Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX PEARL Fee Schedule To Establish an Options Regulatory Fee (“ORF”), 18045-18048 [2017-07536]

Download as PDF Federal Register / Vol. 82, No. 71 / Friday, April 14, 2017 / Notices Exchange therefore proposes to eliminate the LVX section of the Fees Schedule (i.e., the Application fees for Standard and Enterprise Users and the LV Routing Intermediary Fee). The Exchange believes eliminating fees from the Fees Schedule that are no longer charged by the Exchange will eliminate confusion. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the ‘‘Act’’) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.3 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 4 requirements that the rules of an exchange be 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 regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, 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. The Exchange believes eliminating references to (i) classes that are no longer listed on the Exchange, (ii) functionality that is no longer offered at the Exchange and (iii) fees that will no longer be assessed due to the sale of LVX to a third party, will help to avoid confusion, thereby removing impediments to and perfecting the mechanism of a free and open market and a national market system. Additionally, the Exchange notes that no substantive changes are being made by the proposed rule change. sradovich on DSK3GMQ082PROD with NOTICES 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 intramarket or intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed change to eliminate obsolete references to delisted options and fees and functionality no longer offered will alleviate confusion and is not intended for competitive reasons and only applies to CBOE. The Exchange also notes that no rights or obligations of Permit Holders are affected by the change. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. 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) of the Act 5 and paragraph (f) of Rule 19b–4 6 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 will institute proceedings to determine whether the proposed rule change should be approved or disapproved. 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 rule-comments@ sec.gov. Please include File Number SR– CBOE–2017–023 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549. All submissions should refer to File Number SR–CBOE–2017–023. 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 (https://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 such 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–CBOE– 2017–023 and should be submitted on or before May 5, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–07535 Filed 4–13–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80423; File No. SR– PEARL–2017–15] Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX PEARL Fee Schedule To Establish an Options Regulatory Fee (‘‘ORF’’) April 10, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 30, 2017, MIAX PEARL, LLC (‘‘MIAX PEARL’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘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. 7 17 3 15 U.S.C. 78f(b). 4 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 16:21 Apr 13, 2017 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 5 15 U.S.C. 78s(b)(3)(A). 6 17 CFR 240.19b–4(f). Jkt 241001 PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 18045 E:\FR\FM\14APN1.SGM 14APN1 18046 Federal Register / Vol. 82, No. 71 / Friday, April 14, 2017 / Notices 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’’) by establishing an Options Regulatory Fee (‘‘ORF’’). The Exchange initially filed the proposal on February 3, 2017 (SR– PEARL–2017–09).3 That filing was withdrawn and replaced with the current filing (SR–PEARL–2017–15). The text of the proposed rule change is available on the Exchange’s Web site at https://www.miaxoptions.com/rulefilings/pearl, at MIAX’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 the Statutory Basis for, the Proposed Rule Change sradovich on DSK3GMQ082PROD with NOTICES 1. Purpose The purpose of the proposed rule change is to establish an ORF in the amount of $0.0010 per contract side. The per-contract ORF will be assessed by MIAX PEARL to each MIAX PEARL Member for all options transactions cleared or ultimately cleared by the Member which are cleared by the Options Clearing Corporation (‘‘OCC’’) in the ‘‘customer’’ range, regardless of the exchange on which the transaction occurs. The ORF will be collected either directly from Members or indirectly from non-Members that ultimately clear the transaction that is subject to the ORF through their clearing firms by OCC on behalf of MIAX PEARL. To illustrate how the ORF is assessed and collected, the Exchange provides the following set of examples. In the case where the transaction is executed on the Exchange, the ORF will be assessed to, and collected from, the 3 See Securities Exchange Act Release No. 80035 (February 14, 2017), 82 FR 11272 (February 21, 2017)(SR–PEARL–2017–09). VerDate Sep<11>2014 16:21 Apr 13, 2017 Jkt 241001 Member who clears the transaction. This is the case whether the transaction is (i) both executed and cleared by the same Member, or (ii) only cleared by the Member (that is, the executing firm is not self-clearing and thus clears through another Exchange clearing Member). In the case where the transaction is executed on an away exchange, if the transaction is cleared by a Member of the Exchange, the ORF will be assessed to, and collected from, the Member who clears the transaction. In the case where the transaction is executed on an away exchange, if the transaction is cleared by a non-Member of the Exchange and such non-Member then subsequently ‘‘givesup’’ or ‘‘CMTAs’’ the transaction to a Member of the Exchange (who ultimately clears the transaction), the ORF will be assessed to, and collected from, the Member who ultimately clears the transaction. Further, under certain circumstances, a transaction that is subject to the ORF can result in the ORF being collected from a non-Member of the Exchange. For example, in the circumstance in which a Member clears a transaction and then ‘‘gives-up’’ or ‘‘CMTAs’’ the trade to a non-Member of MIAX PEARL (which non-Member becomes the ultimate clearing firm for the transaction), MIAX PEARL will collect the ORF from such non-Member that ultimately cleared that transaction. However, for the avoidance of doubt, in the case where the transaction is executed on an away exchange, the Exchange does not assess or collect the ORF when neither the clearing firm nor the ultimate clearing firm is a Member (even if a Member is ‘‘given-up’’ or ‘‘CMTAed’’ and then such Member subsequently ‘‘gives-up’’ or ‘‘CMTAs’’ the transaction to another non-Member via a CMTA reversal). Further, the Exchange will not assess the ORF on linkage trades, whether executed at the Exchange or an away exchange. A customer order routed to another exchange results in two customer trades, one from the originating exchange and one from the recipient exchange. Charging ORF on both trades could result in double-billing of ORF for a single customer order, thus the Exchange chooses not to charge ORF on the trade from the originating exchange in a linkage scenario. This assessment practice is identical to the assessment practice currently utilized by the Exchange’s affiliate, Miami International Securities Exchange, LLC (‘‘MIAX Options’’). As a practical matter, when a transaction that is subject to the ORF is not executed on the Exchange, the Exchange lacks the information PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 necessary to identify the executing member for that transaction. There are countless executing market participants, and each day such participants can and often do drop their connection to one market center and establish themselves as participants on another. For these reasons, it is not possible for the Exchange to identify, and thus assess fees such as an ORF on, executing participants on away markets on a given trading day. Clearing members, however, are distinguished from executing participants because they remain identified to the Exchange regardless of the identity of the initiating executing participant, their location, and the market center on which they execute transactions. Therefore, the Exchange believes it is more efficient for the operation of the Exchange and for the marketplace as a whole to collect the ORF from clearing members. As discussed below, the Exchange believes it is appropriate to charge the ORF only to transactions that clear as customer at the OCC. The Exchange believes that its broad regulatory responsibilities with respect to a Member’s’ activities supports applying the ORF to transactions cleared but not executed by a Member. The Exchange’s regulatory responsibilities are the same regardless of whether a Member executes a transaction or clears a transaction executed on its behalf. The Exchange regularly reviews all such activities, including performing surveillance for position limit violations, manipulation, front-running, contrary exercise advice violations and insider trading. These activities span across multiple exchanges. The ORF is designed to recover a material portion of the costs to the Exchange of the supervision and regulation of Members’ customer options business, including performing routine surveillances and investigations, as well as policy, rulemaking, interpretive and enforcement activities. The Exchange believes that revenue generated from the ORF, when combined with all of the Exchange’s other regulatory fees and fines, will cover a material portion, but not all, of the Exchange’s regulatory costs. The Exchange notes that its regulatory responsibilities with respect to Member compliance with options sales practice rules have been allocated to the Financial Industry Regulatory Authority (‘‘FINRA’’) under a 17d–2 Agreement. The ORF is not designed to cover the cost of options sales practice regulation. The Exchange will continue to monitor the amount of revenue collected from the ORF to ensure that it, E:\FR\FM\14APN1.SGM 14APN1 Federal Register / Vol. 82, No. 71 / Friday, April 14, 2017 / Notices in combination with its other regulatory fees and fines, does not exceed the Exchange’s total regulatory costs. The Exchange expects to monitor MIAX PEARL regulatory costs and revenues at a minimum on a semi-annual basis. If the Exchange determines regulatory revenues exceed or are insufficient to cover a material portion of its regulatory costs, the Exchange will adjust the ORF by submitting a fee change filing to the Commission. The Exchange will notify Members of adjustments to the ORF via regulatory circular at least 30 days prior to the effective date of the change. The Exchange believes it is reasonable and appropriate for the Exchange to charge the ORF for options transactions regardless of the exchange on which the transactions occur. The Exchange has a statutory obligation to enforce compliance by Members and their associated persons under the Act and the rules of the Exchange and to surveil for other manipulative conduct by market participants (including nonMembers) trading on the Exchange. The Exchange cannot effectively surveil for such conduct without looking at and evaluating activity across all options markets. Many of the Exchange’s market surveillance programs require the Exchange to look at and evaluate activity across all options markets, such as surveillance for position limit violations, manipulation, front-running and contrary exercise advice violations/ expiring exercise declarations. Also, the Exchange and the other options exchanges are required to populate a consolidated options audit trail (‘‘COATS’’) 4 system in order to surveil a Member’s activities across markets. In addition to its own surveillance programs, the Exchange works with other SROs and exchanges on intermarket surveillance related issues. Through its participation in the Intermarket Surveillance Group (‘‘ISG’’),5 the Exchange shares information and coordinates inquiries and investigations with other exchanges designed to address potential intermarket manipulation and trading abuses. The Exchange’s participation in ISG helps it to satisfy the requirement that it has coordinated surveillance with markets on which security futures are traded and markets on which any security underlying security futures are traded to detect manipulation and insider trading.6 The Exchange believes that charging the ORF across markets will avoid having Members direct their trades to other markets in order to avoid the fee and to thereby avoid paying for their fair share for regulation. If the ORF did not apply to activity across markets then a Member would send their orders to the least cost, least regulated exchange. Other exchanges do impose a similar fee on their member’s activity, including the activity of those members on MIAX PEARL.7 The Exchange notes that there is established precedent for an SRO charging a fee across markets, namely, FINRAs Trading Activity Fee 8 and the NYSE Amex, NYSE Arca, CBOE, PHLX, ISE, ISE Gemini and BOX ORF. While the Exchange does not have all the same regulatory responsibilities as FINRA, the Exchange believes that, like other exchanges that have adopted an ORF, its broad regulatory responsibilities with respect to a Member’s activities, irrespective of where their transactions take place, supports a regulatory fee applicable to transactions on other markets. Unlike FINRA’s Trading Activity Fee, the ORF would apply only to a Member’s customer options transactions. Additionally, the Exchange proposes to specify in the Fee Schedule that the Exchange may only increase or decrease the ORF semi-annually, and any such fee change will be effective on the first business day of February or August. In addition to submitting a proposed rule change to the Commission as required by the Act to increase or decrease the ORF, the Exchange will notify participants via a Regulatory Circular of any anticipated change in the amount of the fee at least 30 calendar days prior to the effective date of the change. The Exchange believes that by providing guidance on the timing of any changes to the ORF, the Exchange would make it easier for participants to ensure their systems are configured to properly account for the ORF. 6 See Section 6(h)(3)(I) of the Act. regulatory fees have been instituted by PHLX (See Securities Exchange Act Release No. 61133 (December 9, 2009), 74 FR 66715 (December 16, 2009) (SR–Phlx–2009–100)); ISE (See Securities Exchange Act Release No. 61154 (December 11, 2009), 74 FR 67278 (December 18, 2009) (SR–ISE– 2009–105)); and ISE Gemini (See Securities Exchange Act Release No. 70200 (August 14, 2013) 78 FR 51242 (August 20, 2013) (SR–Topaz–2013– 01)). 8 See Securities Exchange Act Release No. 47946 (May 30, 2003), 68 FR 34021 (June 6, 2003) (SR– NASD–2002–148). sradovich on DSK3GMQ082PROD with NOTICES 7 Similar 4 COATS effectively enhances intermarket options surveillance by enabling the options exchanges to reconstruct the market promptly to effectively surveil certain rules. 5 ISG is an industry organization formed in 1983 to coordinate intermarket surveillance among the SROs by co-operatively sharing regulatory information pursuant to a written agreement between the parties. The goal of the ISG’s information sharing is to coordinate regulatory efforts to address potential intermarket trading abuses and manipulations. VerDate Sep<11>2014 16:21 Apr 13, 2017 Jkt 241001 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 18047 2. Statutory Basis MIAX PEARL 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)(4) of the Act 10 in particular, in that it is an equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities. The Exchange also believes the proposal furthers the objectives of Section 6(b)(5) of the Act 11 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. The Exchange believes the ORF is equitable and not unfairly discriminatory because it is objectively allocated to Members in that it is charged to all Members on all their transactions that clear as customer at the OCC. Moreover, the Exchange believes the ORF ensures fairness by assessing fees to those Members that are directly based on the amount of customer options business they conduct. Regulating customer trading activity is much more labor intensive and requires greater expenditure of human and technical resources than regulating noncustomer trading activity, which tends to be more automated and less laborintensive. As a result, the costs associated with administering the customer component of the Exchange’s overall regulatory program are materially higher than the costs associated with administering the noncustomer component (e.g., Member proprietary transactions) of its regulatory program. The ORF is designed to recover a material portion of the costs of supervising and regulating Members’ customer options business including performing routine surveillances, investigations, examinations, financial monitoring, and policy, rulemaking, interpretive, and enforcement activities. The Exchange will monitor, on at least a semi-annual basis the amount of revenue collected from the ORF to ensure that it, in combination with its other regulatory fees and fines, does not exceed the Exchange’s total regulatory costs. The Exchange has designed the ORF to generate revenues that, when combined with all of the Exchange’s 9 15 U.S.C. 78f(b). U.S.C. 78f(b)(4). 11 15 U.S.C. 78f(b)(5). 10 15 E:\FR\FM\14APN1.SGM 14APN1 18048 Federal Register / Vol. 82, No. 71 / Friday, April 14, 2017 / Notices sradovich on DSK3GMQ082PROD with NOTICES other regulatory fees, will be less than or equal to the Exchange’s regulatory costs, which is consistent with the Commission’s view that regulatory fees be used for regulatory purposes and not to support the Exchange’s business side. In this regard, the Exchange believes that the initial level of the fee is reasonable. The Exchange believes that the proposal to limit changes to the ORF to twice a year on specific dates with advance notice is reasonable because it will give participants certainty on the timing of changes, if any, and better enable them to properly account for ORF charges among their customers. The Exchange believes that the proposed change is equitable and not unfairly discriminatory because it will apply in the same manner to all Members that are subject to the ORF and provide them with additional advance notice of changes to that fee. The Exchange believes that the proposal to collect the ORF from nonMembers under certain circumstances when the transaction that is subject to the ORF is executed at an away exchange is an equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities. If the transaction is subject to the ORF, the Exchange believes that, under certain circumstances, it is reasonable and appropriate to collect the ORF from non-Members (noting that, as described above, such transaction always involves a Member of the Exchange that clears or ultimately clears the trade), based on the back office clearing processes of OCC. 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. The ORF is not intended to have any impact on competition. Rather, it is designed to enable the Exchange to recover a material portion of the Exchange’s cost related to its regulatory activities. The Exchange is obligated to ensure that the amount of regulatory revenue collected from the ORF, in combination with its other regulatory fees and fines, does not exceed regulatory costs. Unilateral action by MIAX PEARL in establishing fees for services provided to its Members and others using its facilities will not have an impact on competition. As a new entrant in the already highly competitive environment for equity options trading, MIAX PEARL does not have the market power necessary to set prices for services that are unreasonable VerDate Sep<11>2014 16:21 Apr 13, 2017 Jkt 241001 or unfairly discriminatory in violation of the Act. MIAX PEARL’s proposed ORF, as described herein, are comparable to fees charged by other options exchanges for the same or similar services. The proposal to limit the changes to the ORF to twice a year on specific dates with advance notice is not intended to address a competitive issue but rather to provide Members with better notice of any change that the Exchange may make to the ORF. 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,12 and Rule 19b–4(f)(2) 13 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. 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 rule-comments@ sec.gov. Please include File No. SR– PEARL–2017–15 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 No. SR–PEARL–2017–15. 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 Web site (https://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 No. SR–PEARL– 2017–15, and should be submitted on or before May 5, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–07536 Filed 4–13–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80421; File No. SR–CBOE– 2017–029] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Relating to the Automated Improvement Mechanism and the Solicitation Auction Mechanism April 10, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 31, 2017, Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ or 14 17 12 15 U.S.C. 78s(b)(3)(A)(ii). 13 17 CFR 240.19b–4(f)(2). PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\14APN1.SGM 14APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 82, Number 71 (Friday, April 14, 2017)]
[Notices]
[Pages 18045-18048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07536]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80423; File No. SR-PEARL-2017-15]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
PEARL Fee Schedule To Establish an Options Regulatory Fee (``ORF'')

April 10, 2017.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 30, 2017, MIAX PEARL, LLC (``MIAX PEARL'' or
``Exchange'') filed with the Securities and Exchange Commission (the
``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.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.

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[[Page 18046]]

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'') by establishing an Options Regulatory
Fee (``ORF'').
The Exchange initially filed the proposal on February 3, 2017 (SR-
PEARL-2017-09).\3\ That filing was withdrawn and replaced with the
current filing (SR-PEARL-2017-15).
---------------------------------------------------------------------------

\3\ See Securities Exchange Act Release No. 80035 (February 14,
2017), 82 FR 11272 (February 21, 2017)(SR-PEARL-2017-09).
---------------------------------------------------------------------------

The text of the proposed rule change is available on the Exchange's
Web site at https://www.miaxoptions.com/rule-filings/pearl, at MIAX'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 the
Statutory Basis for, the Proposed Rule Change

1. Purpose
The purpose of the proposed rule change is to establish an ORF in
the amount of $0.0010 per contract side. The per-contract ORF will be
assessed by MIAX PEARL to each MIAX PEARL Member for all options
transactions cleared or ultimately cleared by the Member which are
cleared by the Options Clearing Corporation (``OCC'') in the
``customer'' range, regardless of the exchange on which the transaction
occurs. The ORF will be collected either directly from Members or
indirectly from non-Members that ultimately clear the transaction that
is subject to the ORF through their clearing firms by OCC on behalf of
MIAX PEARL.
To illustrate how the ORF is assessed and collected, the Exchange
provides the following set of examples. In the case where the
transaction is executed on the Exchange, the ORF will be assessed to,
and collected from, the Member who clears the transaction. This is the
case whether the transaction is (i) both executed and cleared by the
same Member, or (ii) only cleared by the Member (that is, the executing
firm is not self-clearing and thus clears through another Exchange
clearing Member). In the case where the transaction is executed on an
away exchange, if the transaction is cleared by a Member of the
Exchange, the ORF will be assessed to, and collected from, the Member
who clears the transaction. In the case where the transaction is
executed on an away exchange, if the transaction is cleared by a non-
Member of the Exchange and such non-Member then subsequently ``gives-
up'' or ``CMTAs'' the transaction to a Member of the Exchange (who
ultimately clears the transaction), the ORF will be assessed to, and
collected from, the Member who ultimately clears the transaction.
Further, under certain circumstances, a transaction that is subject to
the ORF can result in the ORF being collected from a non-Member of the
Exchange. For example, in the circumstance in which a Member clears a
transaction and then ``gives-up'' or ``CMTAs'' the trade to a non-
Member of MIAX PEARL (which non-Member becomes the ultimate clearing
firm for the transaction), MIAX PEARL will collect the ORF from such
non-Member that ultimately cleared that transaction. However, for the
avoidance of doubt, in the case where the transaction is executed on an
away exchange, the Exchange does not assess or collect the ORF when
neither the clearing firm nor the ultimate clearing firm is a Member
(even if a Member is ``given-up'' or ``CMTAed'' and then such Member
subsequently ``gives-up'' or ``CMTAs'' the transaction to another non-
Member via a CMTA reversal). Further, the Exchange will not assess the
ORF on linkage trades, whether executed at the Exchange or an away
exchange. A customer order routed to another exchange results in two
customer trades, one from the originating exchange and one from the
recipient exchange. Charging ORF on both trades could result in double-
billing of ORF for a single customer order, thus the Exchange chooses
not to charge ORF on the trade from the originating exchange in a
linkage scenario. This assessment practice is identical to the
assessment practice currently utilized by the Exchange's affiliate,
Miami International Securities Exchange, LLC (``MIAX Options'').
As a practical matter, when a transaction that is subject to the
ORF is not executed on the Exchange, the Exchange lacks the information
necessary to identify the executing member for that transaction. There
are countless executing market participants, and each day such
participants can and often do drop their connection to one market
center and establish themselves as participants on another. For these
reasons, it is not possible for the Exchange to identify, and thus
assess fees such as an ORF on, executing participants on away markets
on a given trading day.
Clearing members, however, are distinguished from executing
participants because they remain identified to the Exchange regardless
of the identity of the initiating executing participant, their
location, and the market center on which they execute transactions.
Therefore, the Exchange believes it is more efficient for the operation
of the Exchange and for the marketplace as a whole to collect the ORF
from clearing members.
As discussed below, the Exchange believes it is appropriate to
charge the ORF only to transactions that clear as customer at the OCC.
The Exchange believes that its broad regulatory responsibilities with
respect to a Member's' activities supports applying the ORF to
transactions cleared but not executed by a Member. The Exchange's
regulatory responsibilities are the same regardless of whether a Member
executes a transaction or clears a transaction executed on its behalf.
The Exchange regularly reviews all such activities, including
performing surveillance for position limit violations, manipulation,
front-running, contrary exercise advice violations and insider trading.
These activities span across multiple exchanges.
The ORF is designed to recover a material portion of the costs to
the Exchange of the supervision and regulation of Members' customer
options business, including performing routine surveillances and
investigations, as well as policy, rulemaking, interpretive and
enforcement activities. The Exchange believes that revenue generated
from the ORF, when combined with all of the Exchange's other regulatory
fees and fines, will cover a material portion, but not all, of the
Exchange's regulatory costs. The Exchange notes that its regulatory
responsibilities with respect to Member compliance with options sales
practice rules have been allocated to the Financial Industry Regulatory
Authority (``FINRA'') under a 17d-2 Agreement. The ORF is not designed
to cover the cost of options sales practice regulation.
The Exchange will continue to monitor the amount of revenue
collected from the ORF to ensure that it,

[[Page 18047]]

in combination with its other regulatory fees and fines, does not
exceed the Exchange's total regulatory costs. The Exchange expects to
monitor MIAX PEARL regulatory costs and revenues at a minimum on a
semi-annual basis. If the Exchange determines regulatory revenues
exceed or are insufficient to cover a material portion of its
regulatory costs, the Exchange will adjust the ORF by submitting a fee
change filing to the Commission. The Exchange will notify Members of
adjustments to the ORF via regulatory circular at least 30 days prior
to the effective date of the change.
The Exchange believes it is reasonable and appropriate for the
Exchange to charge the ORF for options transactions regardless of the
exchange on which the transactions occur. The Exchange has a statutory
obligation to enforce compliance by Members and their associated
persons under the Act and the rules of the Exchange and to surveil for
other manipulative conduct by market participants (including non-
Members) trading on the Exchange. The Exchange cannot effectively
surveil for such conduct without looking at and evaluating activity
across all options markets. Many of the Exchange's market surveillance
programs require the Exchange to look at and evaluate activity across
all options markets, such as surveillance for position limit
violations, manipulation, front-running and contrary exercise advice
violations/expiring exercise declarations. Also, the Exchange and the
other options exchanges are required to populate a consolidated options
audit trail (``COATS'') \4\ system in order to surveil a Member's
activities across markets.
---------------------------------------------------------------------------

\4\ COATS effectively enhances intermarket options surveillance
by enabling the options exchanges to reconstruct the market promptly
to effectively surveil certain rules.
---------------------------------------------------------------------------

In addition to its own surveillance programs, the Exchange works
with other SROs and exchanges on intermarket surveillance related
issues. Through its participation in the Intermarket Surveillance Group
(``ISG''),\5\ the Exchange shares information and coordinates inquiries
and investigations with other exchanges designed to address potential
intermarket manipulation and trading abuses. The Exchange's
participation in ISG helps it to satisfy the requirement that it has
coordinated surveillance with markets on which security futures are
traded and markets on which any security underlying security futures
are traded to detect manipulation and insider trading.\6\
---------------------------------------------------------------------------

\5\ ISG is an industry organization formed in 1983 to coordinate
intermarket surveillance among the SROs by co-operatively sharing
regulatory information pursuant to a written agreement between the
parties. The goal of the ISG's information sharing is to coordinate
regulatory efforts to address potential intermarket trading abuses
and manipulations.
\6\ See Section 6(h)(3)(I) of the Act.
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The Exchange believes that charging the ORF across markets will
avoid having Members direct their trades to other markets in order to
avoid the fee and to thereby avoid paying for their fair share for
regulation. If the ORF did not apply to activity across markets then a
Member would send their orders to the least cost, least regulated
exchange. Other exchanges do impose a similar fee on their member's
activity, including the activity of those members on MIAX PEARL.\7\
---------------------------------------------------------------------------

\7\ Similar regulatory fees have been instituted by PHLX (See
Securities Exchange Act Release No. 61133 (December 9, 2009), 74 FR
66715 (December 16, 2009) (SR-Phlx-2009-100)); ISE (See Securities
Exchange Act Release No. 61154 (December 11, 2009), 74 FR 67278
(December 18, 2009) (SR-ISE-2009-105)); and ISE Gemini (See
Securities Exchange Act Release No. 70200 (August 14, 2013) 78 FR
51242 (August 20, 2013) (SR-Topaz-2013-01)).
---------------------------------------------------------------------------

The Exchange notes that there is established precedent for an SRO
charging a fee across markets, namely, FINRAs Trading Activity Fee \8\
and the NYSE Amex, NYSE Arca, CBOE, PHLX, ISE, ISE Gemini and BOX ORF.
While the Exchange does not have all the same regulatory
responsibilities as FINRA, the Exchange believes that, like other
exchanges that have adopted an ORF, its broad regulatory
responsibilities with respect to a Member's activities, irrespective of
where their transactions take place, supports a regulatory fee
applicable to transactions on other markets. Unlike FINRA's Trading
Activity Fee, the ORF would apply only to a Member's customer options
transactions.
---------------------------------------------------------------------------

\8\ See Securities Exchange Act Release No. 47946 (May 30,
2003), 68 FR 34021 (June 6, 2003) (SR-NASD-2002-148).
---------------------------------------------------------------------------

Additionally, the Exchange proposes to specify in the Fee Schedule
that the Exchange may only increase or decrease the ORF semi-annually,
and any such fee change will be effective on the first business day of
February or August. In addition to submitting a proposed rule change to
the Commission as required by the Act to increase or decrease the ORF,
the Exchange will notify participants via a Regulatory Circular of any
anticipated change in the amount of the fee at least 30 calendar days
prior to the effective date of the change. The Exchange believes that
by providing guidance on the timing of any changes to the ORF, the
Exchange would make it easier for participants to ensure their systems
are configured to properly account for the ORF.
2. Statutory Basis
MIAX PEARL 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)(4) of the Act \10\ in particular, in
that it is an equitable allocation of reasonable dues, fees, and other
charges among its members and issuers and other persons using its
facilities. The Exchange also believes the proposal furthers the
objectives of Section 6(b)(5) of the Act \11\ 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.
---------------------------------------------------------------------------

\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4).
\11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Exchange believes the ORF is equitable and not unfairly
discriminatory because it is objectively allocated to Members in that
it is charged to all Members on all their transactions that clear as
customer at the OCC. Moreover, the Exchange believes the ORF ensures
fairness by assessing fees to those Members that are directly based on
the amount of customer options business they conduct. Regulating
customer trading activity is much more labor intensive and requires
greater expenditure of human and technical resources than regulating
non-customer trading activity, which tends to be more automated and
less labor-intensive. As a result, the costs associated with
administering the customer component of the Exchange's overall
regulatory program are materially higher than the costs associated with
administering the non-customer component (e.g., Member proprietary
transactions) of its regulatory program.
The ORF is designed to recover a material portion of the costs of
supervising and regulating Members' customer options business including
performing routine surveillances, investigations, examinations,
financial monitoring, and policy, rulemaking, interpretive, and
enforcement activities. The Exchange will monitor, on at least a semi-
annual basis the amount of revenue collected from the ORF to ensure
that it, in combination with its other regulatory fees and fines, does
not exceed the Exchange's total regulatory costs. The Exchange has
designed the ORF to generate revenues that, when combined with all of
the Exchange's

[[Page 18048]]

other regulatory fees, will be less than or equal to the Exchange's
regulatory costs, which is consistent with the Commission's view that
regulatory fees be used for regulatory purposes and not to support the
Exchange's business side. In this regard, the Exchange believes that
the initial level of the fee is reasonable.
The Exchange believes that the proposal to limit changes to the ORF
to twice a year on specific dates with advance notice is reasonable
because it will give participants certainty on the timing of changes,
if any, and better enable them to properly account for ORF charges
among their customers. The Exchange believes that the proposed change
is equitable and not unfairly discriminatory because it will apply in
the same manner to all Members that are subject to the ORF and provide
them with additional advance notice of changes to that fee.
The Exchange believes that the proposal to collect the ORF from
non-Members under certain circumstances when the transaction that is
subject to the ORF is executed at an away exchange is an equitable
allocation of reasonable dues, fees, and other charges among its
members and issuers and other persons using its facilities. If the
transaction is subject to the ORF, the Exchange believes that, under
certain circumstances, it is reasonable and appropriate to collect the
ORF from non-Members (noting that, as described above, such transaction
always involves a Member of the Exchange that clears or ultimately
clears the trade), based on the back office clearing processes of OCC.

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. The ORF is not intended to have
any impact on competition. Rather, it is designed to enable the
Exchange to recover a material portion of the Exchange's cost related
to its regulatory activities. The Exchange is obligated to ensure that
the amount of regulatory revenue collected from the ORF, in combination
with its other regulatory fees and fines, does not exceed regulatory
costs. Unilateral action by MIAX PEARL in establishing fees for
services provided to its Members and others using its facilities will
not have an impact on competition. As a new entrant in the already
highly competitive environment for equity options trading, MIAX PEARL
does not have the market power necessary to set prices for services
that are unreasonable or unfairly discriminatory in violation of the
Act. MIAX PEARL's proposed ORF, as described herein, are comparable to
fees charged by other options exchanges for the same or similar
services. The proposal to limit the changes to the ORF to twice a year
on specific dates with advance notice is not intended to address a
competitive issue but rather to provide Members with better notice of
any change that the Exchange may make to the ORF.

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,\12\ and Rule 19b-4(f)(2) \13\ 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.
---------------------------------------------------------------------------

\12\ 15 U.S.C. 78s(b)(3)(A)(ii).
\13\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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 rule-comments@sec.gov. Please include
File No. SR-PEARL-2017-15 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 No. SR-PEARL-2017-15. 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 Web site (https://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 No. SR-PEARL-2017-15, and should be
submitted on or before May 5, 2017.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-07536 Filed 4-13-17; 8:45 am]
BILLING CODE 8011-01-P

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