff indicated in its 
2019 guidance that an exchange can demonstrate competitive forces exist 
by showing that ``substantially similar but not identical'' 
substitutable products or services exist.\84\ That is clearly the case 
here. No broker-dealer is required to become a Member of the Exchange. 
Instead, many market participants waited for the Exchange to grow to a 
certain percentage of market share before they decided to become an 
Exchange Member. In addition, many market participants still have not 
joined the Exchange despite the Exchange's growth in recent years to 
consistently be

[[Page 48710]]

approximately 4-5% of the overall equity options market share. To 
illustrate, the Exchange currently has 41 Members.\85\ However, based 
on publicly available information regarding a sample of the Exchange's 
competitors, NYSE American Options has 75 members, NYSE Arca Options 
has 71 members, and Cboe has 94 members.\86\ Accordingly, the vigorous 
competition among national securities exchanges provides many 
alternatives for firms to voluntarily decide whether membership to the 
Exchange is appropriate and worthwhile, and no broker-dealer is 
required to become a member of the Exchange. Specifically, neither the 
trade-through requirements under Regulation NMS nor broker-dealers' 
best execution obligations require a broker-dealer to become a member 
of every exchange.
---------------------------------------------------------------------------

    \84\ See supra note 64.
    \85\ See MIAX Pearl Options Exchange Member Directory, available 
at https://www.miaxoptions.com/exchange-members/pearl.
    \86\ See NYSE American Options Membership Directory, available 
at https://www.nyse.com/markets/american-options/membership (last 
visited March 9, 2022); NYSE Arca Options Membership Directory, 
available at https://www.nyse.com/markets/arca-options/membership 
(last visited March 9, 2022); Cboe Members and Sponsored 
Participants, Form 1 Amendment dated February 17, 2022, Exhibit M, 
available at https://www.sec.gov/Archives/edgar/vprr/2200/22000797.pdf (last visited March 9, 2022).
---------------------------------------------------------------------------

    The Exchange acknowledges that competitive forces may compel 
certain broker-dealers to be members of all equity options exchanges 
based on their business models. These broker-dealers may engage in 
latency sensitive trading strategies that benefit from being a member 
and connecting directly to an exchange based on the business model they 
choose to employ. Competitive forces that may drive certain broker-
dealers to become members of each exchange based on their business 
models is not unique to the options market. This dynamic also exists in 
equities and acknowledged by MEMX and considered by the Commission in a 
recent MEMX proposal to adopt a monthly membership fee.\87\ However, 
the Exchange believes that the proposed fees are reasonable, equitably 
allocated and not unfairly discriminatory, even for a broker-dealer 
that deems it necessary to join the Exchange for business purposes, as 
those business reasons should presumably result in revenue capable of 
covering the proposed fees, just as one may do when considering whether 
to become an member of an equity exchange.
---------------------------------------------------------------------------

    \87\ See MEMX Membership Fee Proposal, supra note 7.
---------------------------------------------------------------------------

    Other broker-dealers may not find a need in becoming a member of 
all or some exchanges. There is no requirement, regulatory or 
otherwise, that any broker-dealer connect to and access any (or all of) 
the available options exchanges. One other exchange recently noted in a 
proposal to amend their own trading permit fees that of the 62 market 
making firms that are registered as Market Makers across Cboe, MIAX, 
and BOX, 42 firms access only one of the three exchanges.\88\ Further, 
the Exchange and its affiliates, MIAX and MIAX Emerald, have a total of 
47 members. Of those 47 total members, 35 are members of all three 
exchanges, four are members of only two (2) exchanges, and eight (8) 
are members of only one exchange. Of those that are Market Makers today 
on the Exchange, two (2) are not registered as Market Makers on MIAX 
and one (1) is not registered as a Market Maker on MIAX Emerald. Broken 
down even further, of those Market Makers that use the MEO Interface 
and reached the Exchange's top tier for the Trading Permit fee for June 
2022, one (1) Market Maker was only a Member of the Exchange and not 
its two affiliates, MIAX and MIAX Emerald. The above data evidences 
that a Market Maker need not be a Member of all options exchanges, let 
alone the Exchange and its two affiliates, and market makers elect to 
do so based on their own business decisions and need to directly access 
each exchange's liquidity pool.
---------------------------------------------------------------------------

    \88\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change to Amend the 
Fee Schedule on the BOX Options Market LLC Facility To Adopt 
Electronic Market Maker Trading Permit Fees). The Exchange believes 
that BOX's observation demonstrates that market making firms can, 
and do, select which exchanges they wish to access, and, 
accordingly, options exchanges must take competitive considerations 
into account when setting fees for such access.
---------------------------------------------------------------------------

    The Exchange also is not aware of any reason why a Market Maker 
could not cease being a permit holder in response to price increases 
that it deems unreasonable from its own business perspective. The 
Exchange does not assess any termination fee for a Member to drop its 
Trading Permit, nor is the Exchange aware of any other costs that would 
be incurred by a Market Maker to do so. Further, a broker-dealer may 
employ a business model that is not latency sensitive, such as one that 
only enters resting liquidity and, therefore, may not find interest in 
exchange membership. Exchange membership may also not be useful for 
order routing firms that seek to route orders to an exchange through 
another means, described below, solely as part of their best execution 
obligations or to comply with the trade-through requirements under 
Chapter XIV of the Exchange's Rules. Such broker-dealers may utilize 
various existing substitutes to access an exchange. For example, in 
lieu of becoming a member at each options exchange, a market 
participant may join one exchange and elect to have their orders routed 
in the event that a better price is available on an away market, 
including the Exchange. Nothing in the Order Protection Rule requires a 
firm to become a Member at the Exchange, or any other options 
exchange.\89\ Further, if the Exchange is not at the NBBO, the Exchange 
will route an order to an away market that is at the NBBO to prevent a 
trade-through and also ensure that the order was executed at a superior 
price.\90\
---------------------------------------------------------------------------

    \89\ See Options Order Protection and Locked/Crossed Market Plan 
(August 14, 2009), available at https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf.
    \90\ Exchange Members may elect to not route their orders by 
marking an order as ``do-not-route.'' In this case, the order would 
not be routed.
---------------------------------------------------------------------------

    Some other broker-dealers may not deem it necessary to be a Member 
of the Exchange and may elect to access the Exchange through other 
means. As a substitute for joining an exchange, a third-party may be 
utilized to execute an order on an exchange. For example, a third-party 
broker-dealer Member of the Exchange may be utilized by a retail 
investor to submit orders into an exchange. An institutional investor 
may utilize a broker-dealer, a service bureau,\91\ or request sponsored 
access \92\ through a member of an exchange in order to submit an order 
directly to an options exchange.\93\ A market participant may either 
pay the costs associated with becoming a member of an exchange or, in 
the alternative, a market participant may elect to pay commissions to a 
broker-dealer, pay fees to a service bureau to submit trades, or pay a 
member to sponsor the market participant in order to submit trades 
directly to an exchange.\94\ Market

[[Page 48711]]

participants may elect any of the above substitute models and weigh the 
varying costs when determining how to submit trades to an exchange. 
Depending on the number of orders to be submitted, technology, ability 
to control submission of orders, and projected revenues, a market 
participant may determine one model is more cost efficient as compared 
to the alternatives. The above examples clearly demonstrate competitive 
forces exist by the availability of ``substantially similar but not 
identical'' substitutable products or services to becoming a Member of 
the Exchange. Also, based on the disparity in amount of memberships 
among exchanges detailed above, numerous market participants take 
advantage of these substitutes to send order flow to the Exchange in 
lieu of becoming a Member.
---------------------------------------------------------------------------

    \91\ Service bureaus provide access to market participants to 
submit and execute orders on an exchange. On the Exchange, a Service 
Bureau may be a Member. Some Members utilize a Service Bureau for 
connectivity and that Service Bureau may not be a Member. Some 
market participants utilize a Service Bureau who is a Member to 
submit orders.
    \92\ Sponsored Access is an arrangement whereby a member permits 
its customers to enter orders into an exchange's system that bypass 
the member's trading system and are routed directly to the Exchange, 
including routing through a service bureau or other third-party 
technology provider.
    \93\ This may include utilizing a Floor Broker and submitting 
the trade to one of the five options trading floors.
    \94\ The Exchange notes that it does not have insight into the 
economics of such a relationship where a broker-dealer utilizes 
another entity to access the Exchanges. It is presumed that a third-
party that provides access to an exchange does so on behalf of 
multiple broker-dealers and provides access to multiple exchanges. 
It is also presumed that any increased volume that might cause such 
third party to achieve a higher Trading Permit pricing tier maybe 
offset through achieving a higher rebate on the Exchange or other 
economic arrangement between the parties.
---------------------------------------------------------------------------

    Elasticity of Demand. The Exchange notes it is not aware of any 
reason why Members could not simply drop their access to an exchange 
(or not initially access an exchange) if an exchange were to establish 
prices for its non-transaction fees that, in the determination of such 
Member, did not make business or economic sense for such Member to 
access such exchange. The Exchange again notes that Members are not 
required by rule, regulation, or competitive forces to be a Member on 
the Exchange.
    Elasticity of demand for Exchange Membership exists when it comes 
to purchasing a Trading Permit and, as evidenced by the below data, 
Members have terminated their memberships since the proposed fees were 
first in effect. First, and most notably, the Exchange has not seen an 
increase in memberships since it first adopted the proposed fee 
increase. In fact, three Members terminated their memberships in the 
time since the proposed fee increase first went into effect. In June 
2021, the month immediately preceding the initial implementation of 
this proposed fee change, the Exchange had 20 users of the MEO 
Interface and 28 users of the FIX Interface. These numbers remained 
stagnant until August 2021, where one Member that utilized the MEO 
Interface ceased utilizing the MEO Interface and again in December 2021 
where one Member that utilized the FIX Interface ceased utilizing the 
FIX Interface. These numbers again remained stagnant until March 2022, 
where another Member that utilized the FIX Interface ceased utilizing 
the FIX Interface. This resulted in 19 users of the MEO Interface and 
26 users of the FIX Interface. Further, other exchanges have also 
experienced termination of memberships if their members deem permit or 
membership fees to be unreasonable or excessive. For example, the 
Exchange notes that a BOX participant modified its access to BOX in 
connection with the implementation of a proposed change to BOX's permit 
fees.\95\ The absence of new memberships coupled with the termination 
of two memberships on the Exchange, as well as similar membership 
changes on another options exchange in relation to a trading permit fee 
increase, clearly shows that elasticity of demand exists.
---------------------------------------------------------------------------

    \95\ According to BOX, a Market Maker on BOX terminated its 
status as a Market Maker in response to BOX's proposed modification 
of Market Maker trading permit fees. See Securities Exchange Act 
Release No. 94894 (May 11, 2022), 87 FR 29987 (May 17, 2022) (SR-
BOX-2022-17). BOX noted, and the Exchange agrees, that this Market 
Maker's decision demonstrates that Market Makers can, and do, alter 
their membership status if they deem permit fees at an exchange to 
be unsuitable for their business needs, thus demonstrating the 
competitive environment for Market Maker permit fees and the 
constraints on options exchanges when setting Market Maker permit 
fees.
---------------------------------------------------------------------------

    Also, the Exchange has not experienced any Member decreasing their 
trading activity on the Exchange in order to move to a lower tier and 
be charged the corresponding lower fee. In fact, between June 2021 and 
July 2021, one Member that utilizes the MEO Interface moved up from 
Tier 1 to Tier 3 due to increasing their trading volume on the 
Exchange. This occurred again between January 2022 and February 2022, 
where another Member that utilizes the MEO Interface moved up from Tier 
1 to Tier 2 also due to increasing their trading volume on the 
Exchange.
    The Exchange has not experienced a net decrease in Members due to 
the fee increase, because the Exchange believes numerous considerations 
are taken into account when deciding to be a member of an exchange, 
including, but not limited to: (i) an exchange's available liquidity in 
options series; (ii) trading functionality, latency, reliability, 
throughout, access to liquidity, and determinism offered on a 
particular market; (iii) product offerings; (iv) customer service on an 
exchange; and (v) transactional pricing when socializing the change. 
Fees are not the sole consideration. As stated above, the Exchange 
socialized the proposed fee increase with Members prior to first 
implementing the change. During that process, some Members stated that 
they anticipated a potential increase due to the lower rates the 
Exchange historically charged.
The Proposed Fees Are Reasonable and Constrained by Similar Fees 
Charged by Other Options Exchanges
    The proposed fees for the Exchange's Trading Permits are in line 
with, or cheaper than, the similar trading permit and membership fees 
charged by other options exchanges with similar market share. The 
Exchange believes other exchanges' membership and trading permit fees, 
even those of its affiliates, are useful examples of alternative 
approaches to charging for memberships and how such fees are 
constrained by like fees charged by other exchanges.
    Again, the Exchange has not amended its Trading Permit fees since 
the fees were first adopted in 2018.\96\ As described above, the 
Exchange's proposed fee increase results in fees that remain lower than 
those of its affiliates, MIAX and MIAX Emerald. First, MIAX and MIAX 
Emerald charge EEMs a similar, fixed flat trading permit fee of 
$1,500,\97\ which equals the top tier proposed herein for users of the 
FIX Interface and also primarily consists of EEMs. Members that do not 
qualify for the top tier on the Exchange would pay a lower Trading 
Permit Fee than they would on MIAX or MIAX Emerald. Like the Exchange 
currently employs for MEO Interface, which is primarily used by Market 
Makers, MIAX and MIAX Emerald charge tiered trading permit fees to 
Market Makers. However, the Exchange's proposed fees for users of the 
MEO Interface are lower and range from $2,500 to $6,000, while the 
Trading Permit fees on MIAX and MIAX Emerald range from $7,000 to 
$22,000.
---------------------------------------------------------------------------

    \96\ See supra note 9.
    \97\ See the MIAX Fee Schedule, Section (3)(b) and MIAX Emerald 
Fee Schedule, Section (3)(b), available at https://www.miaxoptions.com/fees (last visited June 30, 2022).
---------------------------------------------------------------------------

    The below discussion illustrates how the Exchange has historically 
undercharged for access via Trading Permits as compared to other 
options exchanges. As discussed further above, the Exchange chose to 
charge less than other options exchanges to attract memberships and 
order flow as a new options exchange entrant. The Exchange now seeks to 
increase its Trading Permit Fees due to the maturity of its market 
while keeping in mind the competitive constraints based on similar fees 
by other options exchanges.
    The proposed Trading Permit Fees compare favorably with those of 
other options exchanges. The Exchange proposes to charge users of the 
FIX Interface monthly fees ranging from

[[Page 48712]]

$500 to $1,500 based on trading volume. Users of the FIX Interface are 
primarily EEMs, which generally consist of order flow providers. Cboe 
charges monthly electronic trading permit fees based on the category of 
participant, such as $3,000 for Electronic Access Permit holders and 
$2,000 for Clearing TPH Permit holders (the Exchange notes that it only 
charges $250 per month for EEM Clearing Firms). Cboe's Electronic 
Access Permit fee is the analog to the Exchange's Trading Permit fee 
for Members that use the FIX Interface and is higher than the 
Exchange's proposed highest tier.
    The Exchange's proposed monthly Trading Permit Fees for users of 
the MEO Interface, which are primarily Market Makers, range from $2,500 
to $6,000 based on trading volume. Basing such fees on trading volume 
is analogous to other options exchanges that base their similar fees 
charged to Market Makers based on the number of options classes 
assigned. For example, NYSE Arca charges Market Makers a base fee of 
$8,000 and charges additional fees ranging from $500 to $6,000 on top 
of the base fee and depending on the options issues assigned, could 
result in monthly options trading permit fees ranging from $8,000 to 
$26,000 (or higher), which is higher than the Exchange's highest 
proposed tier of $6,000. NYSE American charges electronic Market Makers 
a base fee of $8,000 and charges additional fees ranging from $500 to 
$6,000 on top of the base fee and depending on the options issues 
assigned, which could result in monthly options trading permit fees 
ranging from $8,000 to $26,000 (or higher), also higher than the 
Exchange's highest proposed tier of $6,000.
    The proposed Trading Permit Fee also compares favorably with those 
of other options exchanges with similar market share. Under the 
Exchange's tiered structure, a Member may trade approximately 106,000 
more ADV contracts on the Exchange than on Cboe BZX Options \98\ and 
continue to qualify for the Exchange's lowest Tier. For example, a 
Member would qualify for Tier 1 of the Exchange's tiered pricing 
structure where that Member's total volume as a percentage of TCV is 
between 0.00% and 0.30%. Assuming an average of 37 million contracts 
are traded each day during a month that Member would qualify for Tier 1 
where that Member traded less than an ADV of 111,000 contracts and be 
charged $500 for the month, the same fee as Cboe BZX Options, where 
that Member connects via FIX.\99\ On Cboe BZX Options, the Exchange 
understands that same member would no longer qualify for their lowest 
tier when their ADV equals or exceeds 5,000 contracts and be charged a 
fee of $1,000 for that month.\100\
---------------------------------------------------------------------------

    \98\ Cboe BZX Options had an average daily market share of 7.95% 
as of June 23, 2022. See ``Market at a Glance'', available at 
https://www.miaxoptions.com/ (last visited June 23, 2022).
    \99\ See ``Membership Fees'' section of the Cboe BZX Options Fee 
Schedule, available at https://www.cboe.com/us/options/membership/fee_schedule/bzx (last visited April 13, 2022). The Exchange 
understands Cboe BZX Options charges the same Membership Fee to all 
of its Options Members.
    \100\ The Exchange proposes to also charge a fee of $1,000 per 
month to Members that qualify for Tier 2, the same as BZX's highest 
tier. The Exchange acknowledges that the Exchange's Trading Permit 
fee would be higher than BZX where a Member qualifies for Tier 3.
---------------------------------------------------------------------------

    Like the Exchange, BOX also employs a tier pricing structure for 
market maker trading permit fees charging $4,000 to $10,000 per month 
based on options classes traded.\101\ BOX's pricing structure is the 
analog for the Exchange's Trading Permit Fees for users of the MEO 
Interface as that interface is primarily used by Market Makers. BOX's 
lowest tier only equals the Exchange's second tier for the MEO 
interface and its third and fourth tier exceed the Exchange's highest 
tier.
---------------------------------------------------------------------------

    \101\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17).
---------------------------------------------------------------------------

The Proposed Fees Are Equitable and Not Unfairly Discriminatory
    The Exchange believes that the proposed monthly Trading Permit fees 
are not unfairly discriminatory because they would be assessed equally 
across all Members or firms that seek to become Members. The Exchange 
first adopted its tiered pricing structure in 2018 and has not amended 
the volume requirement since, nor does it propose to do so herein. 
Nonetheless, the Exchange continues to believe the tiered pricing 
structure remains not unfairly discriminatory because it is based on 
the amount of trading a Member conducts on the Exchange, related use of 
Exchange services, and the value of the Exchange's technology offering. 
In other words, the more a firm uses the Exchange's system, the more 
that firm will pay than others that use the system less. The proposed 
fees also remain not unfairly discriminatory because they continue to 
be based on the type of interface utilized and the value drawn from the 
use of that interface.
    The tiered pricing structure remains not unfairly discriminatory 
because it is based on the amount of trading a Member conducts on the 
Exchange, related use of Exchange services, and the value of the 
Exchange's technology offering. The Exchange offers a premium System 
network, connectivity, and a highly deterministic trading environment, 
the cost of which per tier is in relation to the value it provides. The 
Exchange is recognized as a leader in network monitoring, determinism, 
risk protections, and network stability. For example, the Exchange 
experiences approximately a 95% determinism rate, system throughput of 
approximately 10.8 million quotes per second and average round trip 
latency rate of approximately 30.76 microseconds for a single quote. 
The Exchange provides a highly resilient trading platform that 
experienced 99.9999% of uptime since its inception over 5 years ago. 
The Exchange provides extreme performance and radical scalability 
designed to match the unique needs of trading differing asset class/
market model combinations.
    Again, Exchange systems offer two customer interfaces, FIX 
Interface gateway for orders, and ultra-low latency MEO Interface and 
data feeds with best-in-class wire order determinism. The Exchange also 
offers automated continuous testing to ensure high reliability, 
advanced monitoring and systems security, and employs a software 
architecture that results in minimizing the demands on power, space, 
and cooling while allowing for rapid scalability, resiliency and fault 
isolation. The Exchange also provides latency equalized cross-connects 
in the primary data center ensures fair and cost efficient access to 
the Exchange's Systems.
    The tiered pricing structure represent the value of the Exchange's 
industry leading technology platform and is based on how frequently a 
Member trades on the Exchange. The more use, the more value a Member is 
extolling from the Exchange. The Exchange believes that a Member that 
qualifies for the first tier should not be charged the same as a Member 
that qualifies for the highest tier because the Member that qualifies 
for the first tier uses the Exchange less than the Member that 
qualifies for the highest tier. Members that qualify for the lowest 
tier tend to connect to the Exchange as part of their best execution 
obligations and generally tend to send the least amount of orders and 
messages over those connections.\102\

[[Page 48713]]

Those Members generally send fewer orders and messages to the Exchange 
resulting in less use of the Exchange resources. Therefore, the Trading 
Permit fees for those Members should rightfully be lower than others 
that trade on the Exchange for other reasons, such as a low-latency 
trading strategies that requires sending more orders and messages 
which, therefore, utilize a greater amount or Exchange resources and 
extoll great value from their use of the Exchange's industry leading 
technology offering.
---------------------------------------------------------------------------

    \102\ An EEM may satisfy its best execution obligations by using 
the FIX Interface, limiting their costs. Those EEMs that choose to 
use the MEO Interface do so for reasons other than best execution, 
such as the enhanced functionality provided by the MEO Interface, 
and the proposed fees would not serve as a barrier to satisfying 
best execution.
---------------------------------------------------------------------------

    Next, the existing tiered pricing structure remains not unfairly 
discriminatory because it continues to be based on the type of 
interface utilized and the value drawn from the use of that interface. 
As discussed above, both the MEO Interface and FIX Interface continue 
to be available to all Members and each Member may choose which 
interface to utilize based on their own business needs. The FIX 
Interface is the industry-wide uniform message format and provides 
lower bandwidth, less capacity, and fewer Exchange resources. EEMs, who 
are primarily order flow providers, are the primary users of the FIX 
Interface. Meanwhile, the MEO Interface is the more robust interface 
offering lower latency and higher throughput. Market Makers primarily 
use the MEO Interface due to its functionality, robustness, lower 
latency, and higher throughput and utilizes greater Exchange resources 
due to the increased volume of message traffic that travel through the 
MEO Interface.
    As stated above, the Exchange offers three time-in-force modifiers: 
Day, IOC, and GTC. While all order types are available for use on 
either interface, only the time-in-force modifiers of IOC and Day are 
available on the MEO Interface. Market Makers utilize the time-in-force 
of Day on orders to be posted on the MIAX Pearl Options Book and to 
meet Market Makers' continuous quoting obligations under Exchange Rule 
605(d). Other Market Makers, and certain EEMs, that primarily remove 
liquidity tend to be more latency sensitive and utilize the time-in-
force of IOC on orders when looking to remove liquidity from the MIAX 
Pearl Options Book. The MEO Interface allows the submission of Cancel-
Replacement orders, which allow for the immediate cancellation of a 
previously received order and the replacement of that order with a new 
order with new terms and conditions. Cancel-Replacement orders are 
primarily used by Market Makers as part of their continuous quoting 
obligations. Market Makers, and certain EEMs, are the primary users of 
the MEO Interface due to its lower latency, higher throughput, 
available time-in-force instructions and order types that assist them 
in satisfying their market making obligations. The Exchange also offers 
its Aggregate Risk Manager (``ARM'') over the MEO Interface and it is 
available to both EEMs and Market Makers.\103\
---------------------------------------------------------------------------

    \103\ See Exchange Rules 517(A) (Aggregated Risk Manager for 
EEMs) and 517B (Aggregate Risk Manager for Market Makers).
---------------------------------------------------------------------------

    The FIX Interface provides lower capacity and bandwidth and, 
therefore, utilizes less Exchange resources. The FIX Interface is 
primarily used by EEMs, who tend to be less latency sensitive and 
submit less orders and messages than Market Makers. The FIX Interface 
provides EEMs all the functionality necessary for them to satisfy their 
best execution obligations. However, EEMs may choose to use the MEO 
Interface due to its lower latency, higher throughput, available 
functionality based on their business needs if they choose.
    The Exchange notes that while Market Maker users of the MEO 
Interface continue to account for a vast majority of the increased 
System usage placed on the Exchange, Market Makers continue to be 
valuable market participants on the exchanges as the options market is 
a quote driven industry. The Exchange recognizes the value that Market 
Makers bring to the Exchange. The Exchange proposes higher, separate 
fees for users of the MEO Interface that are more aligned with the 
costs and resources that Market Makers continue to place on the 
Exchange and its systems.
    The Exchange notes that Market Makers are the predominant users of 
the MEO Interface and consume the most bandwidth and resources of the 
network, transact the vast majority of the volume on the Exchange, and 
require the high touch network support services provided by the 
Exchange and its staff. The Exchange notes that users of the FIX 
Interface, i.e., non-Market Makers, take up significantly less Exchange 
resources as discussed further below. Further, the Exchange notes that 
MEO users account for greater than 99% of message traffic over the 
network, while FIX users account for less than 1% of message traffic 
over the network. In the Exchange's experience, most Exchange Members 
do not have a business need for the high performance network solutions, 
like MEO, required by Market Makers and certain EEMs.
    Over the period from March 2022 through May 2022, the Exchange 
processed 1.3 billion messages via the FIX Interface (0.33% of total 
messages received). Over that same time period, the Exchange processed 
386.1 billion messages (99.67% of total messages received) over the MEO 
Interface. This marked difference between the number of FIX and MEO 
messages processed, when mapped to servers, software, storage, and 
networking results in a much higher allocation of total resources to 
support the MEO Interface. For one, the Exchange expends greater 
resources to maintain the resilience of the MEO Interface to ensure its 
ongoing operation in accordance with Regulation SCI. Another, the 
Exchange must expand its storage capacity to retain these increased 
messages in compliance with its record keeping obligations. The 
Exchange must also expend additional resources to surveil and ensure 
proper regulatory oversight of this increased message traffic. These 
pulls on Exchange resources have only increased since it first adopted 
the Trading Permit fee in March of 2018 \104\ when the Exchange's 
trading volume for that month averaged 3.94%.\105\ Today, the 
Exchange's average daily trading volume for June 2022 is 4.92%.\106\ 
This additional volume increases the pull on Exchange resources 
necessary to surveil and regulate its market while also procuring 
additional capacity to store and monitor those messages in compliance 
with its record keeping obligations under the Exchange Act.
---------------------------------------------------------------------------

    \104\ See supra note 9.
    \105\ See Market at a Glance, supra note 8.
    \106\ Id.
---------------------------------------------------------------------------

    Users of the MEO Interface, therefore, receive greater value than 
Users of the FIX Interface due to its higher throughput, lower latency, 
and available functionality. As the above data shows, the Exchange also 
expends much more resources to support the MEO Interface than it does 
to support the FIX Interface. The existing tiered pricing structure is 
designed to account for these facts. Trading Permit fees for Members 
who connect through the MEO Interface are, therefore, higher than the 
Trading Permit fees for Members who connect through the FIX Interface. 
The tiered pricing structure also accounts for the corresponding use of 
the MEO and FIX Interfaces and charges more for those that use either 
interface more in terms of trading volume and proportionate pull on 
Exchange resources. Therefore, the proposed monthly Trading Permit fees 
are not unfairly discriminatory because they would be assessed equally 
across all Members based on the type of interface and related usage of 
Exchange resources.
    The tiered pricing structure has been in place since 2018 \107\ and 
similar

[[Page 48714]]

membership pricing structures utilized by other options exchanges 
assess permit fees at different rates, based upon a member's 
participation on that exchange,\108\ and, as such, this concept is not 
new or novel. The Exchange also notes the some options exchanges employ 
a tiered pricing structure for membership fees based on options 
assigned or traded while the Exchange employs a tier pricing structure 
based on trading volume. The Exchange believes both are analogous and 
lead to the same result. Also see the BZX example explained above.
---------------------------------------------------------------------------

    \107\ See supra note 9.
    \108\ See e.g., Securities Exchange Act Release No. 94894 (May 
11, 2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17). NYSE Arca 
Options Fees and Charges, p.1 (assessing market makers $6,000 for up 
to 175 option issues, an additional $5,000 for up to 350 option 
issues, an additional $4,000 for up to 1,000 option issues, an 
additional $3,000 for all option issues on the exchange, and an 
additional $1,000 for the fifth trading permit and for each trading 
permit thereafter); NYSE American Options Fee Schedule, p. 23 
(assessing market makers $8,000 for up to 60 plus the bottom 45% of 
option issues, an additional $6,000 for up to 150 plus the bottom 
45% of option issues, an additional $5,000 for up to 500 plus the 
bottom 45% of option issues, and additional $4,000 for up to 1,100 
plus the bottom 45% of option issues, an additional $3,000 for all 
issues traded on the exchange, and an additional $2,000 for 6th to 
9th ATPs; plus an addition fee for premium products). See also BZX 
Options assesses the Participant Fee, which is a membership fee, 
according to a member's ADV. See Cboe BZX Options Exchange Fee 
Schedule under ``Membership Fees''. The Participant Fee is $500 if 
the member ADV is less than 5000 contracts and $1,000 if the member 
ADV is equal to or greater than 5,000 contracts.
---------------------------------------------------------------------------

    The proposed fees are equitable and not unfairly discriminatory as 
the fees apply equally to all Members. As such, all similarly situated 
Members, with the same trading volume, will be subject to the same 
Trading Permit fee. The Exchange also believes that assessing lower 
fees to Members with less trading volume is reasonable and appropriate 
as it will allow the Exchange to retain and attract smaller-scale 
Members, which are an integral component of the options industry 
marketplace. Since these smaller Members utilize less bandwidth and 
capacity on the Exchange's network due to the lower trading volume, the 
Exchange believes it is reasonable and appropriate to offer Members a 
lower fee. Furthermore, the Exchange tiered pricing is beneficial and 
valued by smaller Market Makers who provide liquidity in less liquid 
options classes. The Exchange fears that without its tiered pricing 
structure, smaller Market Makers would discontinue their membership and 
cease providing much needed liquidity in less liquid options classes to 
the detriment of all market participants. The Exchange must, therefore, 
consider Members' ability to discontinue their memberships when 
considering any potential changes to its tiered volume requirements and 
that Members' ability to transition to another exchange they view 
offers more attractive volume thresholds and pricing. The proposed 
fees, therefore, represent the equitable allocation of reasonable dues, 
fees and other charges because the fees are generally lower than other 
exchanges and the proposed tiered fees are similar to other tiered 
pricing structures on other options exchanges.\109\
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    \109\ The Exchange does not charge a separate fee to Market 
Makers for options assignments.
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Removal of Monthly Volume Credit and Trading Permit Fee Credit
    The Exchange believes its proposal to remove the Monthly Volume 
Credit is reasonable, equitable and not unfairly discriminatory because 
all market participants will no longer be offered the ability to 
achieve the extra credits associated with the Monthly Volume Credit for 
submitting Priority Customer volume to the Exchange and access to the 
Exchange is offered on terms that are not unfairly discriminatory. The 
Exchange believes it is equitable and not unfairly discriminatory to 
remove the Monthly Volume Credit from the Fee Schedule for business and 
competitive reasons. The Exchange established the Monthly Volume Credit 
when it first launched operations to encourage Members to increase 
their order flow by providing a credit to those that exceeded a volume 
threshold. The Exchange believes that the Exchange's existing Priority 
Customer rebates and fees will continue to allow the Exchange to remain 
highly competitive and continue to attract order flow and maintain 
market share even without the Monthly Volume Credit.\110\
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    \110\ See the Exchange's Fee Schedule available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Options_Fee_Schedule_07122022.pdf.
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    The Exchange believes its proposal to remove the Trading Permit fee 
credit for Members that connect via both the MEO Interface and FIX 
Interface is reasonable, equitable and not unfairly discriminatory 
because all market participants will no longer be offered the ability 
to receive the credit and access to the Exchange is offered on terms 
that are not unfairly discriminatory. The Exchange believes it is 
equitable and not unfairly discriminatory to remove the Trading Permit 
fee credit for business and competitive reasons. The Exchange 
established the Trading Permit fee credit to lower the costs for 
Members that connect via the MEO Interface and/or FIX Interface as a 
means to attract order flow and memberships after the Exchange first 
launched operations. The Exchange now believes that it is appropriate 
to remove this credit in light of the current operating conditions and 
membership on the Exchange.

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

    In accordance with Section 6(b)(8) of the Act, \111\ the Exchange 
believes that the proposed rule change would not impose any burden on 
intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.
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    \111\ 15 U.S.C. 78f(8).
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Intra-Market Competition
    The Exchange believes the removal of the Monthly Volume Credit and 
Trading Permit fee credit will not place certain market participants at 
a relative disadvantage to other market participants because, in order 
to attract order flow when the Exchange first launched operations, the 
Exchange established these credits to lower the initial fixed cost for 
Members. The Exchange now believes that it is appropriate to remove 
this credit in light of the current operating conditions, including the 
Exchange's overall membership and the current type and amount of volume 
executed on the Exchange. The Exchange believes that the Exchange's 
rebates and fees will still allow the Exchange to remain highly 
competitive such that the Exchange should continue to attract order 
flow and maintain market share.
    As described above, the Exchange's proposed Trading Permit fees are 
lower than or similar to the cost of membership and trading permits on 
other exchanges,\112\ and therefore, may stimulate intramarket 
competition by attracting additional firms to become Members on the 
Exchange or at least should not deter interested participants from 
joining the Exchange. In addition, membership and trading permit fees 
are subject to competition from other exchanges. Accordingly, if the 
changes proposed herein are unattractive to market participants, it is 
likely the Exchange will see a decline in membership as a result. As 
stated above, the number of FIX and MEO Interface users remained 
stagnant until August 2021, where one Member that utilized the MEO 
Interface ceased utilizing that interface and again in December 2021, 
where one Member that utilized the FIX Interface ceased utilizing that 
interface.
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    \112\ See supra notes 38-46.
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    The Exchange also does not believe charging different fees for MEO 
and FIX

[[Page 48715]]

Interface users and basing the amount of such fees on trading volume 
would impose any burden on intermarket or intramarket competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act. As discussed above, the FIX Interface is the uniform industry 
message protocol used by most exchanges and provides lower throughput 
and bandwidth than the MEO Interface. Users are free to use either 
interface based on their business need and the pricing structure is 
aligned with the interface used, its pull on Exchange resources, and 
the Member's monthly trading volume. The tiered pricing structure is 
based on the type of interface and trading volume in place on the 
Exchange today and the Exchange does not propose to amend the volume 
requirements associated with each Tier. Rather, it is simply seeking to 
amend the associated fees. Basing such fees on trading volume would may 
also stimulate intramarket competition because it is analogous to other 
exchanges that base like fees on options classes traded or assigned. A 
Member may cease being a Member if they believe the tiered structure is 
not appropriate or that another exchange presents a better value. 
Likewise, a market participant that is not already a Member may cease 
membership on another exchange or become a Member of MIAX Pearl where 
they deem the Exchange's Trading Permit fee to be a better value based 
on its trading activity and business needs.
Inter-Market Competition
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 15 competing options 
venues if they deem fee levels at a particular venue to be excessive. 
Based on publicly-available information, and excluding index-based 
options, no single exchange has more than approximately 16% market 
share. Therefore, no exchange possesses significant pricing power 
regarding memberships or in the execution of multiply-listed equity and 
ETF options order flow. Over the course of 2021 and 2022, the 
Exchange's market share has fluctuated between approximately 3-6% of 
the U.S. equity options industry.\113\ The Exchange is not aware of any 
evidence that a market share of approximately 3-6% provides the 
Exchange with anti-competitive pricing power when it comes to 
competition for memberships. The Exchange believes that the ever-
shifting market share among exchanges from month to month demonstrates 
that market participants can discontinue memberships in response to fee 
changes. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and to attract and 
retain memberships on the Exchange.
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    \113\ See supra note 8.
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    The proposed fee change will not impact intermarket competition 
because it will apply to all Members equally. Also, Members are free to 
use either the FIX or MEO Interface and may choose the interface that 
better meets their business needs based on their trading models and 
behavior. The Exchange operates in a highly competitive market in which 
market participants can determine whether or not to join the Exchange 
based on the value received compared to the cost of joining and 
maintaining membership on the Exchange.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange responded to comment letters in a prior proposal.\114\
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    \114\ See supra note 55.
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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,\115\ and Rule 19b-4(f)(2) \116\ 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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    \115\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \116\ 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 [email protected]. Please include 
File Number SR-PEARL-2022-30 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-2022-30. 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 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-2022-30 and should be submitted on 
or before August 31, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\117\
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    \117\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17096 Filed 8-9-22; 8:45 am]
BILLING CODE 8011-01-P