Document ID: SEC-2018-0484-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2018-03-23T04:00Z

[Federal Register Volume 83, Number 57 (Friday, March 23, 2018)]
[Notices]
[Pages 12836-12838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05901]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82900; File No. SR-PEARL-2018-09]

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

March 19, 2018.
    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 March 8, 2018, MIAX PEARL, LLC (``MIAX PEARL'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX PEARL Fee 
Schedule (the ``Fee Schedule''). The Exchange initially filed the 
proposal on February 28, 2018 (SR-PEARL-2018-06). That filing was 
withdrawn and replaced with the current filing (SR-PEARL-2018-09).
    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 decrease the 
``Taker'' fees in Tiers 4, 5 and 6 assessable to all orders submitted 
by a Market Maker \3\ for options in Penny classes (as defined below).
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    \3\ ``Market Maker'' 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 Exchange Rules. See the Definitions 
Section of the Fee Schedule and Exchange Rule 100.
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    The Exchange currently assesses tiered transaction rebates and fees 
to all market participants which are based upon the total monthly 
volume executed by the Member \4\ on MIAX PEARL in the relevant, 
respective origin type (not including Excluded Contracts \5\) expressed 
as a percentage of TCV.\6\ In addition, the per contract

[[Page 12837]]

transaction rebates and fees are applied retroactively to all eligible 
volume for that origin type once the respective threshold tier 
(``Tier'') has been reached by the Member. The Exchange aggregates the 
volume of Members and their Affiliates.\7\ Members that place resting 
liquidity, i.e., orders resting on the book of the MIAX PEARL 
System,\8\ are paid the specified ``maker'' rebate (each a ``Maker''), 
and Members that execute against resting liquidity are assessed the 
specified ``taker'' fee (each a ``Taker''). For opening transactions 
and ABBO uncrossing transactions, per contract transaction rebates and 
fees are waived for all market participants. Finally, Members are 
generally assessed lower transaction fees and receive lower rebates for 
order executions in standard option classes in the Penny Pilot Program 
\9\ (``Penny classes'') than for order executions in standard option 
classes which are not in the Penny Pilot Program (``Non-Penny 
classes''), where Members are assessed higher transaction fees and 
receive higher rebates.
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    \4\ ``Member'' means an individual or organization that is 
registered with the Exchange pursuant to Chapter II of the Exchange 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See the Definitions Section of 
the Fee Schedule and Exchange Rule 100.
    \5\ ``Excluded Contracts'' means any contracts routed to an away 
market for execution. See the Definitions Section of the Fee 
Schedule.
    \6\ ``TCV'' means total consolidated volume calculated as the 
total national volume in those classes listed on MIAX PEARL for the 
month for which the fees apply, excluding consolidated volume 
executed during the period 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 notes that the term ``Exchange System 
Disruption'' and its meaning have no applicability outside of the 
Fee Schedule, as it is used solely for purposes of calculating 
volume for the threshold tiers in the Fee Schedule. See the 
Definitions Section of the Fee Schedule.
    \7\ ``Affiliate'' means (i) an affiliate of a Member of at least 
75% common ownership between the firms as reflected on each firm's 
Form BD, Schedule A, or (ii) the Appointed Market Maker of an 
Appointed EEM (or, conversely, the Appointed EEM of an Appointed 
Market Maker). An ``Appointed Market Maker'' is a MIAX PEARL Market 
Maker (who does not otherwise have a corporate affiliation based 
upon common ownership with an EEM) that has been appointed by an EEM 
and an ``Appointed EEM'' is an EEM (who does not otherwise have a 
corporate affiliation based upon common ownership with a MIAX PEARL 
Market Maker) that has been appointed by a MIAX PEARL Market Maker, 
pursuant to the process described in the Fee Schedule. See the 
Definitions Section of the Fee Schedule.
    \8\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \9\ See Securities Exchange Act Release No. 79778 (January 12, 
2017), 82 FR 6662 (January 19, 2017) (SR-PEARL-2016-01).
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    Transaction rebates and fees applicable to orders submitted by a 
Market Maker are currently assessed according to the following table:

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                                                                                           Per contract rebates/fees for   Per contract rebates/fees for
                                                                                                   penny classes                 non-penny classes
                  Origin                         Tier              Volume criteria       ---------------------------------------------------------------
                                                                                               Maker           Taker           Maker           Taker
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All MIAX PEARL Market Makers..............               1  0.00%-0.05%.................         ($0.25)           $0.50         ($0.30)           $1.05
                                                         2  Above 0.05%-0.25%...........          (0.40)            0.50          (0.30)            1.05
                                                         3  Above 0.25%-0.50%...........          (0.40)            0.48          (0.60)            1.03
                                                         4  Above 0.50%-0.75% or Above            (0.47)            0.47          (0.65)            1.02
                                                             2.0% in SPY.
                                                         5  Above 0.75%-1.00%...........          (0.48)            0.47          (0.70)            1.02
                                                         6  Above 1.00%.................          (0.48)            0.47          (0.85)            1.02
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    The Exchange proposes to decrease the Taker fees for Market Maker 
orders for options in Penny classes in Tiers 4, 5 and 6 from $0.47 to 
$0.43. The purpose of decreasing the Taker fees for Market Maker orders 
for options in Penny classes to $0.43 in those Tiers is for business 
and competitive reasons to encourage Market Makers to execute greater 
volume on the Exchange, by offering lower rates in the higher Tiers. 
The Exchange believes that reducing the Taker fees for Market Maker 
orders for options in Penny classes to $0.43 per contract fee in those 
Tiers will incentivize Market Makers to execute more volume on the 
Exchange due to favorable pricing for this liquidity type in the higher 
Tiers. There are no other changes proposed to the fee table.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \10\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act,\11\ 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,\12\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ 15 U.S.C. 78f(b)(1) and (b)(5).
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    The proposed Taker fee decreases in Penny classes applicable to 
orders submitted by a Market Maker are reasonable, equitable and not 
unfairly discriminatory because all Market Maker orders are subject to 
the same Taker fees and access to the Exchange is offered on terms that 
are not unfairly discriminatory. The Exchange initially set its Taker 
fees at the various volume levels based upon business determinations 
and an analysis of current Taker fees and volume levels at other 
exchanges. For competitive and business reasons, the Exchange believes 
that lower Taker fees assessable to Market Maker transactions in Penny 
classes in Tiers 4, 5 and 6 will encourage Market Makers to execute 
more volume in Penny classes in order to achieve the higher Tiers since 
they will be assessed reduced fees in Tiers 4, 5 and 6 for orders in 
options in Penny classes which remove liquidity. The Exchange believes 
for these reasons that offering the reduced Taker fees for Market Maker 
transactions in Penny classes in Tiers 4, 5 and 6 is equitable, 
reasonable and not unfairly discriminatory, and thus consistent with 
the Act.
    The Exchange believes that its proposal to reduce Taker fees 
assessable to transactions in options in Penny classes and not to 
reduce Taker fees for transactions in options in Non-Penny classes is 
consistent with other options markets that also assess different 
transaction fees for options in Non-Penny classes as compared to Penny 
classes. The Exchange believes that establishing different pricing for 
options in Non-Penny classes and Penny classes is reasonable, 
equitable, and not unfairly discriminatory because options in Penny 
classes are generally more liquid as compared to Non-Penny classes. 
Additionally, other competing options exchanges differentiate pricing 
in a similar manner today.\13\
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    \13\ See NASDAQ PHLX LLC Pricing Schedule, Section II; NYSE 
American Options Fee Schedule, p. 7; Cboe Exchange, Inc. Fee 
Schedule, p. 1. See also Securities Exchange Act Release No. 68556 
(January 2, 2013), 78 FR 1293 (January 8, 2013) (SR-BX-2012-074).
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    Further, the Exchange believes that it is equitable and not 
unfairly discriminatory to assess lower fees to Market Maker orders 
than to orders submitted by all other market participants who are not 
Priority

[[Page 12838]]

Customers. Market Makers are assessed lower transaction fees as 
compared to Non-MIAX Market Makers, Non-Member Broker-Dealers, and 
Firms because they have market-making obligations and regulatory 
requirements, which normally do not apply to those market participants 
that are not Market Makers.\14\ Market Makers additionally have 
obligations to make continuous markets, engage in a course of dealings 
reasonably calculated to contribute to the maintenance of a fair and 
orderly market, and not make bids or offers or enter into transactions 
that are inconsistent with a course of dealings.
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    \14\ See Exchange Rules 603 and 604.
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    Furthermore, the proposed decrease to the Taker fees in Penny 
classes for Market Makers in Tiers 4, 5 and 6 promotes just and 
equitable principles of trade, fosters cooperation and coordination 
with persons engaged in facilitating transactions in securities, and 
protects investors and the public interest because the proposed 
decrease in the fees will encourage Market Makers to send more orders 
to the Exchange since they will be assessed a reduced Taker fee in 
Tiers 4, 5 and 6. To the extent that Market Maker order flow in Penny 
classes is increased by the proposal, market participants will 
increasingly compete for the opportunity to trade on the Exchange, 
including sending more orders which will have the potential to be 
assessed lower fees and higher rebates. The resulting increased volume 
and liquidity will benefit all Exchange participants by providing more 
trading opportunities and tighter spreads.

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

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

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

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\15\ and Rule 19b-4(f)(2) \16\ 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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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 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-2018-09 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-2018-09. 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-2018-09 and should be submitted on 
or before April 13, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-05901 Filed 3-22-18; 8:45 am]
 BILLING CODE 8011-01-P