Document ID: SEC-2019-0649-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2019-05-14T04:00Z

[Federal Register Volume 84, Number 93 (Tuesday, May 14, 2019)]
[Notices]
[Pages 21368-21371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09867]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85807; File No. SR-PEARL-2019-15]

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

May 8, 2019.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on April 29, 2019, 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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[[Page 21369]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX PEARL Fee 
Schedule (the ``Fee Schedule'').
    The 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 proposes to amend the Add/Remove Tiered Rebates/Fees 
set forth in Section (1)(a) of the Fee Schedule to remove one of the 
conditions that must be met in order for Members \3\ to qualify for an 
alternative lower Taker fee for Penny classes for their Firm Origin 
orders when trading contra to Origins other than Priority Customer \4\ 
if certain thresholds are satisfied by the Member.
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    \3\ ``Member'' means an individual or organization that is 
registered with the Exchange pursuant to Chapter II of the Exchange 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See the Definitions Section of 
the Fee Schedule and Exchange Rule 100.
    \4\ ``Priority Customer'' means a person or entity that (i) is 
not a broker or dealer in securities, and (ii) does not place more 
than 390 orders in listed options per day on average during a 
calendar month for its own beneficial account(s). See Exchange Rule 
100, including Interpretations and Policies .01.
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    The Exchange currently assesses transaction rebates and fees to all 
market participants which are based upon the total monthly volume 
executed by the Member on MIAX PEARL in the relevant, respective origin 
type (not including Excluded Contracts) \5\ expressed as a percentage 
of TCV.\6\ In addition, the per contract transaction rebates and fees 
are applied retroactively to all eligible volume for that origin type 
once the respective threshold tier (``Tier'') has been reached by the 
Member. The Exchange aggregates the volume of Members and their 
Affiliates.\7\ Members that place resting liquidity, i.e., orders 
resting on the book of the MIAX PEARL System,\8\ are paid the specified 
``maker'' rebate (each a ``Maker''), and Members that execute against 
resting liquidity are assessed the specified ``taker'' fee (each a 
``Taker''). For opening transactions and ABBO \9\ uncrossing 
transactions, per contract transaction rebates and fees are waived for 
all market participants. Finally, Members are assessed lower 
transaction fees and receive lower rebates for order executions in 
standard option classes in the Penny Pilot Program \10\ (``Penny 
classes'') than for order executions in standard option classes which 
are not in the Penny Pilot Program (``Non-Penny classes''), where 
Members are assessed higher transaction fees and receive higher 
rebates.
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    \5\ ``Excluded Contracts'' means any contracts routed to an away 
market for execution. See the Definitions Section of the Fee 
Schedule.
    \6\ ``TCV'' means total consolidated volume calculated as the 
total national volume in those classes listed on MIAX PEARL for the 
month for which the fees apply, excluding consolidated volume 
executed during the period time in which the Exchange experiences an 
``Exchange System Disruption'' (solely in the option classes of the 
affected Matching Engine (as defined below)). The term Exchange 
System Disruption, which is defined in the Definitions section of 
the Fee Schedule, means an outage of a Matching Engine or collective 
Matching Engines for a period of two consecutive hours or more, 
during trading hours. The term Matching Engine, which is also 
defined in the Definitions section of the Fee Schedule, is a part of 
the MIAX PEARL electronic system that processes options orders and 
trades on a symbol-by-symbol basis. Some Matching Engines will 
process option classes with multiple root symbols, and other 
Matching Engines may be dedicated to one single option root symbol 
(for example, options on SPY may be processed by one single Matching 
Engine that is dedicated only to SPY). A particular root symbol may 
only be assigned to a single designated Matching Engine. A 
particular root symbol may not be assigned to multiple Matching 
Engines. The Exchange believes that it is reasonable and appropriate 
to select two consecutive hours as the amount of time necessary to 
constitute an Exchange System Disruption, as two hours equates to 
approximately 1.4% of available trading time per month. The Exchange 
notes that the term ``Exchange System Disruption'' and its meaning 
have no applicability outside of the Fee Schedule, as it is used 
solely for purposes of calculating volume for the threshold tiers in 
the Fee Schedule. See the Definitions Section of the Fee Schedule.
    \7\ ``Affiliate'' means (i) an affiliate of a Member of at least 
75% common ownership between the firms as reflected on each firm's 
Form BD, Schedule A, or (ii) the Appointed Market Maker of an 
Appointed EEM (or, conversely, the Appointed EEM of an Appointed 
Market Maker). An ``Appointed Market Maker'' is a MIAX PEARL Market 
Maker (who does not otherwise have a corporate affiliation based 
upon common ownership with an EEM) that has been appointed by an EEM 
and an ``Appointed EEM'' is an EEM (who does not otherwise have a 
corporate affiliation based upon common ownership with a MIAX PEARL 
Market Maker) that has been appointed by a MIAX PEARL Market Maker, 
pursuant to the process described in the Fee Schedule. See the 
Definitions Section of the Fee Schedule.
    \8\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \9\ ``ABBO'' means the best bid(s) or offer(s) disseminated by 
other Eligible Exchanges (defined in Exchange Rule 1400(f)) and 
calculated by the Exchange based on market information received by 
the Exchange from OPRA. See the Definitions Section of the Fee 
Schedule. See Exchange Rule 100.
    \10\ See Securities Exchange Act Release No. 79778 (January 12, 
2017), 82 FR 6662 (January 19, 2017) (SR-PEARL-2016-01).
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    The Exchange established an alternative lower Taker fee that 
Members are able to qualify for in Penny classes for their Firm Origin 
orders when trading against Origins other than Priority Customer if 
certain thresholds are satisfied by the Member instead of the tier rate 
for the same segment that the Member would have otherwise achieved.\11\ 
This threshold is denoted under the footnote ``[diam]'' on the Fee 
Schedule. Presently, Members may qualify for an alternative lower Taker 
fee of $0.48 for Penny classes for their Firm Origin when trading 
against Origins other than Priority Customer if the Member and their 
Affiliates: (1) Execute at least 2.00% of TCV in the relevant month in 
the Priority Customer Origin type, in all options classes, not 
including Excluded Contracts, as compared to TCV in all MIAX PEARL 
listed option classes; and (2) reach at least Tier 3 in the relevant 
month in Non-Priority Customers, Firms, Broker-Dealers and Non-MIAX 
PEARL Market Makers (collectively, ``Professional Members'') Origin 
types.
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    \11\ See Securities Exchange Act Release No. 85608 (April 11, 
2019), 84 FR 16073 (April 17, 2019) (SR-PEARL-2019-13).
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    The Exchange proposes to remove the second condition that must be 
met in order for Members to qualify for the alternative lower Taker fee 
for Penny classes for their Firm Origin orders when trading contra to 
Origins other than Priority Customer if certain thresholds are 
satisfied by the Member. Pursuant to this proposal, the only condition 
for Members to qualify for an alternative lower Taker fee of $0.48 for 
Penny classes for their Firm Origin when trading against Origins other 
than Priority Customer would be if the Member and their Affiliates 
execute at least 2.00% of TCV in the relevant month in the Priority 
Customer Origin type, in all options classes, not including Excluded 
Contracts, as

[[Page 21370]]

compared to TCV in all MIAX PEARL listed option classes. Pursuant to 
this proposal, Members and their Affiliates would no longer also be 
required to reach at least Tier 3 in the relevant month in the 
Professional Members Origin types in order to receive the alternative 
lower Taker fee.
    The alternative lower Taker fee is specific to the Firm Origin and 
volume aggregation is based on Professional Members for tier purposes. 
Other Origins within Professional Members still get the tier rate 
assigned in the Professional Members table as set forth in Section 
(1)(a) of the Fee Schedule. The alternative lower Taker fee applies to 
Taker fees for Firm Origin orders in Penny classes in Tier 1 through 
Tier 4 in the relevant month in the Professional Members Origin types, 
in which Professional Members, including Firm, in those tiers are 
currently assessed a Taker fee of $0.50 for Tier 1 and Tier 2 and $0.49 
for Tier 3 and Tier 4 when trading against Origins other than Priority 
Customer. The alternative lower Taker fee has no effect on Taker fees 
for Firm Origin orders in Penny classes in Tier 5 and Tier 6 in the 
relevant month in the Professional Members Origin types as the Taker 
fee in those tiers is already set at $0.48 when trading against Origins 
other than Priority Customer.
    The purpose for removing the second condition is to make it easier 
for Members to qualify for the lower Taker fee, to incentivize Members 
to increase Firm Origin order flow on the Exchange. With the proposed 
change, the transaction rebates and fees in Section (1)(a) of the Fee 
Schedule for Professional Members would be the following:

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                                                                    Per contract rebates/fees for penny classes            Per contract rebates/fees for
                                                         ----------------------------------------------------------------        non-penny classes
                                                               Maker           Maker       Taker [diam]                  -------------------------------
                                                            [supcaret]      [supcaret]        (contra      Taker (contra
           Origin                Tier    Volume criteria      (contra         (contra       origins ex       priority
                                                            origins ex       priority        priority        customer        Maker **        Taker **
                                                             priority        customer        customer)        origin)       [supcaret]
                                                             customer)        origin)
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Non-Priority Customer, Firm,          1  0.00%-0.15%....         ($0.25)         ($0.23)           $0.50           $0.50         ($0.30)           $1.10
 BD, and Non-MIAX PEARL               2  Above 0.15%-             (0.40)          (0.38)            0.50            0.50          (0.30)            1.10
 Market Makers.                       3   0.40%.                  (0.40)          (0.38)            0.49            0.50          (0.60)            1.09
                                      4  Above 0.40%-             (0.47)          (0.45)            0.49            0.50          (0.65)
                                          0.65%.
                                         Above 0.65%-
                                          1.00%.
                                      5  Above 1.00%-             (0.48)          (0.46)            0.48            0.50          (0.70)            1.08
                                          1.40%.
                                      6  Above 1.40%....          (0.48)          (0.46)            0.48            0.50          (0.85)            1.07
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** Members may qualify for the Maker Rebate and the Taker Fee associated with the highest Tier for transactions in Non-Penny classes if the Member
  executes more than 0.30% volume in Non-Penny classes, not including Excluded Contracts, as compared to the TCV in all MIAX PEARL listed option
  classes. For purposes of qualifying for such rates, the Exchange will aggregate the volume transacted by Members and their Affiliates in the following
  Origin types in Non-Penny classes: MIAX PEARL Market Makers, and Non-Priority Customer, Firm, BD, and Non-MIAX PEARL Market Makers.
[supcaret] Members may qualify for Maker Rebates equal to the greater of: (A) ($0.40) for Penny Classes and ($0.65) for Non-Penny Classes, or (B) the
  amount set forth in the applicable Tier reached by the Member in the relevant Origin, if the Member and their Affiliates execute at least 2.00% volume
  in the relevant month, in Priority Customer Origin type, in all options classes, not including Excluded Contracts, as compared to the TCV in all MIAX
  PEARL listed option classes.
[diam] Members may qualify for Taker Fees of $0.48 for Penny classes for their Firm Origin when trading against Origins not Priority Customer if the
  Member and their Affiliates execute at least 2.00% of TCV in the relevant month in the Priority Customer Origin type, in all options classes, not
  including Excluded Contracts, as compared to TCV in all MIAX PEARL listed option classes.

    The proposed rule change is to become operative May 1, 2019.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \12\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act,\13\ in that it 
is an equitable allocation of reasonable dues, fees and other charges 
among Exchange members and issuers and other persons using its 
facilities, and 6(b)(5) of the Act,\14\ in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanisms of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
    \14\ 15 U.S.C. 78f(b)(1) and (b)(5).
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    The Exchange's proposal to remove the second condition that must be 
met in order for Members to qualify for the alternative lower Taker fee 
for Penny classes for their Firm Origin orders when trading contra to 
Origins other than Priority Customer if certain thresholds are 
satisfied by the Member, is consistent with Section 6(b)(4) of the Act 
\15\ because it applies equally to all Members for their Firm Origin 
with similar affiliated order flow. The Exchange believes that its 
proposal is fair, equitable, and not unreasonably discriminatory 
because it will make it easier for Members to qualify for the lower 
Taker fee, and will encourage Members to submit both Firm and Priority 
Customer orders, which will increase liquidity and benefit all market 
participants by providing more trading opportunities and tighter 
spreads. The Exchange believes that the proposal is reasonable because 
it will incentivize providers of Priority Customer order flow to send 
that Priority Customer order flow to the Exchange in order to obtain 
the highest volume threshold and receive a Taker fee in a manner that 
enables the Exchange to improve its overall competitiveness and 
strengthen its market quality for all market participants.
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    \15\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    MIAX PEARL 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.
    The Exchange further believes that its proposal to remove the 
second condition that must be met in order for Members to qualify for 
the alternative lower Taker fee for Penny classes for their Firm Origin 
orders when trading contra to Origins other than Priority Customer if 
certain thresholds are satisfied by the Member, that will apply instead 
of the Taker fee otherwise applicable to such orders, will not have an 
impact on intra-market competition. Specifically, the Exchange believes 
the proposal for any Member to be able to qualify for a Taker fee of 
$0.48 per contract for their Firm Orders when trading against Origins 
other than Priority Customer, when Members and their Affiliates execute 
at least 2.00% of TCV in the relevant month in the Priority Customer 
Origin type, in all options classes, not including Excluded Contracts, 
as compared to TCV in all MIAX PEARL listed option classes, will 
increase volume of Firm and Priority

[[Page 21371]]

Customer order flow. The Exchange believes that the increased order 
flow will result in increased liquidity which benefits all Exchange 
participants by providing more trading opportunities and tighter 
spreads. Because the proposal makes it easier for a Member to receive a 
lower Taker fee for their Firm Origin instead of the Taker fee 
otherwise applicable to such orders in Tier 1 through Tier 4 for 
Professional Members, the Exchange believes that the proposed rule 
change will not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.
    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues if they 
deem fee levels at a particular venue to be excessive. In such an 
environment, the Exchange must continually adjust its rebates and fees 
to remain competitive with other exchanges and to attract order flow. 
The Exchange believes that the proposed rule change reflects this 
competitive environment because it modifies the Exchange's fees in a 
manner that encourages market participants to continue to provide 
liquidity and to send order flow to the Exchange.

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

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\16\ and Rule 19b-4(f)(2) \17\ 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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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-PEARL-2019-15 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-2019-15. 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-2019-15, and should be submitted 
on or before June 4, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09867 Filed 5-13-19; 8:45 am]
 BILLING CODE 8011-01-P