Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Implement a Second Equity Rights Program, 55530-55534 [2020-19717]
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Federal Register / Vol. 85, No. 174 / Tuesday, September 8, 2020 / Notices
All funds are required to conduct an
annual review of the adequacy of their
existing policies and procedures and the
policies and procedures of each
investment adviser, principal
underwriter, administrator, and transfer
agent of the fund, and the effectiveness
of their implementation. In addition,
each fund chief compliance officer is
required to prepare an annual report
that addresses the operation of the
policies and procedures of the fund and
the policies and procedures of each
investment adviser, principal
underwriter, administrator, and transfer
agent of the fund, any material changes
made to those policies and procedures
since the date of the last report, any
material changes to the policies and
procedures recommended as a result of
the annual review, and certain
compliance matters that occurred since
the date of the last report. The staff
estimates that each fund spends 49
hours per year, on average, conducting
the annual review and preparing the
annual report to the board of directors.
Thus, we estimate that the annual
aggregate burden hours associated with
the annual review and annual report
requirement is 200,557 hours.
Finally, the staff estimates that each
fund spends 6 hours annually, on
average, maintaining the records
required by proposed Rule 38a–1. Thus,
the aggregate annual burden hours
associated with the recordkeeping
requirement is 24,558 hours.
In total, the staff estimates that the
aggregate annual information collection
burden of Rule 38a–1 is 235,720 hours.
The estimate of average burden hours
is made solely for the purposes of the
Paperwork Reduction Act. The estimate
is based on communications with
industry representatives, and is not
derived from a comprehensive or even
a representative survey or study.
Responses will not be kept confidential.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless it
displays a currently valid OMB control
number.
Written comments are invited on: (i)
Whether the collection of information is
necessary for the proper performance of
the functions of the Commission,
including whether the information has
practical utility; (ii) the accuracy of the
Commission’s estimate of the burden(s)
of the collection of information; (iii)
ways to enhance the quality, utility, and
clarity of the information collected; and
(iv) ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
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Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
Please direct your written comments
to David Bottom, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Cynthia
Roscoe, 100 F Street NE, Washington,
DC 20549; or send an email to: PRA_
Mailbox@sec.gov.
Dated: September 1, 2020.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–19724 Filed 9–4–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89730; File No. SR–
PEARL–2020–10]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Implement a Second
Equity Rights Program
September 1, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
20, 2020, MIAX PEARL, LLC (‘‘MIAX
PEARL’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘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.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange is filing a proposal to
implement an equity rights program
related to fees charged for the trading of
both options and equity securities on
the Exchange.
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
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
1 15
2 17
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CFR 240.19b–4.
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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
On April 6, 2018, the Exchange filed
for immediate effectiveness a proposed
rule change with the Commission to
implement an equity rights program
(‘‘Existing Program’’) pursuant to which
units representing the right to acquire
equity in the Exchange’s parent holding
company, Miami International
Holdings, Inc. (‘‘MIH’’) were issued to a
participating Member 3 in exchange for
payment of an initial purchase price or
the prepayment of certain ERP Exchange
Fees 4 and the achievement of certain
liquidity volume thresholds on the
Exchange over a 32-month period.5 On
August 14, 2020, the Commission
approved a proposed rule change to
adopt rules governing the trading of
equity securities on the Exchange (the
platform for the trading of equity
securities is referred to herein as ‘‘MIAX
PEARL Equities’’).6 The Exchange now
proposes to implement a second equity
rights program under which ERP
Exchange fees would be expanded to
include fees incurred on and after
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 The ERP Exchange fees under the Existing
Program consist of: (a) Transaction fees as set forth
in Section 1)a of the MIAX PEARL Options Fee
Schedule; (b) membership fees as set forth in
Section 3 of the MIAX PEARL Options Fee
Schedule; (c) system connectivity fees as set forth
in Section 5 of the MIAX PEARL Options Fee
Schedule; and (d) market data fees as set forth in
Section 6 of the MIAX PEARL Options Fee
Schedule (collectively, the ‘‘ERP Exchange Fees’’).
5 See Securities Exchange Act Release No. 83012
(April 9, 2018), 83 FR 16163 (April 13, 2018)
(Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Implement an Equity
Rights Program) (‘‘Initial ERP Filing’’).
6 See Securities Exchange Act Release Nos. 88132
(February 6, 2020), 85 FR 8053 (February 12, 2020)
(SR–PEARL–2020–03) (Notice of Filing of a
Proposed Rule Change to Adopt Rules Governing
the Trading of Equity Securities); and 89563
(August 14, 2020), 85 FR 51510 (August 20, 2020)
(Order Approving Proposed Rule Change to Adopt
Rules Governing the Trading of Equity Securities).
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October 1, 2020 7 through June 30, 2024
(‘‘Prepaid Fee Period’’) for trading
equity securities on MIAX PEARL
Equities and the achievement of certain
liquidity volume thresholds on MIAX
PEARL Equities over a 42-month period
(‘‘Proposed Program’’). ERP Exchange
Fees under the Proposed Program would
also include the fees included today as
part of the Existing Program.8 The
Proposed Program would be
independent of the Existing Program.
Similar to the Existing Program for
options, the purpose of the Proposed
Program is to promote the long-term
interests of MIAX PEARL by providing
incentives designed to encourage future
MIH owners and MIAX PEARL options
and equity market participants to
contribute to the growth and success of
MIAX PEARL, by being active liquidity
providers and takers on MIAX PEARL
Equities in particular, and to provide
enhanced levels of trading volume in
equity securities through an opportunity
to increase their proprietary interests in
MIAX PEARL’s enterprise value.
Members that participated in the
Existing Program had two options to
choose from: (i) An offering of I-Units;
and/or (ii) an offering of J-Units.9
Members that choose to participate in
the Proposed Program will be able to
participate in an offering of L-Units.10
Under the Proposed Program, market
participants would be able to pre-pay
the following ERP Exchange Fees for
trading equities: (a) Transaction fees; (b)
system connectivity fees; and (c) market
data fees.11 Like under the Existing
7 The Exchange intends to begin trading equity
securities on September 25, 2020. See MIAX PEARL
Receives Approval to Operate Equities Exchange;
Launch Date Confirmed for September 25, 2020,
available at https://www.miaxoptions.com/sites/
default/files/press_release-files/MIAX_Press_
Release_08182020.pdf (dated August 19, 2020).
8 See supra note 5.
9 See supra note 5 for a complete description of
I-Units and J-Units.
10 Like the Existing Program, the Proposed
Program also provides equity-like consideration in
exchange for market making or the provision of
liquidity, order flow or volume and is open to
market participants generally. Also like the Existing
Program, all MIAX PEARL Members may
participate in the Proposed Program subject to their
satisfaction of eligibility requirements. To be
designated as a participant Member, an applicant
must: (i) Be a Member in good standing of MIAX
PEARL; (ii) qualify as an ‘‘accredited investor’’ as
such term is defined in Regulation D of the
Securities Act of 1933; and (iii) have executed all
required documentation for Program participation.
If L-Unit option is oversubscribed, the units will be
allocated on a pro-rata basis that may result in a
fractional allocation.
11 The Exchange notes that proprietary real-time
market data will be provided free of charge for a
period of time. The Exchange also notes that it will
file a proposed rule change to adopt MIAX PEARL
Equities Fee Schedule with the Commission
pursuant to Section 19(b)(3)(A)(iii) of the Exchange
Act and Rule 19b–4(f)(2) thereunder prior to the
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Program, market participants would also
be able to pre-pay the following ERP
Exchange Fees for trading options: (a)
Transaction fees as set forth in Section
1)a of the MIAX PEARL Options Fee
Schedule; (b) membership fees as set
forth in Section 3 of the MIAX PEARL
Options Fee Schedule; (c) system
connectivity fees as set forth in Section
5 of the MIAX PEARL Options Fee
Schedule; and (d) market data fees as set
forth in Section 6 of the MIAX PEARL
Options Fee Schedule.
Members that participate in the
Proposed Program will be issued for
each unit warrants to purchase 432,163
shares of common stock of MIH in
exchange for such participant Member’s
cash contribution of $1,000,000, and
with such warrants being exercisable
upon the achievement by the
participating Member of certain volume
thresholds on the Exchange during a 42month measurement period,
commencing January 1, 2021. A total of
22 L-Units will be offered. The total
equity ownership of MIH common stock
held by any one participant Member
will be subject to a cap of 19.9%.12
commencement of trading equity securities
currently anticipated for September 25, 2020. The
Exchange has provided (and will continue to
provide) a draft of the MIAX PEARL Equities Fee
Schedule to any current or potential participant that
expresses interest joining the Proposed Program
(with the condition that a final MIAX PEARL
Equities Fee Schedule is subject to filing with the
Commission), so that such participant can evaluate
the proposed fees and make a fully-informed
decision in whether it wishes to join the Proposed
Program.
12 See Ninth Article (b)(i)(B), Amended and
Restated Certificate of Incorporation of Miami
International Holdings, Inc., effective October 16,
2015 (providing that no Exchange Member, either
alone or together with its Related Persons, may
own, directly or indirectly, of record or beneficially,
shares constituting more than twenty percent (20%)
of any class of capital stock of the Corporation). See
also Ninth Article (b)(i)(C), Amended and Restated
Certificate of Incorporation of Miami International
Holdings, Inc., effective October 16, 2015
(providing that no Person, either alone or together
with its Related Persons, at any time may, directly,
indirectly or pursuant to any voting trust,
agreement, plan or other arrangement, vote or cause
the voting of shares of the capital stock of the
Corporation or give any consent or proxy with
respect to shares representing more than twenty
percent (20%) of the voting power of the then
issued and outstanding capital stock of the
Corporation, nor may any Person, either alone or
together with its Related Persons, enter into any
agreement, plan or other arrangement with any
other Person, either alone or together with its
Related Persons, under circumstances that would
result in the shares of capital stock of the
Corporation that are subject to such agreement, plan
or other arrangement not being voted on any matter
or matters or any proxy relating thereto being
withheld, where the effect of such agreement, plan
or other arrangement would be to enable any
Person, either alone or together with its Related
Persons, to vote, possess the right to vote or cause
the voting of shares of the capital stock of the
Corporation which would represent more than
twenty percent (20%) of said voting power.). Any
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The warrants will vest in seven (7)
tranches during a measurement period
of months 1–42 of the Proposed
Program. In addition, the participant
Members may earn or lose the right to
exercise warrants on a pro-rata basis
based upon meeting volume
commitments during the measurement
periods, as detailed below.
A participant Member will be eligible
to earn warrants during measurement
periods provided that the participant
has achieved a specified percentage of
the average daily volume for National
Market System equity securities on
MIAX PEARL Equities as reported by
the applicable consolidated transaction
reporting plan (‘‘ADV’’).13 While market
participants will be able to pre-pay fees
related to both their equity and options
trading on MIAX PEARL, the Proposed
Program’s performance criteria will only
include a market participant’s equity
market share and will not include a
market participant’s options market
share.
The seven (7) tranches will vest
during the following measurement
periods: (i) 7.14% of the warrants
resulting from months 1–6, with a
volume commitment of 0.014% of
MIAX PEARL Equities ADV per LUnit; 14 (ii) 5.41% of the warrants
resulting from months 7–12, with a
volume commitment of 0.053% of
MIAX PEARL Equities ADV per L-Unit;
(iii) 9.49% of the warrants resulting
from months 13–18, with a volume
commitment of 0.093% of MIAX PEARL
Equities ADV per L-Unit; (iv) 13.47% of
the warrants resulting from months 19–
24, with a volume commitment of
0.132% of MIAX PEARL Equities ADV
per L-Unit; (v) 17.45% of the warrants
resulting from months 25–30, with a
volume commitment of 0.171% of
MIAX PEARL Equities ADV per L-Unit;
(vi) 21.53% of the warrants resulting
from months 31–36, with a volume
commitment of 0.211% of MIAX PEARL
Equities ADV per L-Unit; and (vii)
25.51% of the warrants resulting from
months 37–42, with a volume
commitment of 0.250% of MIAX PEARL
Equities ADV per L-Unit. If a participant
purported transfer of shares or ownership of shares
in violation of the ownership cap by a stockholder
would be subject to the limitations of the Certificate
of Incorporation, including the non-recognition of
voting rights of shares in excess of the cap and a
redemption right by MIH for excess shares. See also
Ninth Article (d) and (e), Amended and Restated
Certificate of Incorporation of Miami International
Holdings, Inc., effective October 16, 2015.
13 If an equity security is not traded on MIAX
PEARL Equities, then the trading volume in that
equity security will be omitted from the calculation
of ADV.
14 The first measurement period will begin on
January 1, 2021 and end June 30, 2021.
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Member reaches 100% of the volume
commitment during a tranche’s
measurement period, the Member will
earn 100% of the warrants applicable to
such measurement period. If a
participant Member reaches less than
100% but at least 70% of the volume
commitment during a tranche’s
measurement period, the Member will
earn a reduced amount of warrants on
a pro-rata basis applicable to such
measurement period. If a participant
Member fails to reach a minimum of
70% of the volume commitment during
a tranche’s measurement period, the
Member will lose all right to that
tranche of warrants. Notwithstanding, in
the event a participant Member has not
satisfied the volume commitment for
any one measurement period (other than
measurement period 7), the participant
Member will have an opportunity to
vest those warrants if such participant
Member applies a portion of the
Member’s over-performance from the
measurement period immediately
following the prior measurement period
to ensure a minimum of 70% of the
volume commitment in the prior period
and in addition has satisfied the volume
commitment for the measurement
period immediately following. If a
participant Member exceeds 100% of
the volume commitment during a
tranche’s measurement period, the
Member is able to earn, on a pro-rata
basis, warrants not earned by other
participant Members. Any trades that
would otherwise constitute Qualifying
Trades shall be excluded upon the
Company’s receipt of written
instructions from the Participant
identifying which trades should not be
counted in the number of trades
executed on the Exchange by the
Participant. Special strategies that are
subject to a fee cap will be omitted from
the calculation of MIAX PEARL Equities
Volume.
Similar to the Existing Program, a
Member of the Exchange and its
Affiliate as defined in the options and
equities Fee Schedules of MIAX
PEARL 15 may together participate in the
Proposed Program.
15 For purposes of the MIAX PEARL Options Fee
Schedule and the anticipated MIAX PEARL
Equities Fee Schedule, the term ‘‘Affiliate’’ means
an affiliate of a Member of at least 75% common
ownership between the firms as reflected on each
firm’s Form BD, Schedule A, (‘‘Affiliate’’). The
MIAX PEARL Options Fee Schedule further defines
the term ‘‘Affiliate’’ as the Appointed Market Maker
of an Appointed EEM (or, conversely, the
Appointed EEM of an Appointed Market Maker).
An ‘‘Appointed Market Maker’’ is a MIAX PEARL
Options Market Maker (who does not otherwise
have a corporate affiliation based upon common
ownership with an EEM) that has been appointed
by an EEM and an ‘‘Appointed EEM’’ is an EEM
(who does not otherwise have a corporate affiliation
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Each participant Member will have a
standard piggyback registration right to
include the common shares issuable
upon exercise of the warrants should
MIH file a Registration Statement under
the Securities Act of 1933. Each
participant Member will also have the
right to participate pro rata in all future
offerings of MIH securities for so long as
the participant Member holds at least
51% of the common shares issued or
issuable upon the exercise of warrants
included in at least one L-Unit. MIH
will have the right of first refusal to
purchase any shares issued or issuable
upon the exercise of the warrants that a
participant Member decides to transfer
or sell. Other participant Members will
have the secondary right of first refusal
to purchase any common shares or
warrant shares that a participant
Member decides to transfer or sell.
When a participating Member
acquires a certain number of units, the
Member can appoint one director to the
MIAX PEARL Board.16 The Exchange
notes that the number of non-industry
directors on the MIAX PEARL Board,
including at least one independent
director, must equal or exceed the
number of industry directors and
Member representatives, and that
additional new non-industry directors
and Member representative directors
based upon common ownership with a MIAX
PEARL Market Maker) that has been appointed by
a MIAX PEARL Options Market Maker, pursuant to
the following process. A MIAX PEARL Options
Market Maker appoints an EEM and an EEM
appoints a MIAX PEARL Market Maker, for the
purposes of the Fee Schedule, by each completing
and sending an executed Volume Aggregation
Request Form by email to membership@
miaxoptions.com no later than 2 business days
prior to the first business day of the month in which
the designation is to become effective. Transmittal
of a validly completed and executed form to the
Exchange along with the Exchange’s
acknowledgement of the effective designation to
each of the Market Maker and EEM will be viewed
as acceptance of the appointment. The Exchange
will only recognize one designation per Member. A
Member may make a designation not more than
once every 12 months (from the date of its most
recent designation), which designation shall remain
in effect unless or until the Exchange receives
written notice submitted 2 business days prior to
the first business day of the month from either
Member indicating that the appointment has been
terminated. Designations will become operative on
the first business day of the effective month and
may not be terminated prior to the end of the
month. Execution data and reports will be provided
to both parties. See the Definitions section of the
MIAX PEARL Options Fee Schedule. The Exchange
anticipates to also provide in the MIAX PEARL
Equities Fee Schedule for an Equity Member to
aggregate ADAV and ADV with other Equity
Members that control, are controlled by, or are
under common control with such Equity Member
(as evidenced on such Equity Member’s Form BD).
16 The Commission notes that MIAX PEARL will
need to submit a separate proposed rule change to
make changes to its corporate governance
documents to accommodate aspects of the proposal
that involve or affect the board of MIAX PEARL.
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will need to be added in order to
maintain this status. The Exchange also
notes that any directors that may be
selected by a participating Member
would not be counted towards the 20%
Member representative requirement on
the MIAX PEARL Board. In addition,
the Exchange notes that a Member is
only entitled to a new seat if they are
not currently represented on the MIAX
PEARL Board.
All applicants will be subject to the
same eligibility and designation criteria,
and all participant Members will
participate in the Proposed Program on
the same terms, conditions and
restrictions. To be designated as a
participant Member, an applicant must:
(i) Be a Member in good standing of
MIAX PEARL; (ii) qualify as an
‘‘accredited investor’’ as such term is
defined in Regulation D of the Securities
Act of 1933; 17 and (iii) have executed
all required documentation for Proposed
Program participation. Participant
Members must have executed the
definitive documentation, satisfied the
eligibility criteria required of Proposed
Program participants enumerated above,
and tendered the minimum cash
investment or prepayment of fees by
September 10, 2020, with a closing to
occur on September 11, 2020.
As discussed above, the purpose of
the Proposed Program is to encourage
Members to direct greater trade volume
to MIAX PEARL to enhance trading
volume in MIAX PEARL’s market.
Increased volume will provide for
greater liquidity and enhanced price
discovery, which benefits all market
participants. Other exchanges have
engaged in the practice of incentivizing
increased order flow in order to attract
liquidity providers through equity
sharing arrangements.18 As mentioned
above, the Exchange previously adopted
an equity rights program and now
simply seeks to expand that Existing
Program to include MIAX PEARL
Equities.19 In addition, Miami
17 The purpose of this criterion relates to the
ability of MIH to sell shares of common stock
pursuant to an exemption from registration under
the Securities Act of 1933. The definition of
‘‘accredited investor’’ under Rule 501(a)(1) of the
Securities Act of 1933 includes any broker or dealer
registered pursuant to Section 15 of the Act. MIAX
PEARL Rule 200(b) requires a Member to be
registered as a broker or dealer pursuant to Section
15 of the Act, therefore all MIAX PEARL Members
will satisfy this criterion.
18 See, e.g., Securities Exchange Act Release Nos.
62358 (June 22, 2010), 75 FR 37861 (June 30, 2010)
(SR–NSX–2010–06); 64742 (June 24, 2011), 76 FR
38436 (June 30, 2011) (SR–NYSEAmex–2011–018);
69200 (March 21, 2013), 78 FR 18657 (March 27,
2013) (SR–CBOE–2013–31); 74114 (January 22,
2015), 80 FR 4611 (January 28, 2015) (SR–BOX–
2015–03); and 74576 (March 25, 2015), 80 FR 17122
(March 31, 2015) (SR–BOX–2015–16).
19 See supra note 5.
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International Securities Exchange, LLC
(‘‘MIAX’’), an affiliate of the Exchange,
previously adopted substantially similar
programs to incentivize increased order
flow in order to attract liquidity
providers through an equity sharing
arrangement.20 The Proposed Program
similarly intends to attract order flow to
MIAX PEARL Equities, which will
increase liquidity, thereby providing
greater trading opportunities and tighter
spreads for other market participants
and causing a corresponding increase in
order flow from these other market
participants. The Proposed Program will
similarly reward the liquidity providers
that provide this additional volume
with a potential proprietary interest in
MIH.
The specific volume thresholds of the
Proposed Program’s measurement
periods were set based upon business
determinations and intended to
incentivize firms to send orders to
MIAX PEARL Equities. An increased
number of orders sent to MIAX PEARL
Equities will in turn provide tighter and
more liquid markets, and therefore
attract more business as well.
The Exchange’s proposal to include
certain non-transaction fees within the
definition of ERP Exchange Fees and
thus render them eligible for
prepayment under the Proposed
Program is similar to the Existing
Program and similarly designed to offer
broader Member participation in the
Proposed Program. Since the Exchange
operates with a maker-taker pricing
structure, Members that are only
‘‘makers’’ on the Exchange could receive
significant transaction rebates on a
monthly basis, which could obviate the
need to pre-pay transaction fees under
the Proposed Program. However, by
including certain regular, monthly
recurring non-transaction fees as eligible
for prepayment under the Proposed
Program, the Exchange believes that it is
creating an incentive for Members that
conduct this type of business on the
Exchange, and MIAX PEARL Equities in
particular, to participate in the Proposed
Program, thereby broadening the
number of Members that could
potentially participate in the Proposed
Program.
MIAX PEARL will initiate the
measurement period on January 1, 2021.
The Exchange will notify Members of
the implementation of the Proposed
20 See Securities Exchange Act Release Nos.
70498 (September 25, 2013), 78 FR 60348 (October
1, 2013) (SR–MIAX–2013–43); 74095 (January 20,
2015), 80 FR 4011 (January 26, 2015) (SR–MIAX–
2015–02); 74225 (February 6, 2015), 80 FR 7897
(February 12, 2015) (SR–MIAX–2015–05); and
80909 (June 12, 2017), 82 FR 27743 (June 16, 2017)
(SR–MIAX–2017–28).
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Program and the dates of the enrollment
period by Regulatory Circular, and will
post a copy of this rule filing on its
website. Any MIAX PEARL Member
that is interested in participating in the
Proposed Program may contact MIAX
PEARL for more information and legal
documentation and will be required to
enter into a nondisclosure agreement
regarding this additional Proposed
Program information.
2. Statutory Basis
The Exchange believes that its
proposed rule change is consistent with
Section 6(b) of the Act 21 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 22 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest. Additionally, the
Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) of the Act 23 requirement that the
rules of an exchange not be designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange also believes the
proposed rule change is consistent with
Section 6(b)(4) of the Act,24 which
requires that Exchange rules provide for
the equitable allocation of reasonable
dues, fees, and other charges among its
members and other persons using its
facilities. As mentioned above, the
Exchange previously adopted an equity
rights program which was published by
the Commission. The Exchange now
simply seeks to expand upon that
Existing Program to include MIAX
PEARL Equities.25
In particular, the proposed rule
change is equitable and not unfairly
discriminatory, because all Members
may elect to participate (or elect to not
participate) in the Proposed Program
and earn units on the same terms and
conditions, assuming they satisfy the
same eligibility criteria as described
above. The eligibility criteria are
objective; thus, all Members have the
ability to satisfy them. The Board of
MIAX PEARL also has authorized MIAX
PEARL to offer warrants in MIH to any
Member that requests designation to
21 15
U.S.C. 78f(b).
22 15 U.S.C. 78f(b)(5).
23 15 U.S.C. 78f(b)(5).
24 15 U.S.C. 78f(b)(4).
25 See supra note 5.
PO 00000
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Sfmt 4703
55533
participate in the Proposed Program and
otherwise satisfies the eligibility criteria
to ensure that all Members will have the
opportunity to own warrants and thus
participate in the Proposed Program if
they so choose. The participant
Members will earn warrants on a prorata basis upon meeting fixed volume
threshold amounts during the
measurement periods that will apply to
all participant Members.
The Exchange believes that the
methodology used to calculate the
volume thresholds is fair, reasonable
and not unfairly discriminatory because
it is based on objective criteria that are
designed to omit from the calculation
functionality that is not available on the
Exchange and types of transactions that
are subject to little or no transaction
fees. The Proposed Program is designed
to reward participating Members for
bringing their orders and quotes to
MIAX PEARL Equities.
The Exchange believes that its
proposal to allow Affiliates to
participate in the Proposed Program is
fair, reasonable and not unfairly
discriminatory because, like the Existing
Program, it is being offered to all
Members of the Exchange on the same
terms and conditions. The Exchange
believes that allowing traditional
Corporate Affiliates 26 to participate in
the Proposed Program is reasonable and
appropriate because it will provide
those participants with a potentially
greater opportunity to achieve the
volume thresholds in the Proposed
Program.
The Exchange believes the Proposed
Program is equitable and reasonable
because an increase in volume and
liquidity would benefit all market
participants by providing more trading
opportunities and tighter spreads, even
to those market participants that do not
participate in the Proposed Program.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Act because, as described above, the
Proposed Program is designed to bring
greater volume and liquidity to the
Exchange, including MIAX PEARL
Equities, which will benefit all market
participants by providing tighter
quoting and better prices, all of which
perfects the mechanism for a free and
open market and national market
system.
26 The Commission notes that the term ‘‘Corporate
Affiliate’’ refers to and has the same meaning as the
defined term ‘‘Affiliate.’’ See supra note 15 (stating,
the term ‘‘Affiliate’’ means an affiliate of a Member
of at least 75% common ownership between the
firms as reflected on each firm’s Form BD, Schedule
A).
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55534
Federal Register / Vol. 85, No. 174 / Tuesday, September 8, 2020 / 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 competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes that the proposed
rule change will improve competition
by providing market participants with
another option when determining where
to execute orders and post liquidity.
The Exchange believes that the
proposed change would increase both
intermarket and intramarket
competition by incenting participant
Members to direct their orders to MIAX
PEARL Equities, which will enhance the
quality of quoting and increase the
volume traded here. To the extent that
there is an additional competitive
burden on non-participant Members, the
Exchange believes that this is
appropriate because the Proposed
Program should incent Members to
direct additional order flow to MIAX
PEARL Equities, and thus provide
additional liquidity that enhances the
quality of its markets and increases the
volume traded on MIAX PEARL
Equities. To the extent that this purpose
is achieved, all of the Exchange’s market
participants should benefit from the
improved market liquidity. Enhanced
market quality and increased
transaction volume that results from the
anticipated increase in order flow
directed to the Exchange will benefit all
market participants and improve
competition on the Exchange and MIAX
PEARL Equities in particular.
Given the robust competition for
volume among equities markets, many
of which offer the same products,
implementing a program to attract order
flow like the one being proposed in this
filing is consistent with the abovementioned goals of the Act. This is
especially true for the smaller equities
markets, such as MIAX PEARL Equities
in particular, which is competing for
volume with much larger exchanges that
dominate the equities trading industry.
MIAX PEARL has no history in the
trading of equities, so it is unlikely that
the Proposed Program could cause any
competitive harm to the equities
markets or to market participants.
Rather, the Proposed Program is an
attempt by a new equities market to
attract order volume away from larger
competitors by adopting an innovative
pricing strategy, as evidenced by the
volume thresholds of the Proposed
Program that represent fractions of
equities Total Consolidated Volume.
The Exchange notes that if the Proposed
Program resulted in a modest average
VerDate Sep<11>2014
16:32 Sep 04, 2020
Jkt 250001
daily trading volume in equities
executed on MIAX PEARL, it would
represent a minimal reduction in
volume of its larger competitors in the
industry. The Exchange believes that the
Proposed Program will help further
competition, because market
participants will have yet another
option in determining where to execute
orders and post liquidity if they factor
the benefits of MIAX PEARL equity
participation into the determination.
The Exchange notes that other
exchanges have engaged in the practice
of incentivizing increased order flow in
order to attract liquidity providers
through equity sharing arrangements.27
In addition, as mentioned above, the
Exchange previously adopted an equity
rights program and now simply seeks to
adopt the Proposed Program to include
MIAX PEARL Equities.28
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,29 and Rule
19b–4(f)(2) 30 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
27 See
supra note 18.
28 See supra note 5.
29 15 U.S.C. 78s(b)(3)(A)(ii).
30 17 CFR 240.19b–4(f)(2).
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• Send an email to rule-comments@
sec.gov. Please include File Number SR–
PEARL–2020–10 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–PEARL–2020–10. 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 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–PEARL–2020–10, and
should be submitted on or before
September 29, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–19717 Filed 9–4–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
Notice is hereby given,
pursuant to the provisions of the
Government in the Sunshine Act, Public
TIME AND DATE:
31 17
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08SEN1
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[Federal Register Volume 85, Number 174 (Tuesday, September 8, 2020)]
[Notices]
[Pages 55530-55534]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19717]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89730; File No. SR-PEARL-2020-10]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Implement a
Second Equity Rights Program
September 1, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 20, 2020, MIAX PEARL, LLC (``MIAX PEARL'' or ``Exchange'')
filed with the Securities and Exchange Commission (``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.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange is filing a proposal to implement an equity rights
program related to fees charged for the trading of both options and
equity securities on the Exchange.
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 Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On April 6, 2018, the Exchange filed for immediate effectiveness a
proposed rule change with the Commission to implement an equity rights
program (``Existing Program'') pursuant to which units representing the
right to acquire equity in the Exchange's parent holding company, Miami
International Holdings, Inc. (``MIH'') were issued to a participating
Member \3\ in exchange for payment of an initial purchase price or the
prepayment of certain ERP Exchange Fees \4\ and the achievement of
certain liquidity volume thresholds on the Exchange over a 32-month
period.\5\ On August 14, 2020, the Commission approved a proposed rule
change to adopt rules governing the trading of equity securities on the
Exchange (the platform for the trading of equity securities is referred
to herein as ``MIAX PEARL Equities'').\6\ The Exchange now proposes to
implement a second equity rights program under which ERP Exchange fees
would be expanded to include fees incurred on and after
[[Page 55531]]
October 1, 2020 \7\ through June 30, 2024 (``Prepaid Fee Period'') for
trading equity securities on MIAX PEARL Equities and the achievement of
certain liquidity volume thresholds on MIAX PEARL Equities over a 42-
month period (``Proposed Program''). ERP Exchange Fees under the
Proposed Program would also include the fees included today as part of
the Existing Program.\8\ The Proposed Program would be independent of
the Existing Program.
---------------------------------------------------------------------------
\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\ The ERP Exchange fees under the Existing Program consist of:
(a) Transaction fees as set forth in Section 1)a of the MIAX PEARL
Options Fee Schedule; (b) membership fees as set forth in Section 3
of the MIAX PEARL Options Fee Schedule; (c) system connectivity fees
as set forth in Section 5 of the MIAX PEARL Options Fee Schedule;
and (d) market data fees as set forth in Section 6 of the MIAX PEARL
Options Fee Schedule (collectively, the ``ERP Exchange Fees'').
\5\ See Securities Exchange Act Release No. 83012 (April 9,
2018), 83 FR 16163 (April 13, 2018) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Implement an Equity
Rights Program) (``Initial ERP Filing'').
\6\ See Securities Exchange Act Release Nos. 88132 (February 6,
2020), 85 FR 8053 (February 12, 2020) (SR-PEARL-2020-03) (Notice of
Filing of a Proposed Rule Change to Adopt Rules Governing the
Trading of Equity Securities); and 89563 (August 14, 2020), 85 FR
51510 (August 20, 2020) (Order Approving Proposed Rule Change to
Adopt Rules Governing the Trading of Equity Securities).
\7\ The Exchange intends to begin trading equity securities on
September 25, 2020. See MIAX PEARL Receives Approval to Operate
Equities Exchange; Launch Date Confirmed for September 25, 2020,
available at https://www.miaxoptions.com/sites/default/files/press_release-files/MIAX_Press_Release_08182020.pdf (dated August
19, 2020).
\8\ See supra note 5.
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Similar to the Existing Program for options, the purpose of the
Proposed Program is to promote the long-term interests of MIAX PEARL by
providing incentives designed to encourage future MIH owners and MIAX
PEARL options and equity market participants to contribute to the
growth and success of MIAX PEARL, by being active liquidity providers
and takers on MIAX PEARL Equities in particular, and to provide
enhanced levels of trading volume in equity securities through an
opportunity to increase their proprietary interests in MIAX PEARL's
enterprise value.
Members that participated in the Existing Program had two options
to choose from: (i) An offering of I-Units; and/or (ii) an offering of
J-Units.\9\ Members that choose to participate in the Proposed Program
will be able to participate in an offering of L-Units.\10\ Under the
Proposed Program, market participants would be able to pre-pay the
following ERP Exchange Fees for trading equities: (a) Transaction fees;
(b) system connectivity fees; and (c) market data fees.\11\ Like under
the Existing Program, market participants would also be able to pre-pay
the following ERP Exchange Fees for trading options: (a) Transaction
fees as set forth in Section 1)a of the MIAX PEARL Options Fee
Schedule; (b) membership fees as set forth in Section 3 of the MIAX
PEARL Options Fee Schedule; (c) system connectivity fees as set forth
in Section 5 of the MIAX PEARL Options Fee Schedule; and (d) market
data fees as set forth in Section 6 of the MIAX PEARL Options Fee
Schedule.
---------------------------------------------------------------------------
\9\ See supra note 5 for a complete description of I-Units and
J-Units.
\10\ Like the Existing Program, the Proposed Program also
provides equity-like consideration in exchange for market making or
the provision of liquidity, order flow or volume and is open to
market participants generally. Also like the Existing Program, all
MIAX PEARL Members may participate in the Proposed Program subject
to their satisfaction of eligibility requirements. To be designated
as a participant Member, an applicant must: (i) Be a Member in good
standing of MIAX PEARL; (ii) qualify as an ``accredited investor''
as such term is defined in Regulation D of the Securities Act of
1933; and (iii) have executed all required documentation for Program
participation. If L-Unit option is oversubscribed, the units will be
allocated on a pro-rata basis that may result in a fractional
allocation.
\11\ The Exchange notes that proprietary real-time market data
will be provided free of charge for a period of time. The Exchange
also notes that it will file a proposed rule change to adopt MIAX
PEARL Equities Fee Schedule with the Commission pursuant to Section
19(b)(3)(A)(iii) of the Exchange Act and Rule 19b-4(f)(2) thereunder
prior to the commencement of trading equity securities currently
anticipated for September 25, 2020. The Exchange has provided (and
will continue to provide) a draft of the MIAX PEARL Equities Fee
Schedule to any current or potential participant that expresses
interest joining the Proposed Program (with the condition that a
final MIAX PEARL Equities Fee Schedule is subject to filing with the
Commission), so that such participant can evaluate the proposed fees
and make a fully-informed decision in whether it wishes to join the
Proposed Program.
---------------------------------------------------------------------------
Members that participate in the Proposed Program will be issued for
each unit warrants to purchase 432,163 shares of common stock of MIH in
exchange for such participant Member's cash contribution of $1,000,000,
and with such warrants being exercisable upon the achievement by the
participating Member of certain volume thresholds on the Exchange
during a 42-month measurement period, commencing January 1, 2021. A
total of 22 L-Units will be offered. The total equity ownership of MIH
common stock held by any one participant Member will be subject to a
cap of 19.9%.\12\
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\12\ See Ninth Article (b)(i)(B), Amended and Restated
Certificate of Incorporation of Miami International Holdings, Inc.,
effective October 16, 2015 (providing that no Exchange Member,
either alone or together with its Related Persons, may own, directly
or indirectly, of record or beneficially, shares constituting more
than twenty percent (20%) of any class of capital stock of the
Corporation). See also Ninth Article (b)(i)(C), Amended and Restated
Certificate of Incorporation of Miami International Holdings, Inc.,
effective October 16, 2015 (providing that no Person, either alone
or together with its Related Persons, at any time may, directly,
indirectly or pursuant to any voting trust, agreement, plan or other
arrangement, vote or cause the voting of shares of the capital stock
of the Corporation or give any consent or proxy with respect to
shares representing more than twenty percent (20%) of the voting
power of the then issued and outstanding capital stock of the
Corporation, nor may any Person, either alone or together with its
Related Persons, enter into any agreement, plan or other arrangement
with any other Person, either alone or together with its Related
Persons, under circumstances that would result in the shares of
capital stock of the Corporation that are subject to such agreement,
plan or other arrangement not being voted on any matter or matters
or any proxy relating thereto being withheld, where the effect of
such agreement, plan or other arrangement would be to enable any
Person, either alone or together with its Related Persons, to vote,
possess the right to vote or cause the voting of shares of the
capital stock of the Corporation which would represent more than
twenty percent (20%) of said voting power.). Any purported transfer
of shares or ownership of shares in violation of the ownership cap
by a stockholder would be subject to the limitations of the
Certificate of Incorporation, including the non-recognition of
voting rights of shares in excess of the cap and a redemption right
by MIH for excess shares. See also Ninth Article (d) and (e),
Amended and Restated Certificate of Incorporation of Miami
International Holdings, Inc., effective October 16, 2015.
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The warrants will vest in seven (7) tranches during a measurement
period of months 1-42 of the Proposed Program. In addition, the
participant Members may earn or lose the right to exercise warrants on
a pro-rata basis based upon meeting volume commitments during the
measurement periods, as detailed below.
A participant Member will be eligible to earn warrants during
measurement periods provided that the participant has achieved a
specified percentage of the average daily volume for National Market
System equity securities on MIAX PEARL Equities as reported by the
applicable consolidated transaction reporting plan (``ADV'').\13\ While
market participants will be able to pre-pay fees related to both their
equity and options trading on MIAX PEARL, the Proposed Program's
performance criteria will only include a market participant's equity
market share and will not include a market participant's options market
share.
---------------------------------------------------------------------------
\13\ If an equity security is not traded on MIAX PEARL Equities,
then the trading volume in that equity security will be omitted from
the calculation of ADV.
---------------------------------------------------------------------------
The seven (7) tranches will vest during the following measurement
periods: (i) 7.14% of the warrants resulting from months 1-6, with a
volume commitment of 0.014% of MIAX PEARL Equities ADV per L-Unit; \14\
(ii) 5.41% of the warrants resulting from months 7-12, with a volume
commitment of 0.053% of MIAX PEARL Equities ADV per L-Unit; (iii) 9.49%
of the warrants resulting from months 13-18, with a volume commitment
of 0.093% of MIAX PEARL Equities ADV per L-Unit; (iv) 13.47% of the
warrants resulting from months 19-24, with a volume commitment of
0.132% of MIAX PEARL Equities ADV per L-Unit; (v) 17.45% of the
warrants resulting from months 25-30, with a volume commitment of
0.171% of MIAX PEARL Equities ADV per L-Unit; (vi) 21.53% of the
warrants resulting from months 31-36, with a volume commitment of
0.211% of MIAX PEARL Equities ADV per L-Unit; and (vii) 25.51% of the
warrants resulting from months 37-42, with a volume commitment of
0.250% of MIAX PEARL Equities ADV per L-Unit. If a participant
[[Page 55532]]
Member reaches 100% of the volume commitment during a tranche's
measurement period, the Member will earn 100% of the warrants
applicable to such measurement period. If a participant Member reaches
less than 100% but at least 70% of the volume commitment during a
tranche's measurement period, the Member will earn a reduced amount of
warrants on a pro-rata basis applicable to such measurement period. If
a participant Member fails to reach a minimum of 70% of the volume
commitment during a tranche's measurement period, the Member will lose
all right to that tranche of warrants. Notwithstanding, in the event a
participant Member has not satisfied the volume commitment for any one
measurement period (other than measurement period 7), the participant
Member will have an opportunity to vest those warrants if such
participant Member applies a portion of the Member's over-performance
from the measurement period immediately following the prior measurement
period to ensure a minimum of 70% of the volume commitment in the prior
period and in addition has satisfied the volume commitment for the
measurement period immediately following. If a participant Member
exceeds 100% of the volume commitment during a tranche's measurement
period, the Member is able to earn, on a pro-rata basis, warrants not
earned by other participant Members. Any trades that would otherwise
constitute Qualifying Trades shall be excluded upon the Company's
receipt of written instructions from the Participant identifying which
trades should not be counted in the number of trades executed on the
Exchange by the Participant. Special strategies that are subject to a
fee cap will be omitted from the calculation of MIAX PEARL Equities
Volume.
---------------------------------------------------------------------------
\14\ The first measurement period will begin on January 1, 2021
and end June 30, 2021.
---------------------------------------------------------------------------
Similar to the Existing Program, a Member of the Exchange and its
Affiliate as defined in the options and equities Fee Schedules of MIAX
PEARL \15\ may together participate in the Proposed Program.
---------------------------------------------------------------------------
\15\ For purposes of the MIAX PEARL Options Fee Schedule and the
anticipated MIAX PEARL Equities Fee Schedule, the term ``Affiliate''
means an affiliate of a Member of at least 75% common ownership
between the firms as reflected on each firm's Form BD, Schedule A,
(``Affiliate''). The MIAX PEARL Options Fee Schedule further defines
the term ``Affiliate'' as the Appointed Market Maker of an Appointed
EEM (or, conversely, the Appointed EEM of an Appointed Market
Maker). An ``Appointed Market Maker'' is a MIAX PEARL Options Market
Maker (who does not otherwise have a corporate affiliation based
upon common ownership with an EEM) that has been appointed by an EEM
and an ``Appointed EEM'' is an EEM (who does not otherwise have a
corporate affiliation based upon common ownership with a MIAX PEARL
Market Maker) that has been appointed by a MIAX PEARL Options Market
Maker, pursuant to the following process. A MIAX PEARL Options
Market Maker appoints an EEM and an EEM appoints a MIAX PEARL Market
Maker, for the purposes of the Fee Schedule, by each completing and
sending an executed Volume Aggregation Request Form by email to
[email protected] no later than 2 business days prior to
the first business day of the month in which the designation is to
become effective. Transmittal of a validly completed and executed
form to the Exchange along with the Exchange's acknowledgement of
the effective designation to each of the Market Maker and EEM will
be viewed as acceptance of the appointment. The Exchange will only
recognize one designation per Member. A Member may make a
designation not more than once every 12 months (from the date of its
most recent designation), which designation shall remain in effect
unless or until the Exchange receives written notice submitted 2
business days prior to the first business day of the month from
either Member indicating that the appointment has been terminated.
Designations will become operative on the first business day of the
effective month and may not be terminated prior to the end of the
month. Execution data and reports will be provided to both parties.
See the Definitions section of the MIAX PEARL Options Fee Schedule.
The Exchange anticipates to also provide in the MIAX PEARL Equities
Fee Schedule for an Equity Member to aggregate ADAV and ADV with
other Equity Members that control, are controlled by, or are under
common control with such Equity Member (as evidenced on such Equity
Member's Form BD).
---------------------------------------------------------------------------
Each participant Member will have a standard piggyback registration
right to include the common shares issuable upon exercise of the
warrants should MIH file a Registration Statement under the Securities
Act of 1933. Each participant Member will also have the right to
participate pro rata in all future offerings of MIH securities for so
long as the participant Member holds at least 51% of the common shares
issued or issuable upon the exercise of warrants included in at least
one L-Unit. MIH will have the right of first refusal to purchase any
shares issued or issuable upon the exercise of the warrants that a
participant Member decides to transfer or sell. Other participant
Members will have the secondary right of first refusal to purchase any
common shares or warrant shares that a participant Member decides to
transfer or sell.
When a participating Member acquires a certain number of units, the
Member can appoint one director to the MIAX PEARL Board.\16\ The
Exchange notes that the number of non-industry directors on the MIAX
PEARL Board, including at least one independent director, must equal or
exceed the number of industry directors and Member representatives, and
that additional new non-industry directors and Member representative
directors will need to be added in order to maintain this status. The
Exchange also notes that any directors that may be selected by a
participating Member would not be counted towards the 20% Member
representative requirement on the MIAX PEARL Board. In addition, the
Exchange notes that a Member is only entitled to a new seat if they are
not currently represented on the MIAX PEARL Board.
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\16\ The Commission notes that MIAX PEARL will need to submit a
separate proposed rule change to make changes to its corporate
governance documents to accommodate aspects of the proposal that
involve or affect the board of MIAX PEARL.
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All applicants will be subject to the same eligibility and
designation criteria, and all participant Members will participate in
the Proposed Program on the same terms, conditions and restrictions. To
be designated as a participant Member, an applicant must: (i) Be a
Member in good standing of MIAX PEARL; (ii) qualify as an ``accredited
investor'' as such term is defined in Regulation D of the Securities
Act of 1933; \17\ and (iii) have executed all required documentation
for Proposed Program participation. Participant Members must have
executed the definitive documentation, satisfied the eligibility
criteria required of Proposed Program participants enumerated above,
and tendered the minimum cash investment or prepayment of fees by
September 10, 2020, with a closing to occur on September 11, 2020.
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\17\ The purpose of this criterion relates to the ability of MIH
to sell shares of common stock pursuant to an exemption from
registration under the Securities Act of 1933. The definition of
``accredited investor'' under Rule 501(a)(1) of the Securities Act
of 1933 includes any broker or dealer registered pursuant to Section
15 of the Act. MIAX PEARL Rule 200(b) requires a Member to be
registered as a broker or dealer pursuant to Section 15 of the Act,
therefore all MIAX PEARL Members will satisfy this criterion.
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As discussed above, the purpose of the Proposed Program is to
encourage Members to direct greater trade volume to MIAX PEARL to
enhance trading volume in MIAX PEARL's market. Increased volume will
provide for greater liquidity and enhanced price discovery, which
benefits all market participants. Other exchanges have engaged in the
practice of incentivizing increased order flow in order to attract
liquidity providers through equity sharing arrangements.\18\ As
mentioned above, the Exchange previously adopted an equity rights
program and now simply seeks to expand that Existing Program to include
MIAX PEARL Equities.\19\ In addition, Miami
[[Page 55533]]
International Securities Exchange, LLC (``MIAX''), an affiliate of the
Exchange, previously adopted substantially similar programs to
incentivize increased order flow in order to attract liquidity
providers through an equity sharing arrangement.\20\ The Proposed
Program similarly intends to attract order flow to MIAX PEARL Equities,
which will increase liquidity, thereby providing greater trading
opportunities and tighter spreads for other market participants and
causing a corresponding increase in order flow from these other market
participants. The Proposed Program will similarly reward the liquidity
providers that provide this additional volume with a potential
proprietary interest in MIH.
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\18\ See, e.g., Securities Exchange Act Release Nos. 62358 (June
22, 2010), 75 FR 37861 (June 30, 2010) (SR-NSX-2010-06); 64742 (June
24, 2011), 76 FR 38436 (June 30, 2011) (SR-NYSEAmex-2011-018); 69200
(March 21, 2013), 78 FR 18657 (March 27, 2013) (SR-CBOE-2013-31);
74114 (January 22, 2015), 80 FR 4611 (January 28, 2015) (SR-BOX-
2015-03); and 74576 (March 25, 2015), 80 FR 17122 (March 31, 2015)
(SR-BOX-2015-16).
\19\ See supra note 5.
\20\ See Securities Exchange Act Release Nos. 70498 (September
25, 2013), 78 FR 60348 (October 1, 2013) (SR-MIAX-2013-43); 74095
(January 20, 2015), 80 FR 4011 (January 26, 2015) (SR-MIAX-2015-02);
74225 (February 6, 2015), 80 FR 7897 (February 12, 2015) (SR-MIAX-
2015-05); and 80909 (June 12, 2017), 82 FR 27743 (June 16, 2017)
(SR-MIAX-2017-28).
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The specific volume thresholds of the Proposed Program's
measurement periods were set based upon business determinations and
intended to incentivize firms to send orders to MIAX PEARL Equities. An
increased number of orders sent to MIAX PEARL Equities will in turn
provide tighter and more liquid markets, and therefore attract more
business as well.
The Exchange's proposal to include certain non-transaction fees
within the definition of ERP Exchange Fees and thus render them
eligible for prepayment under the Proposed Program is similar to the
Existing Program and similarly designed to offer broader Member
participation in the Proposed Program. Since the Exchange operates with
a maker-taker pricing structure, Members that are only ``makers'' on
the Exchange could receive significant transaction rebates on a monthly
basis, which could obviate the need to pre-pay transaction fees under
the Proposed Program. However, by including certain regular, monthly
recurring non-transaction fees as eligible for prepayment under the
Proposed Program, the Exchange believes that it is creating an
incentive for Members that conduct this type of business on the
Exchange, and MIAX PEARL Equities in particular, to participate in the
Proposed Program, thereby broadening the number of Members that could
potentially participate in the Proposed Program.
MIAX PEARL will initiate the measurement period on January 1, 2021.
The Exchange will notify Members of the implementation of the Proposed
Program and the dates of the enrollment period by Regulatory Circular,
and will post a copy of this rule filing on its website. Any MIAX PEARL
Member that is interested in participating in the Proposed Program may
contact MIAX PEARL for more information and legal documentation and
will be required to enter into a nondisclosure agreement regarding this
additional Proposed Program information.
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \21\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \22\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to and perfect the
mechanisms of a free and open market and a national market system and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) of the Act \23\ requirement that the rules of an
exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. The Exchange also believes the
proposed rule change is consistent with Section 6(b)(4) of the Act,\24\
which requires that Exchange rules provide for the equitable allocation
of reasonable dues, fees, and other charges among its members and other
persons using its facilities. As mentioned above, the Exchange
previously adopted an equity rights program which was published by the
Commission. The Exchange now simply seeks to expand upon that Existing
Program to include MIAX PEARL Equities.\25\
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
\23\ 15 U.S.C. 78f(b)(5).
\24\ 15 U.S.C. 78f(b)(4).
\25\ See supra note 5.
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In particular, the proposed rule change is equitable and not
unfairly discriminatory, because all Members may elect to participate
(or elect to not participate) in the Proposed Program and earn units on
the same terms and conditions, assuming they satisfy the same
eligibility criteria as described above. The eligibility criteria are
objective; thus, all Members have the ability to satisfy them. The
Board of MIAX PEARL also has authorized MIAX PEARL to offer warrants in
MIH to any Member that requests designation to participate in the
Proposed Program and otherwise satisfies the eligibility criteria to
ensure that all Members will have the opportunity to own warrants and
thus participate in the Proposed Program if they so choose. The
participant Members will earn warrants on a pro-rata basis upon meeting
fixed volume threshold amounts during the measurement periods that will
apply to all participant Members.
The Exchange believes that the methodology used to calculate the
volume thresholds is fair, reasonable and not unfairly discriminatory
because it is based on objective criteria that are designed to omit
from the calculation functionality that is not available on the
Exchange and types of transactions that are subject to little or no
transaction fees. The Proposed Program is designed to reward
participating Members for bringing their orders and quotes to MIAX
PEARL Equities.
The Exchange believes that its proposal to allow Affiliates to
participate in the Proposed Program is fair, reasonable and not
unfairly discriminatory because, like the Existing Program, it is being
offered to all Members of the Exchange on the same terms and
conditions. The Exchange believes that allowing traditional Corporate
Affiliates \26\ to participate in the Proposed Program is reasonable
and appropriate because it will provide those participants with a
potentially greater opportunity to achieve the volume thresholds in the
Proposed Program.
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\26\ The Commission notes that the term ``Corporate Affiliate''
refers to and has the same meaning as the defined term
``Affiliate.'' See supra note 15 (stating, the term ``Affiliate''
means an affiliate of a Member of at least 75% common ownership
between the firms as reflected on each firm's Form BD, Schedule A).
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The Exchange believes the Proposed Program is equitable and
reasonable because an increase in volume and liquidity would benefit
all market participants by providing more trading opportunities and
tighter spreads, even to those market participants that do not
participate in the Proposed Program. Additionally, the Exchange
believes the proposed rule change is consistent with the Act because,
as described above, the Proposed Program is designed to bring greater
volume and liquidity to the Exchange, including MIAX PEARL Equities,
which will benefit all market participants by providing tighter quoting
and better prices, all of which perfects the mechanism for a free and
open market and national market system.
[[Page 55534]]
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 Exchange believes that the
proposed rule change will improve competition by providing market
participants with another option when determining where to execute
orders and post liquidity.
The Exchange believes that the proposed change would increase both
intermarket and intramarket competition by incenting participant
Members to direct their orders to MIAX PEARL Equities, which will
enhance the quality of quoting and increase the volume traded here. To
the extent that there is an additional competitive burden on non-
participant Members, the Exchange believes that this is appropriate
because the Proposed Program should incent Members to direct additional
order flow to MIAX PEARL Equities, and thus provide additional
liquidity that enhances the quality of its markets and increases the
volume traded on MIAX PEARL Equities. To the extent that this purpose
is achieved, all of the Exchange's market participants should benefit
from the improved market liquidity. Enhanced market quality and
increased transaction volume that results from the anticipated increase
in order flow directed to the Exchange will benefit all market
participants and improve competition on the Exchange and MIAX PEARL
Equities in particular.
Given the robust competition for volume among equities markets,
many of which offer the same products, implementing a program to
attract order flow like the one being proposed in this filing is
consistent with the above-mentioned goals of the Act. This is
especially true for the smaller equities markets, such as MIAX PEARL
Equities in particular, which is competing for volume with much larger
exchanges that dominate the equities trading industry. MIAX PEARL has
no history in the trading of equities, so it is unlikely that the
Proposed Program could cause any competitive harm to the equities
markets or to market participants. Rather, the Proposed Program is an
attempt by a new equities market to attract order volume away from
larger competitors by adopting an innovative pricing strategy, as
evidenced by the volume thresholds of the Proposed Program that
represent fractions of equities Total Consolidated Volume. The Exchange
notes that if the Proposed Program resulted in a modest average daily
trading volume in equities executed on MIAX PEARL, it would represent a
minimal reduction in volume of its larger competitors in the industry.
The Exchange believes that the Proposed Program will help further
competition, because market participants will have yet another option
in determining where to execute orders and post liquidity if they
factor the benefits of MIAX PEARL equity participation into the
determination. The Exchange notes that other exchanges have engaged in
the practice of incentivizing increased order flow in order to attract
liquidity providers through equity sharing arrangements.\27\ In
addition, as mentioned above, the Exchange previously adopted an equity
rights program and now simply seeks to adopt the Proposed Program to
include MIAX PEARL Equities.\28\
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\27\ See supra note 18.
\28\ See supra note 5.
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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,\29\ and Rule 19b-4(f)(2) \30\ thereunder.
At any time within 60 days of the filing of the proposed rule change,
the Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act. If the Commission takes such
action, the Commission shall institute proceedings to determine whether
the proposed rule should be approved or disapproved.
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\29\ 15 U.S.C. 78s(b)(3)(A)(ii).
\30\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-PEARL-2020-10 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-PEARL-2020-10. 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 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-PEARL-2020-10, and should be submitted
on or before September 29, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-19717 Filed 9-4-20; 8:45 am]
BILLING CODE 8011-01-P
