Document ID: SEC-2017-0745-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2017-05-10T04:00Z

[Federal Register Volume 82, Number 89 (Wednesday, May 10, 2017)]
[Notices]
[Pages 21855-21858]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09421]

[[Page 21855]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80592; File No. SR-PEARL-2017-19]

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 4, 2017.
    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 26, 2017, 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 text of the proposed rule change is available on the Exchange's 
Web site 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 that apply to MIAX PEARL 
Market Makers \3\ to (i) increase the ``Maker'' rebate in Tier 3 for 
transactions of options in Penny classes (as defined below), and (ii) 
add a new, alternative Volume Criteria to Tier 3 based upon the total 
monthly volume executed by a Market Maker solely in SPY options on MIAX 
PEARL, expressed as a percentage of total consolidated national volume 
in SPY options. The Exchange also proposes to make a minor, non-
substantive technical correction to a definition contained in the 
Definitions section of the Fee Schedule, as described 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. See the Definitions Section of the Fee Schedule and 
Exchange Rule 100.
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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 \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 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 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 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\ 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 all Market Makers are 
currently assessed according to the following table:

[[Page 21856]]

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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..........................               1  0.00%-0.10%.........................         ($0.25)           $0.50         ($0.30)           $1.05
PEARL.............................               2  Above 0.10%-0.50%...................          (0.40)            0.48          (0.60)            1.03
 Market...........................               3  Above 0.50%-0.75%...................          (0.45)            0.47          (0.65)            1.02
Makers............................               4  Above 0.75%.........................          (0.48)            0.47          (0.70)            1.02
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    The Exchange proposes to increase the ``Maker'' rebate amount in 
Tier 3 for Penny classes from ($0.45) to ($0.47). The purpose of 
increasing the amount of the rebate is to provide a greater incentive 
to Market Makers to reach Tier 3, thereby increasing the potential for 
executing more volume at the Exchange and consequently receiving a 
higher rebate. The Exchange believes that increased Maker volume by 
Market Makers in Penny classes will attract more liquidity to the 
Exchange, which in turn will benefit all market participants.
    The Exchange also proposes to add a new, alternative Volume 
Criteria to Tier 3 based upon the total monthly volume executed by a 
Market Maker solely in SPY options on MIAX PEARL, expressed as a 
percentage of total consolidated national volume in SPY options. 
Pursuant to this alternative Volume Criteria, a Market Maker can now 
reach the Tier 3 threshold if the Market Maker's total executed monthly 
volume in SPY options on MIAX PEARL is above 2.0% of total consolidated 
national monthly volume in SPY options. To be clear, volume that is 
from resting liquidity (Maker) and taking liquidity (Taker) in SPY 
options are counted towards this alternative Volume Criteria. 
Accordingly, a Market Maker could now qualify for Tier 3 rebates and 
fees which will then be applicable to all volume executed by the Market 
Maker on MIAX PEARL. The two Volume Criteria available for Tier 3 are 
now based upon either: (a) The total monthly volume executed by the 
Market Maker in all options classes on MIAX PEARL, not including 
Excluded Contracts, (as the numerator), expressed as a percentage of 
(divided by) TCV (as the denominator); or (b) the total monthly volume 
executed by the Market Maker solely in SPY options on MIAX PEARL, not 
including Excluded Contracts, (as the numerator), expressed as a 
percentage of (divided by) SPY TCV (as the denominator). Once either 
Volume Criteria threshold in Tier 3 is reached by the Market Maker, the 
Tier 3 per contract rebates and fees will apply to all volume in all 
options classes executed by that Market Maker on MIAX PEARL.
    In addition to modifying the MIAX PEARL Market Maker table to 
insert the new, alternative Volume Criteria threshold in Tier 3, in 
order to provide a clear explanation of the requirements for achieving 
that alternative Volume Criteria threshold in Tier 3, the Exchange is 
proposing to (i) amend the explanatory paragraph beneath the tables in 
Section 1(a) of the Fee Schedule, and (ii) add a new definition of 
``SPY TCV'' to the Definitions Section of the Fee Schedule. The amended 
explanatory paragraph will clarify that (except as otherwise set forth 
in the Fee Schedule) the existing Volume Criteria threshold measures 
volume in all options classes on MIAX PEARL, and that the new, 
alternative Volume Criteria threshold in Tier 3 for Market Makers 
measures volume solely in SPY options on MIAX PEARL. The new definition 
of SPY TCV in the Definitions Section shall provide the following: 
``SPY TCV'' means total consolidated volume in SPY calculated as the 
total national volume in SPY for the month for which the fees apply, 
excluding consolidated volume executed during the period of time in 
which the Exchange experiences an Exchange System Disruption (solely in 
SPY options).
    The Exchange believes that the proposed alternative Volume Criteria 
threshold in Tier 3 for Market Makers will provide another opportunity 
for those Market Makers that concentrate their trading activity in 
limited options classes such as SPY options to reach a higher tier. The 
Exchange believes that creating this alternative Volume Criteria will 
extend the Tier 3 fee incentives to Market Makers that concentrate 
their trading activity by sending significant volume in SPY options as 
compared to other Market Makers that do trade in the broad range of 
products listed on the Exchange.
    Finally, the Exchange is proposing to make a minor, non-substantive 
technical correction to the definition of ``TCV'' to insert the word 
``of'' in between the words ``period'' and ``time.'' This word was 
inadvertently left out of the sentence when the definition of ``TCV'' 
was initially adopted, on February 6, 2017.\10\
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    \10\ See Securities Exchange Act Release No. 80061 (February 17, 
2017), 82 FR 11676 (February 24, 2017) (SR-PEARL-2017-10).
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    The proposed rule change is scheduled to become operative May 1, 
2017.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \11\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act,\12\ in that it 
is an equitable allocation of reasonable fees and other charges among 
Exchange members and other persons using its facilities, and 6(b)(5) of 
the Act,\13\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
    \13\ 15 U.S.C. 78f(b)(1) and (b)(5).
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    The proposed Maker rebate increase in Penny classes applicable to 
Market Makers that reach the Tier 3 threshold is reasonable, equitable 
and not unfairly discriminatory because all similarly situated Market 
Makers are subject to the same tiered rebates and fees and access to 
the Exchange is offered on terms that are not unfairly discriminatory. 
The Exchange initially set its Maker rebates at the various volume 
levels based upon business determinations and an analysis of current 
Maker rebates and volume levels at other exchanges. For competitive and 
business reasons, the Exchange believes that a higher rebate to Market 
Makers that add liquidity in Penny classes in a higher tier will 
encourage Market Makers to execute more volume as a Maker in Penny 
classes. The Exchange believes for these reasons that offering a higher 
Maker rebate for transactions in Penny classes in Tier 3 for Market 
Makers is equitable, reasonable and not

[[Page 21857]]

unfairly discriminatory, and thus consistent with the Act.
    Furthermore, the proposed increase to the Maker rebate amount in 
Penny classes for Market Makers that reach Tier 3 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 
increase in the rebate amount encourages Market Makers to send more 
orders to the Exchange which add liquidity in order to achieve higher 
thresholds and resulting higher rebates. To the extent that order flow 
which adds liquidity 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 to reach higher 
tiers. The resulting increased volume and liquidity will benefit all 
Exchange participants by providing more trading opportunities and 
tighter spreads.
    The Exchange's proposal to adopt the new, alternative Volume 
Criteria for Tier 3 based on SPY volume executed on the Exchange is 
reasonable, equitable, and not unfairly discriminatory, as it is a form 
of pricing based upon trading activity in a select symbol, which is a 
common practice on many U.S. options exchanges as a means to 
incentivize order flow to be sent to an exchange for execution in 
actively traded options classes. The Exchange's affiliate, Miami 
International Securities Exchange, LLC (``MIAX Options''), offers 
enhanced pricing for transactions in options underlying certain select 
symbols.\14\ SPY options are the most actively traded class. Other 
options exchanges' fee schedules distinguish by symbol and specifically 
assess different fees and rebates for transactions in select symbols 
and some exclusively for transactions in SPY options for the same 
market participants.\15\
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    \14\ See MIAX Options Fee Schedule, Section (1)(a)(iii).
    \15\ See Chicago Board Options Exchange Incorporated (``CBOE'') 
Fees Schedule; see also NASDAQ PHLX LLC (``PHLX'') Pricing Schedule, 
Chapter B, Section I; see further International Securities Exchange 
LLC (``ISE'') Fee Schedule, Sections I and II.
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    The Exchange is offering an alternative Tier 3 Volume Criteria 
threshold based on SPY options volume in Tier 3 because, as previously 
mentioned, SPY options are the most actively traded options in the 
industry, and therefore the Exchange believes that incentivizing Market 
Makers that concentrate their trading activity in SPY options will 
consequently increase order flow sent to the Exchange, which will 
benefit all market participants through increased liquidity, tighter 
markets and order interaction.
    The Exchange believes that the proposed non-substantive, technical 
correction will promote just and equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it will improve the readability of the 
rules. The proposed change does not alter the application of the rule. 
As such, the proposed change would foster cooperation and coordination 
with persons engaged in facilitating transactions in securities and 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system. In particular, the Exchange 
believes that the proposed rule change will provide greater clarity to 
Members and the public regarding the Exchange's Rules, and it is in the 
public interest for rules to be accurate and concise so as to eliminate 
the potential for confusion.

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

    MIAX PEARL does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed Maker rebate 
increase is intended to encourage the posting of liquidity. The 
proposed rule change should enable the Exchange to attract and compete 
for order flow with other exchanges and the greater rebate for adding 
liquidity will encourage Market Makers to submit more order flow that 
adds liquidity, not removes it. The Exchange also believes that paying 
greater rebates may create competition among market participants. 
However, this competition does not create an undue burden on 
competition but rather offers all market participants the opportunity 
to receive the benefit of the enhanced pricing.
    Further, the Exchange believes that the proposed alternative Volume 
Criteria threshold in Tier 3 based on SPY options volume applicable to 
Market Makers provides greater incentives to those Market Makers that 
concentrate their trading activity in SPY options to send additional 
SPY orders and creates additional opportunity for additional liquidity 
to the market.
    The Exchange does not believe that the proposed rule change to make 
a technical correction to its rules will impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act. The proposed rule change is not designed to address any 
competitive issues but rather is designed to add additional clarity and 
to remedy a minor, non-substantive issue in the text of a definition in 
the Fee Schedule.
    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 changes reflect this 
competitive environment because they modify the Exchange's fees in a 
manner that encourages market participants 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

[[Page 21858]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR-PEARL-2017-19 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-2017-19. 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 Web site (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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-PEARL-2017-19 and should be 
submitted on or before May 31, 2017.

    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,
Assistant Secretary.
[FR Doc. 2017-09421 Filed 5-9-17; 8:45 am]
 BILLING CODE 8011-01-P