Document ID: SEC-2020-1141-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2020-07-20T04:00Z

[Federal Register Volume 85, Number 139 (Monday, July 20, 2020)]
[Notices]
[Pages 43898-43900]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15557]

[[Page 43898]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89316; File No. SR-PEARL-2020-09]

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

July 14, 2020.
    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 June 30, 2020, 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'') to increase the number of additional 
Limited Service MIAX Express Order Interface (``MEO'') Ports available 
to Market Makers.\3\ The Exchange does not propose to amend the fees 
for additional Limited Service MEO Ports.
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    \3\ 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's Rules. See Exchange Rule 100.
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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 proposes to amend the Fee Schedule to offer two (2) 
additional Limited Service MEO Ports to Market Makers. The Exchange 
does not propose to amend the fees charged for the additional Limited 
Service MEO Ports.
    The Exchange currently offers different options of MEO Ports 
depending on the services required by an Exchange Member,\4\ including 
a Full Service MEO Port-Bulk,\5\ a Full Service MEO Port-Single,\6\ and 
a Limited Service MEO Port.\7\ Currently, a Member may be allocated two 
(2) Full-Service MEO Ports of either type, Bulk and/or Single, per 
Matching Engine, and up to eight (8) Limited Service MEO Ports, per 
Matching Engine. The two (2) Full-Service MEO Ports that may be 
allocated per Matching Engine to a Member currently may consist of: (a) 
Two (2) Full Service MEO Ports--Bulk; or (b) two (2) Full Service MEO 
Ports--Single. The Exchange also has a third option, option (c), which 
permits a Member to have one (1) Full Service MEO Port--Bulk, and one 
(1) Full Service MEO Port--Single.
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    \4\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of these 
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.
    \5\ ``Full Service MEO Port--Bulk'' means an MEO port that 
supports all MEO input message types and binary bulk order entry. 
See the Definitions Section of the Fee Schedule.
    \6\ ``Full Service MEO Port--Single'' means an MEO port that 
supports all MEO input message types and binary order entry on a 
single order-by-order basis, but not bulk orders. See the 
Definitions Section of the Fee Schedule.
    \7\ ``Limited Service MEO Port'' means an MEO port that supports 
all MEO input message types, but does not support bulk order entry 
and only supports limited order types, as specified by the Exchange 
via Regulatory Circular. See the Definitions Section of the Fee 
Schedule.
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    The Exchange currently provides Market Makers the first two (2) 
requested Limited Service MEO Ports free of charge and charges $200 per 
month for Limited Service MEO Ports three (3) and four (4), $300 per 
month for Limited Service MEO Ports five (5) and six (6), and $400 per 
month for Limited Service MEO Ports seven (7) and eight (8). These fees 
have been unchanged since they were adopted in 2018.\8\
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    \8\ See Securities Exchange Act Release No. 83867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
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    The Exchange originally added the Limited Service MEO Ports to 
enhance the MEO Port connectivity made available to Market Makers. 
Limited Service MEO Ports have been well received by Market Makers 
since their addition. The Exchange now proposes to offer to Market 
Makers the ability to purchase an additional two (2) Limited Service 
MEO Ports per matching engine over and above the current six (6) 
additional Limited Service MEO Ports per matching engine that are 
available for purchase by Market Makers. The Exchange proposes making a 
corresponding change to the text in the Port Fee table and to the text 
below the Port Fee table in Section 5)d) of the Fee Schedule to specify 
that Market Makers will now be limited to purchasing eight (8) 
additional Limited Service MEO Ports per matching engine, for a total 
of ten (10) per matching engine. All fees related to MEO Ports shall 
remain unchanged and Market Makers that voluntarily purchase the 
additional ninth or tenth Limited Service MEO Ports will be subject to 
the existing $400 monthly fee per port that is charged to Market Makers 
that request a seventh or eighth Limited Service MEO Port.
    The Exchange is increasing the number of additional Limited Service 
MEO Ports because the Exchange is expanding its network. This network 
expansion is necessary due to increased customer demand and increased 
volatility in the marketplace, both of which have translated into 
increased message traffic rates across the network. Consequently, this 
network expansion, which increases the number of switches supporting 
customer facing systems, is necessary in order to provide sufficient 
access to new and existing Members, to maintain a sufficient amount of 
network capacity head-room, and to continue to provide the same level 
of service across the Exchange's low-latency, high-throughput 
technology environment.
    Currently, the Exchange has 8 network switches that support the 
entire customer base of MIAX Options and MIAX PEARL. The Exchange plans 
to increase this to 10 switches, which will increase the number of 
available customer ports by 25%. This increase in the number of 
available customer ports will enable the Exchange to continue to 
provide sufficient and equal access to the MIAX PEARL System to all 
Members. Absent the proposed increase in available MEO Ports, the 
Exchange

[[Page 43899]]

projects that its current inventory will be depleted and it will lack 
sufficient capacity to continue to meet Members' access needs.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \9\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act \10\ 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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal is consistent with the 
objectives of Section 6(b)(5) of the Act \11\ because the proposed 
additional Limited Service MEO Ports will be available to all Market 
Makers and the current fees for the additional Limited Service MEO 
Ports apply equally to all Market Makers regardless of type, and access 
to the Exchange is offered on terms that are not unfairly 
discriminatory. The Exchange is proposing to increase the number of 
available Limited Service MEO Ports because the Exchange is expanding 
its network. This network expansion is necessary due to increased 
customer demand and increased volatility in the marketplace, both of 
which have translated into increased message traffic rates across the 
network. Consequently, this network expansion, which increases the 
number of switches supporting customer facing systems, is necessary in 
order to provide sufficient and equal access to new and existing 
Members, to maintain a sufficient amount of network capacity head-room, 
and to continue to provide the same level of service across the 
Exchange's low-latency, high-throughput technology environment.
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    \11\ 15 U.S.C. 78f(b)(5).
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    Currently, the Exchange has 8 network switches that support the 
entire customer base of MIAX Options and MIAX PEARL. The Exchange plans 
to increase this to 10 switches, which will increase the number of 
available customer ports by 25%. This increase in the number of 
available customer ports will enable the Exchange to continue to 
provide sufficient and equal access to MIAX PEARL Systems for all 
Members. Absent the proposed increase in available MEO Ports, the 
Exchange projects that its current inventory will be depleted and it 
will lack sufficient capacity to continue to meet Members' access 
needs. Further, the Exchange notes that decision of whether to purchase 
two additional Limited Service MEO Ports is completely optional and it 
is a business decision for each Market Maker to determine whether the 
additional Limited Service MEO Ports are necessary to meet their 
business requirements.
    The Exchange further believes that the availability of the 
additional Limited Service MEO Ports is equitable and not unfairly 
discriminatory because it will enable Market Makers to maintain 
uninterrupted access to the MIAX PEARL System and consequently enhance 
the marketplace by helping Market Makers to better manage risk, thus 
preserving the integrity of the MIAX markets, all to the benefit of and 
protection of investors and the public as a whole.
    The Exchange also believes that its proposal is consistent with 
Section 6(b)(4) of the Act because only Market Makers that voluntarily 
purchase the two additional Limited Service MEO Ports will be charged 
the existing $400 monthly fee per port applicable to ports seven (7) 
and eight (8), which has been unchanged since adopted 2018.\12\ The 
Exchange does not propose to amend the fees applicable to additional 
Limited Service MEO Ports which have been previously filed with the 
Commission and become effective after notice and public comment.\13\ As 
stated above, the Exchange proposes to expand its network by making 
available two additional Limit Service MEO Ports due to increased 
customer demand and increased volatility in the marketplace, both of 
which have translated into increased message traffic rates across the 
network. The cost to expand the network in this manner is greater than 
the revenue the Exchange anticipates the additional Limited Service MEO 
Ports will generate. Specifically, the Exchange estimates it will cost 
approximately $350,000 in capital expenditures on hardware, software, 
and other items to expand the network to make available the two 
additional Limited Service MEO Ports. This estimated cost also includes 
providing the necessary engineering and support personnel to transition 
those Market Makers who wish to acquire the two additional Limited 
Service MEO Ports.
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    \12\ See supra note 7.
    \13\ Id.
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    The Exchange projects that approximately six or seven Market Makers 
will elect to purchase the additional Limited Service MEO Ports, which 
will be subject to the existing monthly fee of $400 per port applicable 
to ports seven (7) and eight (8). Accordingly, the Exchange projects 
that the annualized revenue from the two additional Limited Service MEO 
Ports will be approximately $67,200 (assuming that seven Market Makers 
purchase the two additional Limited Service MEO Ports). Therefore, the 
Exchange's cost in expanding its network to provide its Members with 
the two additional Limited Service MEO Ports--approximately $350,000--
is clearly greater than the anticipated annualized revenue the Exchange 
expects to bring in from the two additional Limited Service MEO Ports--
approximately $67,200. Thus, the Exchange is not generating a supra-
competitive profit from the provision of these two additional Limited 
Service MEO Ports.
    Subjecting the two additional Limited Service MEO Ports to the 
existing $400 monthly fee per port applicable to ports seven (7) and 
eight (8) is also designed to encourage Market Makers to be efficient 
with their port usage, thereby resulting in a corresponding increase in 
the efficiency that the Exchange would be able to realize in managing 
its aggregate costs for providing the two additional ports. There is no 
requirement that any Market Maker maintain a specific number of Limited 
Service MEO Ports and a Market Maker may choose to maintain as many or 
as few of such ports as each Market Maker deems appropriate.
    Finally, subjecting the two additional Limited Service MEO Ports to 
the existing $400 monthly fee applicable to ports seven (7) and eight 
(8) will help to encourage Limited Service MEO Port usage in a way that 
aligns with the Exchange's regulatory obligations. As a national 
securities exchange, the Exchange is subject to Regulation Systems 
Compliance and Integrity (``Reg. SCI'').\14\ Reg. SCI Rule 1001(a) 
requires that the Exchange establish, maintain, and enforce written 
policies and procedures reasonably designed to ensure (among other 
things) that its Reg. SCI systems have levels of capacity adequate to 
maintain the Exchange's operational capability and promote the 
maintenance of fair and orderly markets.\15\ By encouraging Members to 
be efficient with their usage of Limited MEO Ports, the current fee 
that will continue to apply to the proposed two (2) additional Limited 
Service MEO Ports will support the Exchange's Reg.

[[Page 43900]]

SCI obligations in this regard by ensuring that unused ports are 
available to be allocated based on individual Members needs and as the 
Exchange's overall order and trade volumes increase.
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    \14\ 17 CFR 242.1000-1007.
    \15\ 17 CFR 242.1001(a).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    MIAX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. The proposed rule 
change will not impose a burden on competition but will benefit 
competition by enhancing the Exchange's ability to compete by providing 
additional services to market participants. It is not intended to 
address a competitive issue. Rather, the proposed increase in the 
number of additional Limited Service MEO Ports available per Market 
Maker is intended to allow the Exchange to increase its inventory of 
MEO Ports to meet increased Member demand. The Exchange is increasing 
the number of available additional Limited Service MEO Ports in 
response to Market Maker demand for increased connectivity to the MIAX 
PEARL System. The Exchange's current inventory may soon be insufficient 
to meet those needs. Again, the Exchange is not proposing to amend the 
fees for MEO Ports, just to increase the number of MEO Ports available 
per Market Maker. The Exchange also does not believe that the proposed 
rule change will impose a burden on intramarket competition because the 
two additional Limited Service MEO Ports will be available to all 
Market Makers on an equal basis. It is a business decision of each 
Market Maker whether to pay for the additional Limited Service MEO 
Ports.

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-2020-09 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-2020-09. 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-2020-09 and should be submitted on 
or before August 10, 2020.

    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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15557 Filed 7-17-20; 8:45 am]
BILLING CODE 8011-01-P