Document ID: SEC-2023-1203-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2023-10-18T04:00Z

[Federal Register Volume 88, Number 200 (Wednesday, October 18, 2023)]
[Notices]
[Pages 71907-71911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22928]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98733; File No. SR-PEARL-2023-52]

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

October 12, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 29, 2023, MIAX PEARL, LLC (``MIAX Pearl'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the MIAX Pearl Options Exchange Fee 
Schedule (the ``Fee Schedule'') to amend fees for MIAX Express Network 
(``MEO'') \3\ Purge Ports (``Purge Ports'').\4\
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    \3\ ``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.
    \4\ The proposed fee change is based on a recent proposal by 
Nasdaq Phlx LLC (``Phlx'') to adopt fees for purge ports. See 
Securities Exchange Act Release No. 97825 (June 30, 2023), 88 FR 
43405 (July 7, 2023) (SR-Phlx-2023-28).
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    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxglobal.com/markets/us-options/pearl-options/rule-filings at MIAX Pearl's principal office, and at the Commission's 
Public Reference Room.

I. 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

[[Page 71908]]

the most significant aspects of such statements.

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

1. Purpose
    The Exchange is proposing to amend the fees for Purge Ports, which 
is a function enabling the Exchange's two types of Members ,\5\ Market 
Makers \6\ and Electronic Exchange Members \7\ (``EEMs''), to cancel 
all open orders or a subset of open orders through a single cancel 
message. The Exchange currently provides Members the option to purchase 
Purge Ports to assist in their quoting activity. Purge Ports provide 
Members with the ability to send purge messages to the Exchange 
System.\8\ Purge Ports are not capable of sending or receiving any 
other type of messages or information. The use of Purge Ports is 
completely optional and no rule or regulation requires that a Market 
Maker utilize them.
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    \5\ 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 the Definitions Section of 
the Fee Schedule and Exchange Rule 100.
    \6\ 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.
    \7\ 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.
    \8\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
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    Unlike other options exchanges that charge fees for Purge Ports on 
a per port basis,\9\ the Exchange assesses a flat fee of $750 per 
month, regardless of the number of Purge Ports. Today, a Market Maker 
may request and be allocated two (2) Purge Ports per Matching Engine to 
which it connects and not all Members connect to all Matching Engines. 
The Exchange now proposes to amend the fee for Purge Ports to align 
more with other exchanges who charge on a per port basis by providing 
two (2) Purge Ports per Matching Engine for a monthly flat fee of $600 
per month per Matching Engine. The only difference with a per port 
structure being is that Members receive two (2) Purge Ports per 
Matching Engine for the same proposed monthly fee, rather than be 
charged separate fee for each Purge Port. The Exchange proposes to 
charge the proposed fee for Purge Ports per Matching Engine, instead on 
a per Purge Port basis, due to its system architecture which provides 
two (2) Purge Ports per Matching Engine for redundancy purposes. In 
addition, the proposed fee would be lower than what other exchanges 
charge on a per port basis, notwithstanding that the Exchange is 
providing up to two (2) Purge Ports for that same low fee.\10\
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    \9\ See Cboe BXZ Exchange, Inc. (``BZX'') Options Fee Schedule, 
Options Logical Port Fees, Purge Ports ($750 per purge port per 
month); Cboe EDGX Exchange, Inc. (``EDGX'') Options Fee Schedule, 
Options Logical Port Fees, Purge Ports ($750 per purge port per 
month); Cboe Exchange, Inc. (``Cboe'') Fee Schedule ($850 per purge 
port per month). See also Nasdaq GEMX, Options 7, Pricing Schedule, 
Section 6.C.(3). Nasdaq GEMX, LLC (``Nasdaq GEMX'') assesses its 
members $1,250 per SQF Purge Port per month, subject to a monthly 
cap of $17,500 for SQF Purge Ports and SQF Ports, applicable to 
market makers. See also Securities Exchange Act Release No. 97825 
(June 30, 2023), 88 FR 43405 (July 7, 2023) (SR-Phlx-2023-28).
    \10\ Id.
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    Similar to a per port charge, Members would be also able to elect 
the number of Matching Engines they connect to and pay the applicable 
fee. The Exchange believes the proposed fee provides Members with 
flexibility to control their Purge Ports costs based on the number of 
Matching Engines it elects to connect to.
* * * * *
    A logical port represents a port established by the Exchange within 
the Exchange's system for trading and billing purposes. Each logical 
port grants a Member the ability to accomplish a specific function, 
such as order entry, order cancellation, access to execution reports, 
and other administrative information.
    Purge Ports are designed to assist Members \11\ in the management 
of, and risk control over, their orders, particularly if the firm is 
dealing with a large number of securities. For example, if a Market 
Maker detects market indications that may influence the execution 
potential of their orders, the Market Maker may use Purge Ports to 
reduce uncertainty and to manage risk by purging all orders in a number 
of securities. This allows Members to seamlessly avoid unintended 
executions, while continuing to evaluate the market, their positions, 
and their risk levels. Purge Ports are used by Members that conduct 
business activity that exposes them to a large amount of risk across a 
number of securities. Purge Ports enable Members to cancel all open 
orders, or a subset of open orders through a single cancel message. The 
Exchange notes that Purge Ports increase efficiency of already existing 
functionality enabling the cancellation of orders.
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    \11\ Members seeking to become registered as a Market Maker must 
comply with the applicable requirements of Chapter VI of the 
Exchange's Rules.
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    The Exchange operates highly performant systems with significant 
throughput and determinism which allows participants to enter, update 
and cancel orders at high rates. Members may currently cancel 
individual orders through the existing functionality, such as through 
the use of a mass cancel message by which a Market Maker may request 
that the Exchange remove all or a subset of its quotations and block 
all or a subset of its new inbound quotations.\12\ As a result, Members 
can currently cancel orders in rapid succession across their existing 
logical ports \13\ or through a single cancel message, all open orders 
or a subset of open orders.
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    \12\ See Exchange Rule 519C(a) and (b).
    \13\ Current Exchange port functionality supports cancelation 
rates that exceed one thousand messages per second and the 
Exchange's research indicates that certain market participants rely 
on such functionality and at times utilize such cancelation rates.
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    Similarly, Members may also use cancel-on-disconnect control when 
they experience a disruption in connection to the Exchange to 
automatically cancel all orders, as configured or instructed by the 
Member or Market Maker.\14\ In addition, the Exchange already provides 
similar ability to mass cancel orders through the Exchange's risk 
controls, which are offered at no charge that enables Members to 
establish pre-determined levels of risk exposure, and can be used to 
cancel all open orders.\15\ Accordingly, the Exchange believes that the 
Purge Ports provide an efficient option as an alternative to already 
available services and enhance the Participant's ability to manage 
their risk.
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    \14\ See Exchange Rule 516C(c).
    \15\ See Exchange Rule 532.
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    The Exchange believes that market participants benefit from a 
dedicated purge mechanism for specific Members and to the market as a 
whole. Members will have the benefit of efficient risk management and 
purge tools. The market will benefit from potential increased quoting 
and liquidity as Members may use Purge Ports to manage their risk more 
robustly. Only Members that request Purge Ports would be subject to the 
proposed fees, and other Members can continue to operate in exactly the 
same manner as they do today without dedicated Purge Ports,

[[Page 71909]]

but with the additional purging capabilities described above.
Implementation Date
    The proposed fees will be effective October 1, 2023.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\16\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\17\ in particular, in that it 
is not designed to permit unfair discrimination among customers, 
brokers, or dealers. The Exchange also believes that its proposed fee 
is consistent with Section 6(b)(4) of the Act \18\ because it 
represents an equitable allocation of reasonable dues, fees and other 
charges among market participants.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed rule change would promote 
just and equitable principles of trade and remove impediments to and 
perfect the mechanism of a free and open market because offering 
Members optional service and flexible fee structures promotes choice, 
flexibility, efficiency, and competition. The Exchange believes Purge 
Ports enhance Members' ability to manage orders, which would, in turn, 
improve their risk controls to the benefit of all market participants. 
The Exchange believes that Purge Ports foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities because designating Purge Ports for purge messages may 
encourage better use of such ports. This may, concurrent with the ports 
that carry orders and other information necessary for market making 
activities, enable more efficient, as well as fair and reasonable, use 
of Members' resources. Similar connectivity and functionality is 
offered by options exchanges, including the Exchange's own affiliated 
options exchanges, and other equities exchanges.\19\ The Exchange 
believes that proper risk management, including the ability to 
efficiently cancel multiple orders quickly when necessary, is similarly 
valuable to firms that trade in the equities market, including Members 
that have heightened quoting obligations that are not applicable to 
other market participants.
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    \19\ See supra notes 4 and 10. See also Securities Exchange Act 
Release No. 77613 (April 13, 2016), 81 FR 23023 (April 19, 2016). 
See also Securities Exchange Act Release Nos. 79956 (February 3, 
2017), 82 FR 10102 (February 9, 2017) (SR-BatsBZX-2017-05); 79957 
(February 3, 2017), 82 FR 10070 (February 9, 2017) (SR-BatsEDGX-
2017-07); 83201 (May 9, 2018), 83 FR 22546 (May 15, 2018) (SR-C2-
2018-006).
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    Purge Ports do not relieve Members of their quoting obligations or 
firm quote obligations under Regulation NMS Rule 602.\20\ Specifically, 
any interest that is executable against a Member's or Market Maker's 
orders that is received by the Exchange prior to the time of the 
removal of orders request will automatically execute. Members that 
purge their orders will not be relieved of the obligation to provide 
continuous two-sided orders on a daily basis, nor will it prohibit the 
Exchange from taking disciplinary action against a Market Maker for 
failing to meet their continuous quoting obligation each trading 
day.\21\
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    \20\ See Exchange Rule 604. See also generally Chapter VI of the 
Exchange's Rules.
    \21\ Id.
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    The Exchange is not the only exchange to offer this functionality 
and to charge associated fees.\22\ The Exchange believes the proposed 
fee for Purge Ports is reasonable because it is lower than that 
currently charged by other exchanges. For example, BZX and EDGX charge 
a fee of $750 per purge port per month, Cboe charges $850 per purge 
port per month, Nasdaq GEMX assesses its members $1,250 per SQF Purge 
Port per month, subject to a monthly cap of $17,500 for SQF Purge Ports 
and SQF Ports.\23\
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    \22\ See supra notes 4 and 10.
    \23\ See supra note 10.
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    The Exchange believes it is reasonable to charge $600 per month for 
Purge Ports as such ports represent targeted enhancement of technology 
and were specially developed to allow for the sending of a single 
message to cancel multiple orders, thereby assisting firms in 
effectively managing risk. The Exchange also believes that a Member 
that chooses to utilize Purge Ports may, in the future, reduce their 
need for additional ports by consolidating cancel messages to the Purge 
Port and thus freeing up some capacity of the existing logical ports 
and, therefore, allowing for increased message traffic without paying 
for additional logical ports. Purge Ports provide the ability to cancel 
multiple orders across multiple ports with less messaging from the 
firms using the ports and therefore may create efficiencies for firms 
and provide a more economical solution to their risk management needs. 
In addition, Purge Port requests may cancel orders submitted over 
numerous ports and contain added functionality to purge only a subset 
of these orders. Effective risk management is important both for 
individual market participants that choose to utilize risk features 
provided by the Exchange, as well as for the market in general. As a 
result, the Exchange believes that it is appropriate to charge fees for 
such functionality as doing so aids in the maintenance of a fair and 
orderly market.
    The Exchange also believes that its ability to set fees for Purge 
Ports is subject to significant substitution-based forces because 
Members are able to rely on currently available services both free and 
those they receive when using existing trading protocols. If the value 
of the efficiency introduced through the Purge Port functionality is 
not worth the proposed fees, Members will simply continue to rely on 
the existing functionality and not pay for Purge Ports. In that regard, 
Members may currently cancel individual orders through the existing 
functionality, such as through the use of a mass cancel message by 
which a Market Maker may request that the Exchange remove all or a 
subset of its quotations and block all or a subset of its new inbound 
quotations. Members already can also cancel orders individually and by 
utilizing Exchange protocols that allow them to develop proprietary 
systems that can send cancel messages at a high rate.\24\ In addition, 
the Exchange already provides similar ability to mass cancel orders 
through the Exchange's risk controls, which are offered at no charge 
that enables Members to establish pre-determined levels of risk 
exposure, and can be used to cancel all open orders.\25\
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    \24\ Current Exchange port functionality supports cancelation 
rates that exceed one thousand messages per second and the 
Exchange's research indicates that certain Participants rely on such 
functionality and at times utilize such cancelation rates.
    \25\ See Exchange Rule 532.
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    Similarly, Members may use cancel-on-disconnect control when they 
experience a disruption in connection to the Exchange to immediately 
cancel all pending Exchange.\26\ Finally, this existing purging 
functionality will allow Participants to achieve essentially the same 
outcome in canceling orders as they would by utilizing the Purge Ports. 
Accordingly, the Exchange believes that the proposed Purge Ports fee is 
reasonable because it is related to the efficiency of Purge Ports 
related to other means and services already available which are either 
free or already a part of a fee assessed to the Participant's for 
existing connectivity. Accordingly, because Purge Ports provide 
additional optional functionality, excessive fees would simply serve to 
reduce or

[[Page 71910]]

eliminate demand for this optional product.
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    \26\ See Exchange Rule 516C(c).
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    The Exchange also believes that offering Purge Ports at the 
Matching Engine level promotes risk management across the industry, and 
thereby facilitates investor protection. Some market participants, in 
particular the larger firms, could and do build similar risk 
functionality (as described above) in their trading systems that permit 
the flexible cancellation of orders entered on the Exchange at a high 
rate. Offering Matching Engine level protections ensures that such 
functionality is widely available to all firms, including smaller firms 
that may otherwise not be willing to incur the costs and development 
work necessary to support their own customized mass cancel 
functionality.
    As noted above, the Exchange is not the only exchange to offer 
dedicated Purge Ports, and the proposed rate is lower than that charged 
by other exchanges for similar functionality. The Exchange also 
believes that moving to a per Matching Engine fee is reasonable due to 
the Exchange's architecture that provides it the ability to provide two 
(2) Purge Ports per Matching Engine for a fee that would still be lower 
than other exchanges that charge on a per port basis. Generally 
speaking, restricting the Exchange's ability to charge fees for these 
services discourages innovation and competition. Specifically in this 
case, the Exchange's inability to offer similar services to those 
offered by other exchanges, and charge reasonable and equitable fees 
for such services, would put the Exchange at a significant competitive 
disadvantage and, therefore, serve to restrict competition in the 
market--especially when other exchanges assess comparable fees higher 
than those proposed by the Exchange.
    The Exchange believes that the proposed Purge Port fees are 
equitable because the proposed Purge Ports are completely voluntary as 
they relate solely to optional risk management functionality.
    The Exchange also believes that the proposed amendments to its fee 
schedule are not unfairly discriminatory because they will apply 
uniformly to all Members that choose to use the optional Purge Ports. 
Purge Ports are completely voluntary and, as they relate solely to 
optional risk management functionality, no Market Maker is required or 
under any regulatory obligation to utilize them. All Members that 
voluntarily select this service option will be charged the same amount 
for the same services. All Members have the option to select any 
connectivity option, and there is no differentiation among Members with 
regard to the fees charged for the services offered by the Exchange.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Purge Ports are completely 
voluntary and are available to all Members on an equal basis at the 
same cost. While the Exchange believes that Purge Ports provide a 
valuable service, Members can choose to purchase, or not purchase, 
these ports based on their own determination of the value and their 
business needs. No Members is required or under any regulatory 
obligation to utilize Purge Ports. Accordingly, the Exchange believes 
that Purge Ports offer appropriate risk management functionality to 
firms that trade on the Exchange without imposing an unnecessary or 
inappropriate burden on competition.
    Furthermore, the Exchange operates in a highly competitive 
environment, and its ability to price the Purge Ports is constrained by 
competition among exchanges that offer similar functionality. As 
discussed, there are currently a number of similar offers available to 
market participants for higher fees at other exchanges. Proposing fees 
that are excessively higher than established fees for similar 
functionality would simply serve to reduce demand for the Purge Ports, 
which as discussed, market participants are under no obligation to 
utilize. It could also cause firms to shift trading to other exchanges 
that offer similar functionality at a lower costs, adversely impacting 
the overall trading on the Exchange and reducing market share. In this 
competitive environment, potential purchasers are free to choose which, 
if any, similar product to purchase to satisfy their need for risk 
management. As a result, the Exchange believes this proposed rule 
change permits fair competition among national securities exchanges.
    The Exchange also does not believe the proposal would cause any 
unnecessary or in appropriate burden on intermarket competition as 
other exchanges are free to introduce their own purge port 
functionality and lower their prices to better compete with the 
Exchange's offering. The Exchange does not believe the proposed rule 
change would cause any unnecessary or inappropriate burden on 
intramarket competition. Particularly, the proposal would apply 
uniformly to any market participant, in that it does not differentiate 
between Members. The proposal would allow any interested Members to 
purchase Purge Port functionality based on their business needs.

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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\27\ and Rule 19b-4(f)(2) \28\ 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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    \27\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \28\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-PEARL-2023-52 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-2023-52. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the

[[Page 71911]]

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 a.m. and 3 
p.m. Copies of the filing also will be available for inspection and 
copying at the principal office of the Exchange. Do not include 
personal identifiable information in submissions; you should submit 
only information that you wish to make available publicly. We may 
redact in part or withhold entirely from publication submitted material 
that is obscene or subject to copyright protection. All submissions 
should refer to file number SR-PEARL-2023-52 and should be submitted on 
or before November 8, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22928 Filed 10-17-23; 8:45 am]
BILLING CODE 8011-01-P