Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing of a Proposed Rule Change To Amend the Fee Schedule Regarding Connectivity Fees for Members and Non-Members; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change, 51022-51026 [2018-21922]
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Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices
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–NYSE–2018–42, and
should be submitted on or before
October 31, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–21909 Filed 10–9–18; 8:45 am]
BILLING CODE P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84358; File No. SR–
PEARL–2018–19
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing of a
Proposed Rule Change To Amend the
Fee Schedule Regarding Connectivity
Fees for Members and Non-Members;
Suspension of and Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove the Proposed
Rule Change
October 3, 2018.
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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
September 18, 2018, MIAX PEARL, LLC
(‘‘MIAX PEARL’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I and II 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 and is,
pursuant to Section 19(b)(3)(C) of the
Act, hereby: (i) Temporarily suspending
the proposed rule change; and (ii)
instituting proceedings to determine
whether to approve or disapprove the
proposed rule change.
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
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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(the ‘‘Fee Schedule’’) to modify certain
of the Exchange’s system connectivity
fees.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/pearl at MIAX PEARL’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Description of 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 regarding connectivity to
the Exchange. Specifically, the
Exchange proposes to amend Sections
5(a) and (b) of the Fee Schedule to
increase the network connectivity fees
for the 1 Gigabit (‘‘Gb’’) fiber
connection, the 10Gb fiber connection,
and the 10Gb ultra-low latency (‘‘ULL’’)
fiber connection, which are charged to
both Members 3 and non-Members of the
Exchange for connectivity to the
Exchange’s primary/secondary facility.
The Exchange also proposes to increase
the network connectivity fees for the
1Gb and 10Gb fiber connections for
connectivity to the Exchange’s disaster
recovery facility. These proposed fee
increases are collectively referred to
herein as the ‘‘Proposed Fee Increases.’’
The Exchange initially filed the
Proposed Fee Increases on July 31, 2018,
designating the Proposed Fee Increases
effective August 1, 2018.4 The proposed
rule change was published for comment
in the Federal Register on August 13,
2018.5 The Commission received one
3 The term ‘‘Member’’ means an individual or
organization that is registered with the Exchange
pursuant to Chapter II of the Exchange’s 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.
4 See Securities Exchange Act Release No. 83785
(August 7, 2018), 83 FR 40101 (August 13,
2018)(SR–PEARL–2018–16).
5 Id.
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comment letter on the proposal.6 The
Proposed Fee Increases remained in
effect until they were temporarily
suspended pursuant to a suspension
order (the ‘‘Suspension Order’’) issued
by the Commission.7 The Suspension
Order also instituted proceedings to
determine whether to approve or
disapprove the proposed rule change.8
The Healthy Markets Letter argued
that the Exchange did not provide
sufficient information in its filing to
support a finding that the proposal is
consistent with the Act. Specifically, the
Healthy Markets Letter objected to the
Exchange’s reliance on the fees of other
exchanges to demonstrate that its fee
increases are consistent with the Act. In
addition, the Healthy Markets Letter
argued that the Exchange did not offer
any details to support its basis for
asserting that the proposed fee increases
are consistent with the Act. The
Exchange is now re-filing the Proposed
Fee Increases, and is also providing
additional detail regarding the basis for
the Proposed Fee Increases. The
proposed rule change is immediately
effective upon filing with the
Commission pursuant to Section
19(b)(3)(A) of the Act.
The Exchange currently offers various
bandwidth alternatives for connectivity
to the Exchange, consisting of a 1Gb
fiber connection, a 10Gb fiber
connection, and a 10Gb ULL fiber
connection. The 10Gb ULL offering uses
an ultra-low latency switch, which
provides faster processing of messages
sent to it in comparison to the switch
used for the other types of connectivity.
The Exchange currently assesses the
following monthly network connectivity
fees to both Members and non-Members
for connectivity to the Exchange’s
primary/secondary facility: (a) $1,100
for the 1Gb connection; (b) $5,500 for
the 10Gb connection; and (c) $8,500.00
for the 10Gb ULL connection. The
Exchange also assesses to both Members
and non-Members a monthly per
connection network connectivity fee of
$500 for each 1Gb connection to the
disaster recovery facility and a monthly
per connection network connectivity fee
of $2,500 for each 10Gb connection to
the disaster recovery facility.
The Exchange’s MIAX Express
Network Interconnect (‘‘MENI’’) can be
configured to provide Members and
non-Members of the Exchange network
connectivity to the trading platforms,
6 See Letter from Tyler Gellasch, Executive
Director, The Healthy Markets Association, to Brent
J. Fields, Secretary, Commission, dated September
4, 2018 (‘‘Healthy Markets Letter’’).
7 See Securities Exchange Act Release No. 34–
84177 (September 17, 2018).
8 Id.
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market data systems, test systems, and
disaster recovery facilities of both the
Exchange and its affiliate, Miami
International Securities Exchange
(‘‘MIAX Options’’), via a single, shared
connection. Members and non-Members
utilizing the MENI to connect to the
trading platforms, market data systems,
test systems and disaster recovery
facilities of the Exchange and MIAX
Options via a single, shared connection
are assessed only one monthly network
connectivity fee per connection,
regardless of the trading platforms,
market data systems, test systems, and
disaster recovery facilities accessed via
such connection.
The Exchange proposes to increase
the monthly network connectivity fees
for such connections for both Members
and non-Members. The network
connectivity fees for connectivity to the
Exchange’s primary/secondary facility
will be increased as follows: (a) From
$1,100 to $1,400 for the 1Gb connection;
(b) from $5,500 to $6,100 for the 10Gb
connection; and (c) from $8,500 to
$9,300 for the 10Gb ULL connection.
The network connectivity fees for
connectivity to the Exchange’s disaster
recovery facility will be increased as
follows: (a) From $500 to $550 for the
1Gb connection; and (b) from $2,500 to
$2,750 for the 10Gb connection.
The Exchange believes that it is
reasonable and appropriate to increase
its fees charged for use of its
connectivity to partially offset increased
costs associated with maintaining and
enhancing a state-of-the-art exchange
network infrastructure in the U.S.
options industry. The Exchange notes
that other exchanges have similar
connectivity alternatives for their
participants, including similar lowlatency connectivity. For example,
Nasdaq PHLX LLC (‘‘Phlx’’), NYSE
Arca, Inc. (‘‘Arca’’), NYSE American
LLC (‘‘NYSE American’’) and Nasdaq
ISE, LLC (‘‘ISE’’) all offer a 1Gb, 10Gb
and 10Gb low latency ethernet
connectivity alternatives to each of their
participants.9 The Exchange further
notes that Phlx, ISE, Arca and NYSE
American each charge higher rates for
such similar connectivity to primary
9 See Phlx and ISE Rules, General Equity and
Options Rules, General 8, Section 1(b). Phlx and ISE
each charge a monthly fee of $2,500 for each 1Gb
connection, $10,000 for each 10Gb connection and
$15,000 for each 10Gb Ultra connection, which the
equivalent of the Exchange’s 10Gb ULL connection.
See also NYSE American Fee Schedule, Section
V.B, and Arca Fees and Charges, Co-Location Fees.
NYSE American and Arca each charge a monthly
fee of $5,000 for each 1Gb circuit, $14,000 for each
10Gb circuit and $22,000 for each 10Gb LX circuit,
which the equivalent of the Exchange’s 10Gb ULL
connection.
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and secondary facilities.10 Additionally,
the Exchange’s proposed connectivity
fees to its disaster recovery facility are
within the range of the fees charged by
other exchanges for similar connectivity
alternatives.11 The Exchange believes
that it is reasonable and appropriate to
increase its fees charged for use of its
connectivity to partially offset increased
costs associated with maintaining and
enhancing a state-of-the-art exchange
network infrastructure in the U.S.
options industry.
In particular, the Exchange’s
increased costs associated with
supporting its network are due to
several factors, including increased
costs associated with maintaining and
expanding a team of highly-skilled
network engineers, increasing fees
charged by the Exchange’s third-party
data center operator, and costs
associated with projects and initiatives
designed to improve overall network
performance and stability, through the
Exchange’s R&D efforts. For example,
the Exchange has had to hire additional
network engineering staff in the last
year, and plans to hire additional staff
in the coming months. Further, the
Exchange contracts with a third-party
data center provider for its data center
space. The Exchange does not operate
its own data centers. Other exchange
operators do operate their own data
centers. Thus, they can better control
data center costs. They also operate
them as profit centers. Conversely, the
Exchange is subject to fee increases from
its data center provider, which the
Exchange experienced in the last year.
Further, the Exchange invests
significant resources in network R&D to
improve the overall performance and
stability of its network. For example, the
Exchange has a number of network
monitoring tools (some of which were
developed in-house, and some of which
are licensed from third-parties), that
continually monitor, detect, and report
network performance, many of which
serve as significant value-adds to the
Exchange’s Members and enable the
Exchange to provide a high level of
customer service. These tools detect and
report performance issues, and thus
enable the Exchange to proactively
notify a Member (and the SIPs) when
the Exchange detects a problem with a
Member’s connectivity. The costs
10 Id.
11 See Nasdaq ISE Schedule of Fees, IX(D)
(charging $3,000 for disaster recovery testing &
relocation services); see also Cboe Exchange, Inc.
(‘‘CBOE’’) Fees Schedule, p. 14, Cboe Command
Connectivity Charges (charging a monthly fee of
$2,000 for a 1Gb disaster recovery network access
port and a monthly fee of $6,000 for a 10Gb disaster
recovery network access port).
PO 00000
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51023
associated with the maintenance and
improvement of existing tools and the
development of new tools resulted in
increased cost to the Exchange. Certain
recently developed network aggregation
and monitoring tools provide the
Exchange with the ability to measure
network traffic with a much more
granular level of variability. This is
important as Exchange Members
demand a higher level of network
determinism and the ability to measure
variability in terms of single digit
nanoseconds. Also, the Exchange
routinely conducts R&D projects to
improve the performance of the
network’s hardware infrastructure. As
an example, in the last year, the
Exchange’s R&D efforts resulted in a
performance improvement in its
network switches, requiring the
purchase of new switching equipment,
and thus resulting in increased costs. In
sum, the costs associated with
maintaining and enhancing a state-ofthe-art exchange network infrastructure
in the U.S. options industry is a
significant expense for the Exchange
that continues to increase, and thus the
Exchange believes that it is reasonable
to offset some of those increased costs
by increasing its network connectivity
fees, as proposed herein. Overall, the
Proposed Fee Increases are projected to
offset only a portion of the Exchange’s
increased network connectivity costs.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Fee Schedule is
consistent with Section 6(b) of the Act 12
in general, and furthers the objectives of
Section 6(b)(4) of the Act 13 in
particular, in that it provides for the
equitable allocation of reasonable dues,
fees and other charges among Exchange
Members and issuers and other persons
using any facility or system which the
Exchange operates or controls. The
Exchange also believes the proposal
furthers the objectives of Section 6(b)(5)
of the Act 14 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 customer,
issuers, brokers and dealers.
The Exchange believes that its
proposal is consistent with Section
6(b)(4) of the Act because the fees
assessed for connectivity allow the
12 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
14 15 U.S.C. 78f(b)(5).
13 15
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Exchange to cover the costs associated
with providing and maintaining the
necessary hardware and other
infrastructure to support this
technology. The Exchange believes that
the proposal to increase the fees for
connectivity alternatives is fair,
equitable and not unreasonably
discriminatory because the increased
fees are assessed equally among all
users of the applicable connections.
As discussed above, Phlx and ISE
each offer different connections with
respect to latency, and Arca and NYSE
American both offer similar
connectivity alternatives.15 Despite this,
Phlx, ISE, Arca and NYSE American
charge a higher fee than the Exchange
currently charges for similar
connections to primary and secondary
facilities.16 Furthermore, the
connectivity fees for the disaster
recovery facilities of other exchanges are
within the range of the proposed fees of
the Exchange.17 For these reasons, the
Exchange believes the proposed
increase in the fees for the fiber
connectivity to the Exchange is
reasonable and not unfairly
discriminatory.
The Exchange believes that the
proposal to increase the fees for
connectivity alternatives is fair,
equitable and not unreasonably
discriminatory because the increased
fees will only partially offset the
Exchange’s increased costs associated
with maintaining its network
infrastructure. In particular, the
Exchange’s increased costs associated
with supporting its network are due to
several factors, including increased
costs associated with maintaining and
expanding a team of highly-skilled
network engineers, increasing fees
charged by the Exchange’s third-party
data center operator, and costs
associated with projects and initiatives
designed to improve overall network
performance and stability, through the
Exchange’s R&D efforts. For example,
the Exchange has had to hire additional
network engineering staff in the last
year, and plans to hire additional staff
in the coming months. Further, the
Exchange contracts with a third-party
data center provider for its data center
space. The Exchange does not operate
its own data centers. Other exchange
operators do operate their own data
centers. Thus, they can better control
data center costs. They also operate
their data centers as profit centers.
Conversely, the Exchange is subject to
fee increases from its data center
15 See
supra note 9.
provider, which the Exchange
experienced in the last year. Further, the
Exchange invests significant resources
in network R&D to improve the overall
performance and stability of its network.
For example, the Exchange has a
number of network monitoring tools
(some of which were developed inhouse, and some of which are licensed
from third-parties), that continually
monitor, detect, and report network
performance, many of which serve as
significant value-adds to the Exchange’s
Members and enable the Exchange to
provide a high level of customer service.
These tools detect and report
performance issues, and thus enable the
Exchange to proactively notify a
Member (and the SIPs) when the
Exchange detects a problem with a
Member’s connectivity. The costs
associated with the maintenance and
improvement of existing tools and the
development of new tools resulted in
increased cost to the Exchange. Certain
recently developed network aggregation
and monitoring tools provide the
Exchange with the ability to measure
network traffic with a much more
granular level of variability. This is
important as Exchange Members
demand a higher level of network
determinism and the ability to measure
variability in terms of single digit
nanoseconds. Also, the Exchange
routinely conducts R&D projects to
improve the performance of the
network’s hardware infrastructure. As
an example, in the last year, the
Exchange’s R&D efforts resulted in a
performance improvement in its
network switches, requiring the
purchase of new switching equipment,
and thus resulting in increased costs. In
sum, the costs associated with
maintaining and enhancing a state-ofthe-art exchange network infrastructure
in the U.S. options industry is a
significant expense for the Exchange
that continues to increase, and thus the
Exchange believes that it is fair,
equitable, and not unreasonably
discriminatory to offset some of those
increased costs by increasing its
network connectivity fees, as proposed
herein. Overall, the Proposed Fee
Increases are projected to offset only a
portion of the Exchange’s increased
network connectivity costs.
The Exchange also believes that its
proposal is consistent with Section
6(b)(5) of the Act 18 because all MIAX
PEARL participants have the
opportunity to subscribe to the
Exchange’s connections. There is also
no differentiation among MIAX PEARL
16 Id.
17 See
participants with regard to the fees
charged for these services.
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. On the
contrary, the Exchange believes that the
proposed changes should increase both
intermarket and intramarket
competition. Specifically, the Exchange
believes that the changes will promote
competition by increasing the
connectivity fees to become more within
the range of comparable fees assessed by
other competing exchanges.19
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
fees to remain competitive with other
exchanges. The Exchange believes that
the proposed changes reflect this
competitive environment. To the extent
that this purpose is achieved, all the
Exchange’s market participants should
benefit from the improved market
liquidity.
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. Suspension of the Proposed Rule
Change
Pursuant to Section 19(b)(3)(C) of the
Act,20 at any time within 60 days of the
date of filing of a proposed rule change
pursuant to Section 19(b)(1) of the
Act,21 the Commission summarily may
temporarily suspend the change in the
rules of a self-regulatory organization
(‘‘SRO’’) 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. As discussed below, the
Commission believes a temporary
suspension of the proposed rule change
is necessary and appropriate to allow for
additional analysis of the proposed rule
change’s consistency with the Act and
the rules thereunder.
Identical fee increases to those
proposed herein were originally filed on
19 See
supra note 9.
U.S.C. 78s(b)(3)(C).
21 15 U.S.C. 78s(b)(1).
20 15
supra note 11.
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July 31, 2018, and designated effective
August 1, 2018.22 That proposal,
PEARL–2018–16, was published for
comment in the Federal Register on
August 13, 2018.23 The Commission
received one comment letter on that
proposal.24 On September 17, 2018,
pursuant to Section 19(b)(3)(C) of the
Act, the Commission: (1) Temporarily
suspended the proposed rule change;
and (2) instituted proceedings to
determine whether to approve or
disapprove the proposal.25 The instant
filing proposes identical fees and raises
similar concerns as to whether they are
consistent with the Act.26
When exchanges file their proposed
rule changes with the Commission,
including fee filings like the Exchange’s
present proposal, they are required to
provide a statement supporting the
proposal’s basis under the Act and the
rules and regulations thereunder
applicable to the exchange.27 The
instructions to Form 19b–4, on which
exchanges file their proposed rule
changes, specify that such statement
‘‘should be sufficiently detailed and
specific to support a finding that the
proposed rule change is consistent with
[those] requirements.’’ 28
Among other things, exchange
proposed rule changes are subject to
Section 6 of the Act, including Sections
6(b)(4), (5), and (8), which requires the
rules of an exchange to (1) provide for
the equitable allocation of reasonable
fees among members, issuers, and other
persons using the exchange’s
facilities; 29 (2) perfect the mechanism of
a free and open market and a national
market system, protect investors and the
public interest, and not be designed to
permit unfair discrimination between
customers, issuers, brokers, or
dealers; 30 and (3) not impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act.31
In temporarily suspending the
Exchange’s fee change, the Commission
intends to further consider whether
increasing certain connectivity fees to
the Exchange is consistent with the
statutory requirements applicable to a
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22 See
supra note 4, and accompanying text.
23 See supra note 5, and accompanying text.
24 See supra note 6.
25 See Securities Exchange Act Release No. 84177,
83 FR 47953 (September 21, 2018).
26 See id.
27 See 17 CFR 240.19b–4 (Item 3 entitled ‘‘SelfRegulatory Organization’s Statement of the Purpose
of, and Statutory Basis for, the Proposed Rule
Change’’).
28 Id.
29 15 U.S.C. 78f(b)(4).
30 15 U.S.C. 78f(b)(5).
31 15 U.S.C. 78f(b)(8).
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national securities exchange under the
Act. In particular, the Commission will
consider whether the proposed rule
change satisfies the standards under the
Act and the rules thereunder requiring,
among other things, that an exchange’s
rules provide for the equitable
allocation of reasonable fees among
members, issuers, and other persons
using its facilities; not permit unfair
discrimination between customers,
issuers, brokers or dealers; and do not
impose any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.32
Therefore, the Commission finds that
it is appropriate in the public interest,
for the protection of investors, and
otherwise in furtherance of the purposes
of the Act, to temporarily suspend the
proposed rule changes.33
IV. Proceedings To Determine Whether
To Approve or Disapprove the
Proposed Rule Change
The Commission is instituting
proceedings pursuant to Sections
19(b)(3)(C) 34 and 19(b)(2)(B) of the
Act 35 to determine whether the
proposed rule change should be
approved or disapproved. Institution of
proceedings does not indicate that the
Commission has reached any
conclusions with respect to any of the
issues involved. Rather, the Commission
seeks and encourages interested persons
to provide additional comment on the
proposed rule change to inform the
Commission’s analysis of whether to
disapprove the proposed rule change.
Pursuant to Section 19(b)(2)(B) of the
Act,36 the Commission is providing
notice of the grounds for possible
disapproval under consideration:
• Section 6(b)(4) of the Act, which
requires that the rules of a national
securities exchange ‘‘provide for the
equitable allocation of reasonable dues,
fees, and other charges among its
members and issuers and other persons
using its facilities,’’ 37
• Section 6(b)(5) of the Act, which
requires, among other things, that the
rules of a national securities exchange
32 See 15 U.S.C. 78f(b)(4), (5), and (8),
respectively.
33 For purposes of temporarily suspending the
proposed rule change, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
34 15 U.S.C. 78s(b)(3)(C). Once the Commission
temporarily suspends a proposed rule change,
Section 19(b)(3)(C) of the Act requires that the
Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule
change should be approved or disapproved.
35 15 U.S.C. 78s(b)(2)(B).
36 15 U.S.C. 78s(b)(2)(B).
37 15 U.S.C. 78f(b)(4).
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51025
be ‘‘designed to perfect the operation of
a free and open market and a national
market system’’ and ‘‘protect investors
and the public interest,’’ and not be
‘‘designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers,’’ 38 and
• Section 6(b)(8) of the Act, which
requires that the rules of a national
securities exchange ‘‘not impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of [the Act].’’ 39
As noted above, the proposal
increases connectivity fees for physical
connections to the Exchange. The
Exchange states that this fee increase
would partially offset costs associated
with providing and maintaining this
technology.40 In the instant filing the
Exchange states that its increased costs
relate to maintaining and expanding a
team of highly-skilled network
engineers, increasing fees charged by
the Exchange’s third-party data center
operator, and costs associated with
projects and initiatives designed to
improve overall network performance
and stability.41
Under the Commission’s Rules of
Practice, the ‘‘burden to demonstrate
that a proposed rule change is
consistent with the [Act] and the rules
and regulations issued thereunder . . .
is on the [SRO] that proposed the rule
change.’’ 42 The description of a
proposed rule change, its purpose and
operation, its effect, and a legal analysis
of its consistency with applicable
requirements must all be sufficiently
detailed and specific to support an
affirmative Commission finding,43 and
any failure of an SRO to provide this
information may result in the
Commission not having a sufficient
basis to make an affirmative finding that
a proposed rule change is consistent
with the Act and the applicable rules
and regulations.44
The Commission is instituting
proceedings to allow for additional
consideration and comment on the
issues raised herein, including as to
whether the proposed fees are
consistent with the Act, and
specifically, with its requirements that
exchange fees be reasonable and
equitably allocated; be designed to
perfect the mechanism of a free and
open market and the national market
system, protect investors and the public
38 15
U.S.C. 78f(b)(5).
U.S.C. 78f(b)(8).
40 See supra Section II.A.1.
41 See id.
42 Rule 700(b)(3), Commission Rules of Practice,
17 CFR 201.700(b)(3).
43 See id.
44 See id.
39 15
E:\FR\FM\10OCN1.SGM
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51026
Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices
interest, and not be unfairly
discriminatory; or not impose an
unnecessary or inappropriate burden on
competition.45
V. Commission’s Solicitation of
Comments
The Commission requests written
views, data, and arguments with respect
to the concerns identified above as well
as any other relevant concerns. Such
comments should be submitted by
October 31, 2018. Rebuttal comments
should be submitted by November 14,
2018. Although there do not appear to
be any issues relevant to approval or
disapproval which would be facilitated
by an oral presentation of views, data,
and arguments, the Commission will
consider, pursuant to Rule 19b–4, any
request for an opportunity to make an
oral presentation.46
The Commission asks that
commenters address the sufficiency and
merit of the Exchange’s statements in
support of the proposal, in addition to
any other comments they may wish to
submit about the proposed rule change.
Interested persons are invited to submit
written data, views, and arguments
concerning the proposed rule change,
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–
PEARL–2018–19 on the subject line.
amozie on DSK3GDR082PROD with NOTICES1
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090.
All submissions should refer to File
Number SR–PEARL–2018–19. 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 website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
45 See
15 U.S.C. 78f(b)(4), (5), and (8).
U.S.C. 78s(b)(2). Section 19(b)(2) of the Act
grants the Commission flexibility to determine what
type of proceeding—either oral or notice and
opportunity for written comments—is appropriate
for consideration of a particular proposal by an
SRO. See Securities Acts Amendments of 1975,
Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249,
S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
46 15
VerDate Sep<11>2014
21:20 Oct 09, 2018
Jkt 247001
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–PEARL–2018–19 and
should be submitted on or before
October 31, 2018. Rebuttal comments
should be submitted by November 14,
2018.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(3)(C) of the Act,47 that File
Number SR–PEARL–2018–19 be and
hereby is, temporarily suspended. In
addition, the Commission is instituting
proceedings to determine whether the
proposed rule change should be
approved or disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.48
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–21922 Filed 10–9–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84356; File No. 265–30]
Fixed Income Market Structure
Advisory Committee
Securities and Exchange
Commission.
ACTION: Notice of meeting.
AGENCY:
The Securities and Exchange
Commission Fixed Income Market
Structure Advisory Committee is
providing notice that it will hold a
SUMMARY:
47 15
48 17
PO 00000
U.S.C. 78s(b)(3)(C).
CFR 200.30–3(a)(57) and (58).
Frm 00143
Fmt 4703
Sfmt 4703
public meeting on Monday, October 29,
2018 in Multi-Purpose Room LL–006 at
the Commission’s headquarters, 100 F
Street NE, Washington, DC. The meeting
will begin at 9:30 a.m. (EDT) and will
be open to the public, except for the
period during lunch when the
Committee will meet in an
administrative work session. The public
portions of the meeting will be webcast
on the Commission’s website at
www.sec.gov. Persons needing special
accommodations to take part because of
a disability should notify the contact
persons listed below. The public is
invited to submit written statements to
the Committee. The meeting will
include updates and presentations from
the subcommittees.
DATES: The public meeting will be held
on Monday, October 29, 2018. Written
statements should be received on or
before October 24, 2018.
ADDRESSES: The meeting will be held at
the Commission’s headquarters, 100 F
Street NE, Washington, DC. Written
statements may be submitted by any of
the following methods:
Electronic Statements
• Use the Commission’s internet
submission form (https://www.sec.gov/
rules/other.shtml); or
• Send an email message to rulecomments@sec.gov. Please include File
Number 265–30 on the subject line; or
Paper Statements
• Send paper statements in triplicate
to Brent J. Fields, Federal Advisory
Committee Management Officer,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090.
All submissions should refer to File No.
265–30. This file number should be
included on the subject line if email is
used. To help us process and review
your statement more efficiently, please
use only one method. The Commission
will post all statements on the
Commission’s internet website at SEC
website at (https://www.sec.gov/
comments/265-30/265-30.shtml).
Statements also will be available for
website viewing and printing in the
Commission’s Public Reference Room,
100 F Street NE, Room 1580,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. All statements
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
E:\FR\FM\10OCN1.SGM
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Agencies
[Federal Register Volume 83, Number 196 (Wednesday, October 10, 2018)]
[Notices]
[Pages 51022-51026]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21922]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84358; File No. SR-PEARL-2018-19
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
of a Proposed Rule Change To Amend the Fee Schedule Regarding
Connectivity Fees for Members and Non-Members; Suspension of and Order
Instituting Proceedings To Determine Whether To Approve or Disapprove
the Proposed Rule Change
October 3, 2018.
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 September 18, 2018, MIAX PEARL, LLC (``MIAX PEARL'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change as described in Items I and II 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 and is, pursuant to Section 19(b)(3)(C) of the Act, hereby: (i)
Temporarily suspending the proposed rule change; and (ii) instituting
proceedings to determine whether to approve or disapprove the proposed
rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 modify certain of the Exchange's
system connectivity fees.
The text of the proposed rule change is available on the Exchange's
website at https://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 Description of 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 regarding
connectivity to the Exchange. Specifically, the Exchange proposes to
amend Sections 5(a) and (b) of the Fee Schedule to increase the network
connectivity fees for the 1 Gigabit (``Gb'') fiber connection, the 10Gb
fiber connection, and the 10Gb ultra-low latency (``ULL'') fiber
connection, which are charged to both Members \3\ and non-Members of
the Exchange for connectivity to the Exchange's primary/secondary
facility. The Exchange also proposes to increase the network
connectivity fees for the 1Gb and 10Gb fiber connections for
connectivity to the Exchange's disaster recovery facility. These
proposed fee increases are collectively referred to herein as the
``Proposed Fee Increases.''
---------------------------------------------------------------------------
\3\ The term ``Member'' means an individual or organization that
is registered with the Exchange pursuant to Chapter II of the
Exchange's 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.
---------------------------------------------------------------------------
The Exchange initially filed the Proposed Fee Increases on July 31,
2018, designating the Proposed Fee Increases effective August 1,
2018.\4\ The proposed rule change was published for comment in the
Federal Register on August 13, 2018.\5\ The Commission received one
comment letter on the proposal.\6\ The Proposed Fee Increases remained
in effect until they were temporarily suspended pursuant to a
suspension order (the ``Suspension Order'') issued by the
Commission.\7\ The Suspension Order also instituted proceedings to
determine whether to approve or disapprove the proposed rule change.\8\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 83785 (August 7,
2018), 83 FR 40101 (August 13, 2018)(SR-PEARL-2018-16).
\5\ Id.
\6\ See Letter from Tyler Gellasch, Executive Director, The
Healthy Markets Association, to Brent J. Fields, Secretary,
Commission, dated September 4, 2018 (``Healthy Markets Letter'').
\7\ See Securities Exchange Act Release No. 34-84177 (September
17, 2018).
\8\ Id.
---------------------------------------------------------------------------
The Healthy Markets Letter argued that the Exchange did not provide
sufficient information in its filing to support a finding that the
proposal is consistent with the Act. Specifically, the Healthy Markets
Letter objected to the Exchange's reliance on the fees of other
exchanges to demonstrate that its fee increases are consistent with the
Act. In addition, the Healthy Markets Letter argued that the Exchange
did not offer any details to support its basis for asserting that the
proposed fee increases are consistent with the Act. The Exchange is now
re-filing the Proposed Fee Increases, and is also providing additional
detail regarding the basis for the Proposed Fee Increases. The proposed
rule change is immediately effective upon filing with the Commission
pursuant to Section 19(b)(3)(A) of the Act.
The Exchange currently offers various bandwidth alternatives for
connectivity to the Exchange, consisting of a 1Gb fiber connection, a
10Gb fiber connection, and a 10Gb ULL fiber connection. The 10Gb ULL
offering uses an ultra-low latency switch, which provides faster
processing of messages sent to it in comparison to the switch used for
the other types of connectivity. The Exchange currently assesses the
following monthly network connectivity fees to both Members and non-
Members for connectivity to the Exchange's primary/secondary facility:
(a) $1,100 for the 1Gb connection; (b) $5,500 for the 10Gb connection;
and (c) $8,500.00 for the 10Gb ULL connection. The Exchange also
assesses to both Members and non-Members a monthly per connection
network connectivity fee of $500 for each 1Gb connection to the
disaster recovery facility and a monthly per connection network
connectivity fee of $2,500 for each 10Gb connection to the disaster
recovery facility.
The Exchange's MIAX Express Network Interconnect (``MENI'') can be
configured to provide Members and non-Members of the Exchange network
connectivity to the trading platforms,
[[Page 51023]]
market data systems, test systems, and disaster recovery facilities of
both the Exchange and its affiliate, Miami International Securities
Exchange (``MIAX Options''), via a single, shared connection. Members
and non-Members utilizing the MENI to connect to the trading platforms,
market data systems, test systems and disaster recovery facilities of
the Exchange and MIAX Options via a single, shared connection are
assessed only one monthly network connectivity fee per connection,
regardless of the trading platforms, market data systems, test systems,
and disaster recovery facilities accessed via such connection.
The Exchange proposes to increase the monthly network connectivity
fees for such connections for both Members and non-Members. The network
connectivity fees for connectivity to the Exchange's primary/secondary
facility will be increased as follows: (a) From $1,100 to $1,400 for
the 1Gb connection; (b) from $5,500 to $6,100 for the 10Gb connection;
and (c) from $8,500 to $9,300 for the 10Gb ULL connection. The network
connectivity fees for connectivity to the Exchange's disaster recovery
facility will be increased as follows: (a) From $500 to $550 for the
1Gb connection; and (b) from $2,500 to $2,750 for the 10Gb connection.
The Exchange believes that it is reasonable and appropriate to
increase its fees charged for use of its connectivity to partially
offset increased costs associated with maintaining and enhancing a
state-of-the-art exchange network infrastructure in the U.S. options
industry. The Exchange notes that other exchanges have similar
connectivity alternatives for their participants, including similar
low-latency connectivity. For example, Nasdaq PHLX LLC (``Phlx''), NYSE
Arca, Inc. (``Arca''), NYSE American LLC (``NYSE American'') and Nasdaq
ISE, LLC (``ISE'') all offer a 1Gb, 10Gb and 10Gb low latency ethernet
connectivity alternatives to each of their participants.\9\ The
Exchange further notes that Phlx, ISE, Arca and NYSE American each
charge higher rates for such similar connectivity to primary and
secondary facilities.\10\ Additionally, the Exchange's proposed
connectivity fees to its disaster recovery facility are within the
range of the fees charged by other exchanges for similar connectivity
alternatives.\11\ The Exchange believes that it is reasonable and
appropriate to increase its fees charged for use of its connectivity to
partially offset increased costs associated with maintaining and
enhancing a state-of-the-art exchange network infrastructure in the
U.S. options industry.
---------------------------------------------------------------------------
\9\ See Phlx and ISE Rules, General Equity and Options Rules,
General 8, Section 1(b). Phlx and ISE each charge a monthly fee of
$2,500 for each 1Gb connection, $10,000 for each 10Gb connection and
$15,000 for each 10Gb Ultra connection, which the equivalent of the
Exchange's 10Gb ULL connection. See also NYSE American Fee Schedule,
Section V.B, and Arca Fees and Charges, Co-Location Fees. NYSE
American and Arca each charge a monthly fee of $5,000 for each 1Gb
circuit, $14,000 for each 10Gb circuit and $22,000 for each 10Gb LX
circuit, which the equivalent of the Exchange's 10Gb ULL connection.
\10\ Id.
\11\ See Nasdaq ISE Schedule of Fees, IX(D) (charging $3,000 for
disaster recovery testing & relocation services); see also Cboe
Exchange, Inc. (``CBOE'') Fees Schedule, p. 14, Cboe Command
Connectivity Charges (charging a monthly fee of $2,000 for a 1Gb
disaster recovery network access port and a monthly fee of $6,000
for a 10Gb disaster recovery network access port).
---------------------------------------------------------------------------
In particular, the Exchange's increased costs associated with
supporting its network are due to several factors, including increased
costs associated with maintaining and expanding a team of highly-
skilled network engineers, increasing fees charged by the Exchange's
third-party data center operator, and costs associated with projects
and initiatives designed to improve overall network performance and
stability, through the Exchange's R&D efforts. For example, the
Exchange has had to hire additional network engineering staff in the
last year, and plans to hire additional staff in the coming months.
Further, the Exchange contracts with a third-party data center provider
for its data center space. The Exchange does not operate its own data
centers. Other exchange operators do operate their own data centers.
Thus, they can better control data center costs. They also operate them
as profit centers. Conversely, the Exchange is subject to fee increases
from its data center provider, which the Exchange experienced in the
last year. Further, the Exchange invests significant resources in
network R&D to improve the overall performance and stability of its
network. For example, the Exchange has a number of network monitoring
tools (some of which were developed in-house, and some of which are
licensed from third-parties), that continually monitor, detect, and
report network performance, many of which serve as significant value-
adds to the Exchange's Members and enable the Exchange to provide a
high level of customer service. These tools detect and report
performance issues, and thus enable the Exchange to proactively notify
a Member (and the SIPs) when the Exchange detects a problem with a
Member's connectivity. The costs associated with the maintenance and
improvement of existing tools and the development of new tools resulted
in increased cost to the Exchange. Certain recently developed network
aggregation and monitoring tools provide the Exchange with the ability
to measure network traffic with a much more granular level of
variability. This is important as Exchange Members demand a higher
level of network determinism and the ability to measure variability in
terms of single digit nanoseconds. Also, the Exchange routinely
conducts R&D projects to improve the performance of the network's
hardware infrastructure. As an example, in the last year, the
Exchange's R&D efforts resulted in a performance improvement in its
network switches, requiring the purchase of new switching equipment,
and thus resulting in increased costs. In sum, the costs associated
with maintaining and enhancing a state-of-the-art exchange network
infrastructure in the U.S. options industry is a significant expense
for the Exchange that continues to increase, and thus the Exchange
believes that it is reasonable to offset some of those increased costs
by increasing its network connectivity fees, as proposed herein.
Overall, the Proposed Fee Increases are projected to offset only a
portion of the Exchange's increased network connectivity costs.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \12\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \13\ in
particular, in that it provides for the equitable allocation of
reasonable dues, fees and other charges among Exchange Members and
issuers and other persons using any facility or system which the
Exchange operates or controls. The Exchange also believes the proposal
furthers the objectives of Section 6(b)(5) of the Act \14\ 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 customer, issuers, brokers and dealers.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4).
\14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that its proposal is consistent with Section
6(b)(4) of the Act because the fees assessed for connectivity allow the
[[Page 51024]]
Exchange to cover the costs associated with providing and maintaining
the necessary hardware and other infrastructure to support this
technology. The Exchange believes that the proposal to increase the
fees for connectivity alternatives is fair, equitable and not
unreasonably discriminatory because the increased fees are assessed
equally among all users of the applicable connections.
As discussed above, Phlx and ISE each offer different connections
with respect to latency, and Arca and NYSE American both offer similar
connectivity alternatives.\15\ Despite this, Phlx, ISE, Arca and NYSE
American charge a higher fee than the Exchange currently charges for
similar connections to primary and secondary facilities.\16\
Furthermore, the connectivity fees for the disaster recovery facilities
of other exchanges are within the range of the proposed fees of the
Exchange.\17\ For these reasons, the Exchange believes the proposed
increase in the fees for the fiber connectivity to the Exchange is
reasonable and not unfairly discriminatory.
---------------------------------------------------------------------------
\15\ See supra note 9.
\16\ Id.
\17\ See supra note 11.
---------------------------------------------------------------------------
The Exchange believes that the proposal to increase the fees for
connectivity alternatives is fair, equitable and not unreasonably
discriminatory because the increased fees will only partially offset
the Exchange's increased costs associated with maintaining its network
infrastructure. In particular, the Exchange's increased costs
associated with supporting its network are due to several factors,
including increased costs associated with maintaining and expanding a
team of highly-skilled network engineers, increasing fees charged by
the Exchange's third-party data center operator, and costs associated
with projects and initiatives designed to improve overall network
performance and stability, through the Exchange's R&D efforts. For
example, the Exchange has had to hire additional network engineering
staff in the last year, and plans to hire additional staff in the
coming months. Further, the Exchange contracts with a third-party data
center provider for its data center space. The Exchange does not
operate its own data centers. Other exchange operators do operate their
own data centers. Thus, they can better control data center costs. They
also operate their data centers as profit centers. Conversely, the
Exchange is subject to fee increases from its data center provider,
which the Exchange experienced in the last year. Further, the Exchange
invests significant resources in network R&D to improve the overall
performance and stability of its network. For example, the Exchange has
a number of network monitoring tools (some of which were developed in-
house, and some of which are licensed from third-parties), that
continually monitor, detect, and report network performance, many of
which serve as significant value-adds to the Exchange's Members and
enable the Exchange to provide a high level of customer service. These
tools detect and report performance issues, and thus enable the
Exchange to proactively notify a Member (and the SIPs) when the
Exchange detects a problem with a Member's connectivity. The costs
associated with the maintenance and improvement of existing tools and
the development of new tools resulted in increased cost to the
Exchange. Certain recently developed network aggregation and monitoring
tools provide the Exchange with the ability to measure network traffic
with a much more granular level of variability. This is important as
Exchange Members demand a higher level of network determinism and the
ability to measure variability in terms of single digit nanoseconds.
Also, the Exchange routinely conducts R&D projects to improve the
performance of the network's hardware infrastructure. As an example, in
the last year, the Exchange's R&D efforts resulted in a performance
improvement in its network switches, requiring the purchase of new
switching equipment, and thus resulting in increased costs. In sum, the
costs associated with maintaining and enhancing a state-of-the-art
exchange network infrastructure in the U.S. options industry is a
significant expense for the Exchange that continues to increase, and
thus the Exchange believes that it is fair, equitable, and not
unreasonably discriminatory to offset some of those increased costs by
increasing its network connectivity fees, as proposed herein. Overall,
the Proposed Fee Increases are projected to offset only a portion of
the Exchange's increased network connectivity costs.
The Exchange also believes that its proposal is consistent with
Section 6(b)(5) of the Act \18\ because all MIAX PEARL participants
have the opportunity to subscribe to the Exchange's connections. There
is also no differentiation among MIAX PEARL participants with regard to
the fees charged for these services.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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. On the contrary, the Exchange
believes that the proposed changes should increase both intermarket and
intramarket competition. Specifically, the Exchange believes that the
changes will promote competition by increasing the connectivity fees to
become more within the range of comparable fees assessed by other
competing exchanges.\19\
---------------------------------------------------------------------------
\19\ See supra note 9.
---------------------------------------------------------------------------
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 fees to remain
competitive with other exchanges. The Exchange believes that the
proposed changes reflect this competitive environment. To the extent
that this purpose is achieved, all the Exchange's market participants
should benefit from the improved market liquidity.
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. Suspension of the Proposed Rule Change
Pursuant to Section 19(b)(3)(C) of the Act,\20\ at any time within
60 days of the date of filing of a proposed rule change pursuant to
Section 19(b)(1) of the Act,\21\ the Commission summarily may
temporarily suspend the change in the rules of a self-regulatory
organization (``SRO'') 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.
As discussed below, the Commission believes a temporary suspension of
the proposed rule change is necessary and appropriate to allow for
additional analysis of the proposed rule change's consistency with the
Act and the rules thereunder.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78s(b)(3)(C).
\21\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------
Identical fee increases to those proposed herein were originally
filed on
[[Page 51025]]
July 31, 2018, and designated effective August 1, 2018.\22\ That
proposal, PEARL-2018-16, was published for comment in the Federal
Register on August 13, 2018.\23\ The Commission received one comment
letter on that proposal.\24\ On September 17, 2018, pursuant to Section
19(b)(3)(C) of the Act, the Commission: (1) Temporarily suspended the
proposed rule change; and (2) instituted proceedings to determine
whether to approve or disapprove the proposal.\25\ The instant filing
proposes identical fees and raises similar concerns as to whether they
are consistent with the Act.\26\
---------------------------------------------------------------------------
\22\ See supra note 4, and accompanying text.
\23\ See supra note 5, and accompanying text.
\24\ See supra note 6.
\25\ See Securities Exchange Act Release No. 84177, 83 FR 47953
(September 21, 2018).
\26\ See id.
---------------------------------------------------------------------------
When exchanges file their proposed rule changes with the
Commission, including fee filings like the Exchange's present proposal,
they are required to provide a statement supporting the proposal's
basis under the Act and the rules and regulations thereunder applicable
to the exchange.\27\ The instructions to Form 19b-4, on which exchanges
file their proposed rule changes, specify that such statement ``should
be sufficiently detailed and specific to support a finding that the
proposed rule change is consistent with [those] requirements.'' \28\
---------------------------------------------------------------------------
\27\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory
Organization's Statement of the Purpose of, and Statutory Basis for,
the Proposed Rule Change'').
\28\ Id.
---------------------------------------------------------------------------
Among other things, exchange proposed rule changes are subject to
Section 6 of the Act, including Sections 6(b)(4), (5), and (8), which
requires the rules of an exchange to (1) provide for the equitable
allocation of reasonable fees among members, issuers, and other persons
using the exchange's facilities; \29\ (2) perfect the mechanism of a
free and open market and a national market system, protect investors
and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers; \30\
and (3) not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\31\
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\29\ 15 U.S.C. 78f(b)(4).
\30\ 15 U.S.C. 78f(b)(5).
\31\ 15 U.S.C. 78f(b)(8).
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In temporarily suspending the Exchange's fee change, the Commission
intends to further consider whether increasing certain connectivity
fees to the Exchange is consistent with the statutory requirements
applicable to a national securities exchange under the Act. In
particular, the Commission will consider whether the proposed rule
change satisfies the standards under the Act and the rules thereunder
requiring, among other things, that an exchange's rules provide for the
equitable allocation of reasonable fees among members, issuers, and
other persons using its facilities; not permit unfair discrimination
between customers, issuers, brokers or dealers; and do not impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.\32\
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\32\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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Therefore, the Commission finds that it is appropriate in the
public interest, for the protection of investors, and otherwise in
furtherance of the purposes of the Act, to temporarily suspend the
proposed rule changes.\33\
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\33\ For purposes of temporarily suspending the proposed rule
change, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change
The Commission is instituting proceedings pursuant to Sections
19(b)(3)(C) \34\ and 19(b)(2)(B) of the Act \35\ to determine whether
the proposed rule change should be approved or disapproved. Institution
of proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved. Rather, the
Commission seeks and encourages interested persons to provide
additional comment on the proposed rule change to inform the
Commission's analysis of whether to disapprove the proposed rule
change.
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\34\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily
suspends a proposed rule change, Section 19(b)(3)(C) of the Act
requires that the Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule change should be
approved or disapproved.
\35\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\36\ the Commission is
providing notice of the grounds for possible disapproval under
consideration:
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\36\ 15 U.S.C. 78s(b)(2)(B).
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Section 6(b)(4) of the Act, which requires that the rules
of a national securities exchange ``provide for the equitable
allocation of reasonable dues, fees, and other charges among its
members and issuers and other persons using its facilities,'' \37\
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\37\ 15 U.S.C. 78f(b)(4).
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Section 6(b)(5) of the Act, which requires, among other
things, that the rules of a national securities exchange be ``designed
to perfect the operation of a free and open market and a national
market system'' and ``protect investors and the public interest,'' and
not be ``designed to permit unfair discrimination between customers,
issuers, brokers, or dealers,'' \38\ and
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\38\ 15 U.S.C. 78f(b)(5).
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Section 6(b)(8) of the Act, which requires that the rules
of a national securities exchange ``not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of [the Act].'' \39\
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\39\ 15 U.S.C. 78f(b)(8).
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As noted above, the proposal increases connectivity fees for
physical connections to the Exchange. The Exchange states that this fee
increase would partially offset costs associated with providing and
maintaining this technology.\40\ In the instant filing the Exchange
states that its increased costs relate to maintaining and expanding a
team of highly-skilled network engineers, increasing fees charged by
the Exchange's third-party data center operator, and costs associated
with projects and initiatives designed to improve overall network
performance and stability.\41\
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\40\ See supra Section II.A.1.
\41\ See id.
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the [Act]
and the rules and regulations issued thereunder . . . is on the [SRO]
that proposed the rule change.'' \42\ The description of a proposed
rule change, its purpose and operation, its effect, and a legal
analysis of its consistency with applicable requirements must all be
sufficiently detailed and specific to support an affirmative Commission
finding,\43\ and any failure of an SRO to provide this information may
result in the Commission not having a sufficient basis to make an
affirmative finding that a proposed rule change is consistent with the
Act and the applicable rules and regulations.\44\
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\42\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\43\ See id.
\44\ See id.
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The Commission is instituting proceedings to allow for additional
consideration and comment on the issues raised herein, including as to
whether the proposed fees are consistent with the Act, and
specifically, with its requirements that exchange fees be reasonable
and equitably allocated; be designed to perfect the mechanism of a free
and open market and the national market system, protect investors and
the public
[[Page 51026]]
interest, and not be unfairly discriminatory; or not impose an
unnecessary or inappropriate burden on competition.\45\
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\45\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments
The Commission requests written views, data, and arguments with
respect to the concerns identified above as well as any other relevant
concerns. Such comments should be submitted by October 31, 2018.
Rebuttal comments should be submitted by November 14, 2018. Although
there do not appear to be any issues relevant to approval or
disapproval which would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 19b-4, any request for an opportunity to make an oral
presentation.\46\
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\46\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by an SRO. See Securities
Acts Amendments of 1975, Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
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The Commission asks that commenters address the sufficiency and
merit of the Exchange's statements in support of the proposal, in
addition to any other comments they may wish to submit about the
proposed rule change. Interested persons are invited to submit written
data, views, and arguments concerning the proposed rule change,
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 [email protected]. Please include
File Number SR-PEARL-2018-19 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 20549-1090.
All submissions should refer to File Number SR-PEARL-2018-19. 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 website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-PEARL-2018-19 and should be submitted on
or before October 31, 2018. Rebuttal comments should be submitted by
November 14, 2018.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(3)(C) of the
Act,\47\ that File Number SR-PEARL-2018-19 be and hereby is,
temporarily suspended. In addition, the Commission is instituting
proceedings to determine whether the proposed rule change should be
approved or disapproved.
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\47\ 15 U.S.C. 78s(b)(3)(C).
\48\ 17 CFR 200.30-3(a)(57) and (58).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\48\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21922 Filed 10-9-18; 8:45 am]
BILLING CODE 8011-01-P