Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To Adopt One-Time Membership Application Fees and Monthly Trading Permit Fees, 67064-67069 [2020-23256]
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67064
Federal Register / Vol. 85, No. 204 / Wednesday, October 21, 2020 / Notices
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90196; File No. SR–
EMERALD–2020–11]
Self-Regulatory Organizations; MIAX
Emerald, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Its Fee
Schedule To Adopt One-Time
Membership Application Fees and
Monthly Trading Permit Fees
October 15, 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 October
1, 2020, MIAX Emerald, LLC (‘‘MIAX
Emerald’’ or ‘‘Exchange’’), filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
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 Emerald Fee Schedule
(the ‘‘Fee Schedule’’) to adopt certain
membership fees for MIAX Emerald
Members,3 including: (1) One-time
membership application fees and (2)
monthly Trading Permit 4 fees.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/emerald, at MIAX’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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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
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The term ‘‘Member’’ means an individual or
organization approved to exercise the trading rights
associated with a Trading Permit. Members are
deemed ‘‘members’’ under the Exchange Act. See
Exchange Rule 100.
4 The term ‘‘Trading Permit’’ means a permit
issued by the Exchange that confers the ability to
transact on the Exchange. See Exchange Rule 100.
2 17
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule to adopt certain
membership fees, including: (1)
Establishing one-time membership
application fees based upon the
applicant’s status as either an Electronic
Exchange Member (‘‘EEM’’) 5 or as a
Market Maker; 6 and (2) adopting
monthly Trading Permit fees for EEMs
and Market Makers. MIAX Emerald
commenced operations as a national
securities exchange registered under
Section 6 of the Act 7 on March 1, 2019.8
The Exchange adopted its transaction
fees and certain of its non-transaction
fees in its filing SR–EMERALD–2019–
15.9 In that filing, the Exchange
expressly waived, among other fees, its
membership fees, including its one-time
membership application fees and
monthly Trading Permit fees, to provide
an incentive to prospective EEMs and
Market Makers to become Members of
the Exchange. Accordingly, since the
launch of the Exchange, all such
membership fees have been waived for
the Waiver Period.10 When the
Exchange adopted the framework for the
membership fees, it stated that it would
provide notice to market participants
when the Exchange intended to
5 ‘‘Electronic Exchange Member’’ or ‘‘EEM’’
means the holder of a Trading Permit who is not
a Market Maker. Electronic Exchange Members are
deemed ‘‘members’’ under the Exchange Act. See
Exchange Rule 100 and the Definitions section of
the Fee Schedule.
6 The term ‘‘Market Makers’’ refers to ‘‘Lead
Market Makers’’, ‘‘Primary Lead Market Makers’’
and ‘‘Registered Market Makers’’ collectively. See
Exchange Rule 100 and the Definitions section of
the Fee Schedule.
7 15 U.S.C. 78f.
8 See Securities Exchange Act Release No. 84891
(December 20, 2018), 83 FR 67421 (December 28,
2018) (File No. 10–233) (order approving
application of MIAX Emerald, LLC for registration
as a national securities exchange).
9 See Securities Exchange Act Release No. 85393
(March 21, 2019), 84 FR 11599 (March 27, 2019)
(SR–EMERALD–2019–15) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Establish the MIAX Emerald Fee Schedule).
10 ‘‘Waiver Period’’ means, for each applicable
fee, the period of time from the initial effective date
of the MIAX Emerald Fee Schedule until such time
that the Exchange has an effective fee filing
establishing the applicable fee. The Exchange will
issue a Regulatory Circular announcing the
establishment of an applicable fee that was subject
to a Waiver Period at least fifteen (15) days prior
to the termination of the Waiver Period and
effective date of any such applicable fee. See the
Definitions Section of the Fee Schedule.
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terminate the Waiver Period for those
fees. Accordingly, on September 15,
2020, the Exchange issued a Regulatory
Circular which announced that the
Exchange would be ending the Waiver
Period for its membership fees,
including the one-time membership
application fees and monthly Trading
Permit fees, among other nontransaction fees, beginning October 1,
2020.11
One-Time MIAX Emerald Membership
Application Fee
The Exchange proposes to assess a
one-time membership application fee
based upon the applicant’s status as
either an EEM or as a Market Maker.
The Exchange proposes that applicants
for MIAX Emerald Membership as an
EEM will be assessed a one-time
application fee of $2,500. The Exchange
proposes that applicants for MIAX
Emerald Membership as a Market Maker
will be assessed a one-time application
fee of $3,000. The difference in the
proposed membership application fee to
be charged to EEMs and Market Makers
is because of the additional review and
resources involved in processing a
Market Maker’s application, as Market
Makers have greater and more complex
obligations with respect to doing
business on the Exchange.12 MIAX
Emerald’s proposed one-time
membership application fees are the
same as the one-time application fees in
place at the Exchange’s affiliate, Miami
International Securities Exchange, LLC
(‘‘MIAX’’) ($2,500 for an EEM and
$3,000 for a MIAX Market Maker),13 and
similar to or less than application fees
for the Cboe Exchange, Inc. (‘‘Cboe’’)
($3,000 for an individual applicant and
$5,000 for an applicant organization) 14
and Nasdaq ISE, LLC (‘‘Nasdaq ISE’’)
($7,500 per firm for a primary market
maker, $5,500 per firm for a competitive
market maker, and $3,500 per firm for
an electronic access member).15 Below
is the table showing the proposed onetime MIAX Emerald membership
application fees for EEMs and Market
Makers:
11 See MIAX Emerald Regulatory Circular 2020–
41 available at https://www.miaxoptions.com/sites/
default/files/circular-files/MIAX_Emerald_RC_
2020_41.pdf.
12 See Chapter VI of the Exchange’s rules,
generally.
13 See MIAX Fee Schedule, Section 3)a).
14 See Cboe Fees Schedule, p. 9, Cboe Trading
Permit Holder Application Fees.
15 See Nasdaq ISE, Options Rules, Options 7,
Pricing Schedule, Section 9. Legal and Regulatory
A. Application.
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Federal Register / Vol. 85, No. 204 / Wednesday, October 21, 2020 / Notices
Information Exchange (‘‘FIX’’) 17 ports
in the production environment. Further,
the Exchange proposes that monthly
Electronic Exchange Member
$2,500.00 Trading Permit fees will be assessed
Market Maker ..........................
3,000.00 with respect to EEM clearing firms in
any month the clearing firm is certified
Monthly Trading Permit Fees
in the membership system to clear
transactions on the Exchange.
The Exchange previously introduced
The Exchange proposes to assess
the structure of Trading Permit fees
EEMs a monthly fee of $1,000 for each
(without proposing the actual fee
Trading Permit. Below is the proposed
amounts), but also explicitly waived the
table showing the Trading Permit fees
assessment of any such fees for the
for EEMs:
Waiver Period. Trading Permits are
issued to Members who are either EEMs
Monthly
or Market Makers. The Exchange
MIAX emerald
Type of trading permit
trading
proposes to assess monthly fees for
permit fee
Trading Permits depending upon the
category of Member that is issued a
Electronic Exchange Member
$1,000.00
Trading Permit. Members issued
Trading Permits during a calendar
The Exchange proposes to assess
month will be assessed monthly Trading monthly Trading Permit fees for Market
Permit Fees. The Exchange notes that
Makers in any month the Market Maker
the Exchange’s affiliate, Miami
(including a Registered Market Maker,
International Securities Exchange, LLC
Lead Market Maker, and Primary Lead
(‘‘MIAX’’), charges a similar, fixed
Market Maker) is certified in the
trading permit fee to its EEMs, and a
membership system, is credentialed to
similar, varying trading permit fee to its use one or more MIAX Emerald Express
Market Makers, based upon the number Interface (‘‘MEI’’) 18 ports in the
of assignments of option classes or the
production environment and is assigned
percentage of volume in option
to quote in one or more classes.
16
classes.
Specifically, the Exchange proposes to
The Exchange proposes that monthly
adopt the following Trading Permit fees
Trading Permit fees will be assessed,
for Market Makers: (i) $7,000 for Market
with respect to the calculation of such
Maker Assignments in up to 10 option
fee to EEMs (other than clearing firms),
classes or up to 20% of option classes
in any month the EEM is certified in the by national average daily volume
membership system and is credentialed (‘‘ADV’’); (ii) $12,000 for Market Maker
to use one or more Financial
Assignments in up to 40 option classes
Type of membership
Application
fee
Monthly MIAX
emerald
trading
permit fee
Type of trading permit
Market Maker (includes RMM, LMM, PLMM) .........
$7,000.00
12,000.00
■ 17,000.00
■ 22,000.00
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or up to 35% of option classes by ADV;
(iii) $17,000 for Market Maker
Assignments in up to 100 option classes
or up to 50% of option classes by ADV;
and (iv) $22,000 for Market Maker
Assignments in over 100 option classes
or over 50% of option classes by ADV
up to all option classes listed on MIAX
Emerald.
The Exchange also proposes to adopt
an alternative lower Trading Permit fee
for Market Makers who fall within the
following Trading Permit fee levels,
which represent the 3rd and 4th levels
of the Market Maker Trading Permit fee
table: (i) Market Maker Assignments in
up to 100 option classes or up to 50%
of option classes by volume; and (ii)
Market Maker Assignments in over 100
option classes or over 50% of option
classes by volume up to all option
classes listed on MIAX Emerald.
Specifically, the Exchange proposes to
adopt footnote ‘‘■’’ following the
Market Maker Trading Permit fee table
for these Monthly Trading Permit tier
levels, if the Market Maker’s total
monthly executed volume during the
relevant month is less than 0.025% of
the total monthly executed volume
reported by OCC in the customer
account type for MIAX Emerald-listed
option classes for that month, then the
fee will be $15,500 instead of the fee
otherwise applicable to such level.
Below is the proposed table showing
the Trading Permit fees for Market
Makers:
Market Maker assignments
(the lesser of the applicable measurements below)
Per class
Percent of national average daily volume
Up to 10 Classes ......
Up to 40 Classes .......
Up to 100 Classes .....
Over 100 Classes ......
Up to 20% of Classes by volume.
Up to 35% of Classes by volume.
Up to 50% of Classes by volume.
Over 50% of Classes by volume up to all Classes
listed on MIAX Emerald.
■ For these Monthly MIAX Emerald Trading Permit tier levels, if the Market Maker’s total monthly executed volume during the relevant month
is less than 0.025% of the total monthly executed volume reported by OCC in the customer account type for MIAX Emerald-listed option classes
for that month, then the fee will be $15,500 instead of the fee otherwise applicable to such level.
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For the calculation of the monthly
Market Maker Trading Permit fees, the
number of classes is defined as the
greatest number of classes the Market
Maker was assigned to quote in on any
given day within the calendar month
16 See
the MIAX Fee Schedule, Section 3)b).
Port’’ means an interface with MIAX
Emerald systems that enables the Port user to
submit simple and complex orders electronically to
MIAX Emerald. See the Definitions Section of the
Fee Schedule.
18 The MEI is a connection to the MIAX Emerald
System that enables Market Makers to submit
simple and complex electronic quotes to MIAX
17 ‘‘FIX
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and the class volume percentage is
based on the total national ADV in
classes listed on MIAX Emerald in the
prior calendar quarter. Newly listed
option classes are excluded from the
calculation of the monthly Market
Maker Trading Permit fee until the
calendar quarter following their listing,
at which time the newly listed option
classes will be included in both the per
class count and the percentage of total
national average daily volume. The
Emerald. The Exchange offers Full Service MEI
Ports, which provide Market Makers with the
ability to send Market Maker simple and complex
quotes, eQuotes, and quote purge messages to the
MIAX Emerald System. Full Service MEI Ports are
also capable of receiving administrative
information. Market Makers are limited to two Full
Service MEI Ports per Matching Engine. The
Exchange also offers Limited Service MEI Ports,
which provide Market Makers with the ability to
send simple and complex eQuotes and quote purge
messages only, but not Market Maker Quotes, to the
MIAX Emerald System. Limited Service MEI Ports
are also capable of receiving administrative
information. Market Makers initially receive two
Limited Service MEI Ports per Matching Engine.
See the Definitions Section of the Fee Schedule.
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Federal Register / Vol. 85, No. 204 / Wednesday, October 21, 2020 / Notices
Exchange proposes to assess MIAX
Emerald Market Makers the monthly
Market Maker Trading Permit fee based
on the greatest number of classes listed
on MIAX Emerald that the Market
Maker was assigned to quote in on any
given day within a calendar month and
the applicable fee rate that is the lesser
of either the per class basis or
percentage of total national ADV
measurement. The purpose of the
alternative lower fee designated in
proposed footnote ‘‘■’’ is to provide a
lower fixed cost to those Market Makers
who are willing to quote the entire
Exchange market (or substantial amount
of the Exchange market), as objectively
measured by either number of classes
assigned or national ADV, but who do
not otherwise execute a significant
amount of volume on the Exchange. The
Exchange believes that, by offering
lower fixed costs to Market Makers that
execute less volume, the Exchange will
retain and attract smaller-scale Market
Makers, which are an integral
component of the option marketplace,
but have been decreasing in number in
recent years, due to industry
consolidation and lower market maker
profitability. Since these smaller-scale
Market Makers utilize less Exchange
capacity due to lower overall volume
executed, the Exchange believes it is
reasonable and equitable to offer such
Market Makers a lower fixed cost. The
Exchange notes that the Exchange’s
affiliate, MIAX, provides a similar
alternative lower Trading Permit fee for
Market Makers who quote the entire
MIAX market (or substantial amount of
the MIAX market), as objectively
measured by either number of classes
assigned or national ADV, but who do
not otherwise execute a significant
amount of volume on MIAX.19 The
Exchange also notes that other options
exchanges assess certain of their
membership fees at different rates,
based upon a member’s participation on
that exchange,20 and, as such, this
19 See
supra note 16.
e.g., NYSE Arca Options Fees and Charges,
p.1 (assessing market makers $6,000 for up to 175
option issues, an additional $5,000 for up to 350
option issues, an additional $4,000 for up to 1,000
option issues, an additional $3,000 for all option
issues on the exchange, and an additional $1,000
for the fifth trading permit and for each trading
permit thereafter); NYSE American Options Fee
Schedule, p. 23 (assessing market makers $8,000 for
up to 60 plus the bottom 45% of option issues, an
additional $6,000 for up to 150 plus the bottom
45% of option issues, an additional $5,000 for up
to 500 plus the bottom 45% of option issues, and
additional $4,000 for up to 1,100 plus the bottom
45% of option issues, an additional $3,000 for all
issues traded on the exchange, and an additional
$2,000 for 6th to 9th ATPs; plus an addition fee for
premium products). See also Cboe BZX Options
Exchange (‘‘BZX Options’’) assesses the Participant
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20 See
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concept is not new or novel. The
proposed changes to the Trading Permit
fees for Market Makers who fall within
the 3rd and 4th levels of the fee table
are based upon a business
determination of current Market Maker
assignments and trading volume.
Applicability to and Impact on
Participants
The Commission has repeatedly
expressed its preference for competition
over regulatory intervention in
determining prices, products, and
services in the securities markets. In
Regulation NMS, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and, also, recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 21
There are currently 16 registered
options exchanges competing for order
flow. Based on publicly-available
information, and excluding index-based
options, no single exchange has more
than approximately 16% market
share.22 Therefore, no exchange
possesses significant pricing power.
More specifically, for the month of
August 2020, the Exchange had an
approximately 3.24% market share of
executed volume of multiply-listed
equity options.23
The Exchange believes that the evershifting market share among the
exchanges from month to month
demonstrates that market participants
can discontinue or reduce use of certain
categories of products, or shift order
flow, in response to non-transaction and
transaction fee changes. For example, on
February 28, 2019, the Exchange’s
affiliate, MIAX PEARL, LLC (‘‘MIAX
PEARL’’) filed with the Commission a
proposal to increase Taker fees in
certain Tiers for options transactions in
certain Penny classes for Priority
Customers and decrease Maker rebates
in certain Tiers for options transactions
in Penny classes for Priority Customers
(which fee was to be effective March 1,
Fee, which is a membership fee, according to a
member’s ADV. See Cboe BZX Options Exchange
Fee Schedule under ‘‘Membership Fees’’. The
Participant Fee is $500 if the member ADV is less
than 5,000 contracts and $1,000 if the member ADV
is equal to or greater than 5,000 contracts. Id.
21 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005).
22 The Options Clearing Corporation (‘‘OCC’’)
publishes options and futures volume in a variety
of formats, including daily and monthly volume by
exchange, available here: https://www.theocc.com/
market-data/volume/default.jsp.
23 See id.
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2019).24 MIAX PEARL experienced a
decrease in total market share for the
month of March 2019, after the proposal
went into effect. Accordingly, the
Exchange believes that the MIAX
PEARL March 1, 2019 fee change, to
increase certain transaction fees and
decrease certain transaction rebates,
may have contributed to the decrease in
MIAX PEARL’s market share and, as
such, the Exchange believes competitive
forces constrain the Exchange’s, and
other options exchanges, ability to set
transaction fees and market participants
can shift order flow based on fee
changes instituted by the exchanges.
The proposed adoption of a one-time
membership application fee and
monthly Trading Permit fees applicable
to EEMs and Market Markers would be
applied uniformly to each of these
market participants. Further, as there
are currently 16 registered options
exchanges competing for order flow
with no single exchange accounting for
more than approximately 16% of market
share, the Exchange cannot predict with
certainty whether any participant is
planning to become a Member and thus
would be subject to the proposed fees.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Fee Schedule is
consistent with Section 6(b) of the Act 25
in general, and furthers the objectives of
Section 6(b)(4) of the Act 26 in
particular, in that it is an equitable
allocation of reasonable dues, fees and
other charges among its members and
issuers and other persons using its
facilities. The Exchange also believes
the proposal furthers the objectives of
Section 6(b)(5) of the Act in that it is
designed to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest and is not designed to
permit unfair discrimination between
customers, issuers, brokers and dealers.
The Exchange believes that the
proposal to adopt a one-time
membership application fee and
Trading Permit fees applicable to EEMs
and Market Markers, as described above,
is reasonable in several respects. First,
the Exchange is subject to significant
competitive forces in the market for
options transaction and non-transaction
services that constrain its pricing
24 See Securities Exchange Act Release No. 85304
(March 13, 2019), 84 FR 10144 (March 19, 2019)
(SR–PEARL–2019–07).
25 15 U.S.C. 78f(b).
26 15 U.S.C. 78f(b)(4) and (5).
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Federal Register / Vol. 85, No. 204 / Wednesday, October 21, 2020 / Notices
determinations in that market. The
Commission has repeatedly expressed
its preference for competition over
regulatory intervention in determining
prices, products, and services in the
securities markets. In Regulation NMS,
the Commission highlighted the
importance of market forces in
determining prices and SRO revenues
and, also, recognized that current
regulation of the market system ‘‘has
been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 27
Numerous indicia demonstrate the
competitive nature of this market. For
example, clear substitutes to the
Exchange exist in the market for options
transaction services. The Exchange is
one of several options venues to which
market participants may direct their
order flow, and it represents a small
percentage of the overall market. Within
this environment, market participants
can freely and often do shift their order
flow among the Exchange and
competing venues in response to
changes in their respective pricing
schedules. There are currently 16
registered options exchanges competing
for order flow. Based on publiclyavailable information, and excluding
index-based options, no single exchange
has more than approximately 16% of
the market share of executed volume of
multiply-listed equity and ETF
options.28 Therefore, no exchange
possesses significant pricing power.
More specifically, for the month of
August 2020, the Exchange had an
approximately 3.24% market share of
executed volume of multiply-listed
equity options.29
The Exchange also believes that the
ever-shifting market share among the
exchanges from month to month
demonstrates that market participants
can discontinue or reduce use of certain
categories of products, or shift order
flow, in response to non-transaction and
transaction fee changes. For example, on
February 28, 2019, the Exchange’s
affiliate, MIAX PEARL, filed with the
Commission a proposal to increase
Taker fees in certain Tiers for options
transactions in certain Penny classes for
Priority Customers and decrease Maker
rebates in certain Tiers for options
transactions in Penny classes for
Priority Customers (which fee was to be
effective March 1, 2019).30 MIAX
PEARL experienced a decrease in total
27 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005).
28 See supra note 22.
29 See id.
30 See supra note 24.
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market share for the month of March
2019, after the proposal went into effect.
Accordingly, the Exchange believes that
the MIAX PEARL March 1, 2019 fee
change, to increase certain transaction
fees and decrease certain transaction
rebates, may have contributed to the
decrease in MIAX PEARL’s market share
and, as such, the Exchange believes
competitive forces constrain the
Exchange’s, and other options
exchanges, ability to set transaction fees
and market participants can shift order
flow based on fee changes instituted by
the exchanges.
Further, the Exchange no longer
believes it is necessary to waive these
fees to attract market participants to the
MIAX Emerald market since this market
is now established and MIAX Emerald
no longer needs to rely on such waivers
to attract market participants. The
Exchange believes that the proposal is
equitable and not unfairly
discriminatory because the elimination
of the fee waiver for one-time
membership application fees and
monthly Trading Permit fees will
uniformly apply to all EEMs and Market
Makers seeking to become Members of
the Exchange. Additionally, the
Exchange believes its proposal for a onetime membership application fees
applicable to EEMs and Market Markers
is reasonable and well within the range
of fees assessed among other exchanges,
including the Exchange’s affiliate,
MIAX.31 The Exchange also notes that
the Exchange’s affiliate, MIAX, charges
a similar, fixed trading permit fee to its
EEMs, and a similar, varying trading
permit fee to its Market Makers, based
upon the number of assignments of
option classes or the percentage of
volume in option classes.32
The Exchange believes its one-time
membership application fees are
reasonable, equitable and not unfairly
discriminatory. As described above, the
one-time application fees are similar to
the application fees in place at other
options exchanges,33 and are associated
with the time and resources of
processing of such applications. The
Exchange believes that it is reasonable,
equitable, and not unfairly
discriminatory that Market Maker
applicants are charged slightly more
than EEM applicants because of the
additional review and resources
involved in processing a Market Maker’s
application, as Market Makers have
greater and more complex obligations
supra notes 13, 14 and 15.
supra note 16.
33 See supra notes 14 and 15.
with respect to doing business on the
Exchange.34
The Exchange believes that the
proposed monthly Trading Permit fees
are reasonable, equitable and not
unfairly discriminatory because they are
within the range of comparable fees at
other competing options exchanges.35
As such, the proposal is reasonably
designed to continue to compete with
other options exchange by incentivizing
market participants to register as Market
Makers on the Exchange in a manner
that enables the Exchange to improve its
overall competitiveness and strengthen
its market quality for all market
participants. The proposed fees are fair
and equitable and not unreasonably
discriminatory because they apply
equally to all Market Makers regardless
of type and access to the Exchange is
offered on terms that are not unfairly
discriminatory. The Exchange designed
the fee rates in order to provide
objective criteria for Market Makers of
different sizes and business models to
be assessed a Trading Permit Fee that
best matches their quoting activity on
the Exchange. The Exchange notes that
trading volume and quoting activity in
the options market tends to be
concentrated in the top ranked options
classes; with the vast majority of options
classes being thinly quoted and traded.
The Exchange believes that the
proposed fee rates and criteria provide
an objective and flexible framework that
will encourage Market Makers to be
assigned and quote in option classes
with lower total national average daily
volume while also equitably allocating
the fees in a reasonable manner amongst
Market Maker assignments to account
for quoting and trading activity.
Finally, 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 for services and products, in
addition to order flow, to remain
competitive with other exchanges. The
Exchange believes that the proposed
changes reflect this competitive
environment.
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.
31 See
32 See
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34 See
35 See
E:\FR\FM\21OCN1.SGM
supra note 12.
supra note 20.
21OCN1
67068
Federal Register / Vol. 85, No. 204 / Wednesday, October 21, 2020 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
Intra-Market Competition
The Exchange does not believe that
the proposed rule change would place
certain market participants at the
Exchange at a relative disadvantage
compared to other market participants
or affect the ability of such market
participants to compete. Unilateral
action by MIAX Emerald in the
assessment of certain non-transaction
fees for services provided to its
Members and others using its facilities
will not have an impact on competition.
As a more recent entrant in the already
highly competitive environment for
equity options trading, MIAX Emerald
does not have the market power
necessary to set prices for services that
are unreasonable or unfairly
discriminatory in violation of the Act.
MIAX Emerald’s proposed one-time
membership application fees and
monthly Trading Permit fees, as
described herein, are comparable to fees
charged by other options exchanges for
the same or similar services, including
those fees assessed by the Exchange’s
affiliate, MIAX.36
The Exchange believes that the
proposed one-time membership
application fees and monthly Trading
Permit fees do not place certain market
participants at a relative disadvantage to
other market participants because the
pricing is associated with the
Exchange’s time and resources to
process such applications. The
proposed one-time membership
application fees do not apply unequally
to different size market participants, but
instead would allow the Exchange to
charge for reviewing and processing
Market Maker and EEM membership
applications. Accordingly, the proposed
one-time membership application fees
do not favor certain categories of market
participants in a manner that would
impose a burden on competition.
Further, the Exchange believes that
the proposed rule change will promote
transparency by making it clear to EEMs
and Market Makers the fees that MIAX
Emerald will assess for Membership
application to MIAX Emerald. This will
permit EEMs and Market Makers to
more accurately anticipate and account
for the costs of one-time membership
application in order to become Members
of the Exchange, which promotes
consistency.
The Exchange believes that the
proposal increases intra-market
competition by enabling Market Makers
to qualify for lower Trading Permit fee
rates on the Exchange in a manner that
is designed to provide objective criteria
for Market Makers of different sizes and
business models to be assessed a
Trading Permit fee that best matches
their quoting activity on the Exchange
yet still be in the range of comparable
fees on other exchanges. The Exchange
believes that the proposal will increase
competition amongst Market Makers of
different sizes and business models by
encouraging Market Makers to be
assigned and quote in option classes
with lower total national average daily
volume.
Inter-Market Competition
The Exchange believes the proposed
one-time membership application fees
and monthly Trading Permit fees do not
place an undue burden on competition
on other SROs that is not necessary or
appropriate. The Exchange operates in a
highly competitive market in which
market participants can readily favor
one of the 16 competing options venues
if they deem fee levels at a particular
venue to be excessive. Based on
publicly-available information, and
excluding index-based options, no
single exchange has more than 16%
market share. Therefore, no exchange
possesses significant pricing power in
the execution of multiply-listed equity
and ETF options order flow. For the
month of August 2020, the Exchange
had an approximately 3.24% market
share of executed volume of multiplylisted equity options,37 and the
Exchange believes that the ever-shifting
market share among exchanges from
month to month demonstrates that
market participants can discontinue or
reduce use of certain categories of
products, or shift order flow, in
response to fee changes. In such an
environment, the Exchange must
continually adjust its fees and fee
waivers to remain competitive with
other exchanges and to attract order
flow to the Exchange. The Exchange
believes that the proposal reflects this
competitive environment because it
modify the Exchange’s fees in a manner
that continues to encourage market
participants to register as Market Makers
on the Exchange, to provide liquidity,
and to attract order flow. 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. 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,38 and Rule
19b–4(f)(2) 39 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
EMERALD–2020–11 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–EMERALD–2020–11. 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
38 15
36 See
supra notes 13, 14 and 15.
VerDate Sep<11>2014
16:58 Oct 20, 2020
37 See
Jkt 253001
PO 00000
supra note 22.
Frm 00143
Fmt 4703
39 17
Sfmt 4703
E:\FR\FM\21OCN1.SGM
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
21OCN1
Federal Register / Vol. 85, No. 204 / Wednesday, October 21, 2020 / Notices
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–EMERALD–2020–11 and
should be submitted on or before
November 12, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.40
J. Matthew DeLesDernier,
Assistant Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Change To Amend the NYSE American
Options Fee Schedule
October 15, 2020.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on October
9, 2020, NYSE American LLC (‘‘NYSE
American’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
khammond on DSKJM1Z7X2PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE American Options Fee Schedule
(‘‘Fee Schedule’’) regarding the Strategy
Execution Fee Cap. The Exchange
proposes to implement the fee change
VerDate Sep<11>2014
16:58 Oct 20, 2020
Jkt 253001
In its filing with the Commission, the
self-regulatory organization 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 those 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 parts of such
statements.
1. Purpose
[Release No. 34–90193; File No. SR–
NYSEAMER–2020–76]
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2020–23256 Filed 10–20–20; 8:45 am]
40 17
effective October 9, 2020.4 The
proposed change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
The purpose of this filing is to amend
the Fee Schedule to modify the Strategy
Execution Fee Cap (‘‘Strategy Cap’’),
effective October 9, 2020.
Currently, the Fee Schedule provides
that transaction fees for ATP Holders are
limited or capped at $1,000 for certain
options strategy executions ‘‘on the
same trading day,’’ meaning it is a daily
fee cap.5 Strategy executions that
qualify for the Strategy Cap are (a)
reversals and conversions, (b) box
spreads, (c) short stock interest spreads,
(d) merger spreads, and (e) jelly rolls,
which are described in detail in the Fee
Schedule (the ‘‘Strategy Executions’’).6
The Exchange proposes to modify the
Strategy Cap to offer a lower cap of $200
for those ATP Holders that trade at least
25,000 monthly billable contract sides
in Strategy Executions.7 Thus, at the
end of the month, qualifying ATP
Holders would have transaction fees for
their Strategy Executions for each day of
the month capped at $200 (as opposed
4 The Exchange originally filed to amend the Fee
Schedule on October 1, 2020. (SR–NYSEAMER–
2020–72) and withdrew such filing on October 9,
2020.
5 See Fee Schedule, Section I.J., Strategy
Execution Fee Cap, available here: https://
www.nyse.com/publicdocs/nyse/markets/americanoptions/NYSE_American_Options_Fee_
Schedule.pdf. Any reversal and conversion strategy
executed as a QCC order is eligible for this cap;
however, any other strategy executed as a QCC
order is excluded from this fee cap. See id.
6 See id.
7 See proposed Fee Schedule, Section I.J., Strategy
Execution Fee Cap.
PO 00000
Frm 00144
Fmt 4703
Sfmt 4703
67069
to $1,000 for non-qualifying ATP
Holders).8
For example, assume an ATP Holder
executes the following Strategy
Executions against interest in the
Trading Crowd on the third business
day of the month on behalf of a nonCustomer that is not a Specialist or eSpecialist, which participants are
subject to a $0.25 per Manual
transaction fee. Under the current Fee
Schedule an ATP Holder would be
charged a total of $1,000 in options fees,
per the daily fee cap:
• Trade 1: A Reversal Conversion in
DEF comprised of 3,000 call options
against 3,000 put options would be
$1,500 (at $0.25 per execution), absent
the $1,000 Strategy Cap.
• Trade 2: A Reversal Conversion in
ABC comprised of 1,000 call options
against 1,000 put options would be $500
(at $0.25 per execution), absent the
Strategy Cap. However, because the ATP
Holder reached the daily cap (with
Trade 1), the ATP Holder would not be
charged for these transactions.
However, if, in addition to the two
trades above, the ATP Holder executes
a ‘‘jelly roll’’ consisting of 5,000 October
puts and 5,000 October calls against
5,000 November calls and 5,000
November puts on the fifteenth business
day of the month, the total fees for these
qualifying Strategy Executions under
the proposed Fee Schedule would be
capped at $200 for this trading day,
given that the total number of contracts
on day three and day fifteen is above
minimum 25,000 billable contract sides
threshold. Similarly, having met this
threshold, the fees charged on Trades 1
and 2 that were executed on the third
business day would likewise be capped
at $200. Thus, the fees for each of the
third and fifteenth trading day would be
capped at $200 each, for a monthly total
of $400 for Strategy Executions.
The Exchange’s fees are constrained
by intermarket competition, as ATP
Holders may direct their order flow to
any of the 16 options exchanges,
including those with similar Strategy
Fee Caps.9 Thus, ATP Holders have a
choice of where they direct their order
flow. This proposed change is designed
to incent ATP Holders to increase their
Strategy Execution volumes by
executing (often smaller) strategies that
are not necessarily economically viable
on a per symbol basis, but which may
be profitable when fees on Strategy
Executions—regardless of symbol—are
8 See
id.
e.g., Cboe fee schedule, footnote 13. Cboe
caps fees for each participant at $0.00 for the
following strategies executed on the same trading
day: Short stock interest, reversal, conversion, jelly
roll, and merger strategies.
9 See
E:\FR\FM\21OCN1.SGM
21OCN1
]]>Agencies
[Federal Register Volume 85, Number 204 (Wednesday, October 21, 2020)]
[Notices]
[Pages 67064-67069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23256]
[[Page 67064]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90196; File No. SR-EMERALD-2020-11]
Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fee Schedule To Adopt One-Time Membership Application Fees and
Monthly Trading Permit Fees
October 15, 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 October 1, 2020, MIAX Emerald, LLC (``MIAX Emerald'' or
``Exchange''), filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\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 Emerald Fee
Schedule (the ``Fee Schedule'') to adopt certain membership fees for
MIAX Emerald Members,\3\ including: (1) One-time membership application
fees and (2) monthly Trading Permit \4\ fees.
---------------------------------------------------------------------------
\3\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
\4\ The term ``Trading Permit'' means a permit issued by the
Exchange that confers the ability to transact on the Exchange. See
Exchange Rule 100.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxoptions.com/rule-filings/emerald, at MIAX's
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to adopt certain
membership fees, including: (1) Establishing one-time membership
application fees based upon the applicant's status as either an
Electronic Exchange Member (``EEM'') \5\ or as a Market Maker; \6\ and
(2) adopting monthly Trading Permit fees for EEMs and Market Makers.
MIAX Emerald commenced operations as a national securities exchange
registered under Section 6 of the Act \7\ on March 1, 2019.\8\ The
Exchange adopted its transaction fees and certain of its non-
transaction fees in its filing SR-EMERALD-2019-15.\9\ In that filing,
the Exchange expressly waived, among other fees, its membership fees,
including its one-time membership application fees and monthly Trading
Permit fees, to provide an incentive to prospective EEMs and Market
Makers to become Members of the Exchange. Accordingly, since the launch
of the Exchange, all such membership fees have been waived for the
Waiver Period.\10\ When the Exchange adopted the framework for the
membership fees, it stated that it would provide notice to market
participants when the Exchange intended to terminate the Waiver Period
for those fees. Accordingly, on September 15, 2020, the Exchange issued
a Regulatory Circular which announced that the Exchange would be ending
the Waiver Period for its membership fees, including the one-time
membership application fees and monthly Trading Permit fees, among
other non-transaction fees, beginning October 1, 2020.\11\
---------------------------------------------------------------------------
\5\ ``Electronic Exchange Member'' or ``EEM'' means the holder
of a Trading Permit who is not a Market Maker. Electronic Exchange
Members are deemed ``members'' under the Exchange Act. See Exchange
Rule 100 and the Definitions section of the Fee Schedule.
\6\ The term ``Market Makers'' refers to ``Lead Market Makers'',
``Primary Lead Market Makers'' and ``Registered Market Makers''
collectively. See Exchange Rule 100 and the Definitions section of
the Fee Schedule.
\7\ 15 U.S.C. 78f.
\8\ See Securities Exchange Act Release No. 84891 (December 20,
2018), 83 FR 67421 (December 28, 2018) (File No. 10-233) (order
approving application of MIAX Emerald, LLC for registration as a
national securities exchange).
\9\ See Securities Exchange Act Release No. 85393 (March 21,
2019), 84 FR 11599 (March 27, 2019) (SR-EMERALD-2019-15) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Establish the MIAX Emerald Fee Schedule).
\10\ ``Waiver Period'' means, for each applicable fee, the
period of time from the initial effective date of the MIAX Emerald
Fee Schedule until such time that the Exchange has an effective fee
filing establishing the applicable fee. The Exchange will issue a
Regulatory Circular announcing the establishment of an applicable
fee that was subject to a Waiver Period at least fifteen (15) days
prior to the termination of the Waiver Period and effective date of
any such applicable fee. See the Definitions Section of the Fee
Schedule.
\11\ See MIAX Emerald Regulatory Circular 2020-41 available at
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2020_41.pdf.
---------------------------------------------------------------------------
One-Time MIAX Emerald Membership Application Fee
The Exchange proposes to assess a one-time membership application
fee based upon the applicant's status as either an EEM or as a Market
Maker. The Exchange proposes that applicants for MIAX Emerald
Membership as an EEM will be assessed a one-time application fee of
$2,500. The Exchange proposes that applicants for MIAX Emerald
Membership as a Market Maker will be assessed a one-time application
fee of $3,000. The difference in the proposed membership application
fee to be charged to EEMs and Market Makers is because of the
additional review and resources involved in processing a Market Maker's
application, as Market Makers have greater and more complex obligations
with respect to doing business on the Exchange.\12\ MIAX Emerald's
proposed one-time membership application fees are the same as the one-
time application fees in place at the Exchange's affiliate, Miami
International Securities Exchange, LLC (``MIAX'') ($2,500 for an EEM
and $3,000 for a MIAX Market Maker),\13\ and similar to or less than
application fees for the Cboe Exchange, Inc. (``Cboe'') ($3,000 for an
individual applicant and $5,000 for an applicant organization) \14\ and
Nasdaq ISE, LLC (``Nasdaq ISE'') ($7,500 per firm for a primary market
maker, $5,500 per firm for a competitive market maker, and $3,500 per
firm for an electronic access member).\15\ Below is the table showing
the proposed one-time MIAX Emerald membership application fees for EEMs
and Market Makers:
---------------------------------------------------------------------------
\12\ See Chapter VI of the Exchange's rules, generally.
\13\ See MIAX Fee Schedule, Section 3)a).
\14\ See Cboe Fees Schedule, p. 9, Cboe Trading Permit Holder
Application Fees.
\15\ See Nasdaq ISE, Options Rules, Options 7, Pricing Schedule,
Section 9. Legal and Regulatory A. Application.
[[Page 67065]]
------------------------------------------------------------------------
Application
Type of membership fee
------------------------------------------------------------------------
Electronic Exchange Member................................ $2,500.00
Market Maker.............................................. 3,000.00
------------------------------------------------------------------------
Monthly Trading Permit Fees
The Exchange previously introduced the structure of Trading Permit
fees (without proposing the actual fee amounts), but also explicitly
waived the assessment of any such fees for the Waiver Period. Trading
Permits are issued to Members who are either EEMs or Market Makers. The
Exchange proposes to assess monthly fees for Trading Permits depending
upon the category of Member that is issued a Trading Permit. Members
issued Trading Permits during a calendar month will be assessed monthly
Trading Permit Fees. The Exchange notes that the Exchange's affiliate,
Miami International Securities Exchange, LLC (``MIAX''), charges a
similar, fixed trading permit fee to its EEMs, and a similar, varying
trading permit fee to its Market Makers, based upon the number of
assignments of option classes or the percentage of volume in option
classes.\16\
---------------------------------------------------------------------------
\16\ See the MIAX Fee Schedule, Section 3)b).
---------------------------------------------------------------------------
The Exchange proposes that monthly Trading Permit fees will be
assessed, with respect to the calculation of such fee to EEMs (other
than clearing firms), in any month the EEM is certified in the
membership system and is credentialed to use one or more Financial
Information Exchange (``FIX'') \17\ ports in the production
environment. Further, the Exchange proposes that monthly Trading Permit
fees will be assessed with respect to EEM clearing firms in any month
the clearing firm is certified in the membership system to clear
transactions on the Exchange.
---------------------------------------------------------------------------
\17\ ``FIX Port'' means an interface with MIAX Emerald systems
that enables the Port user to submit simple and complex orders
electronically to MIAX Emerald. See the Definitions Section of the
Fee Schedule.
---------------------------------------------------------------------------
The Exchange proposes to assess EEMs a monthly fee of $1,000 for
each Trading Permit. Below is the proposed table showing the Trading
Permit fees for EEMs:
------------------------------------------------------------------------
Monthly MIAX
Type of trading permit emerald trading
permit fee
------------------------------------------------------------------------
Electronic Exchange Member............................. $1,000.00
------------------------------------------------------------------------
The Exchange proposes to assess monthly Trading Permit fees for
Market Makers in any month the Market Maker (including a Registered
Market Maker, Lead Market Maker, and Primary Lead Market Maker) is
certified in the membership system, is credentialed to use one or more
MIAX Emerald Express Interface (``MEI'') \18\ ports in the production
environment and is assigned to quote in one or more classes.
Specifically, the Exchange proposes to adopt the following Trading
Permit fees for Market Makers: (i) $7,000 for Market Maker Assignments
in up to 10 option classes or up to 20% of option classes by national
average daily volume (``ADV''); (ii) $12,000 for Market Maker
Assignments in up to 40 option classes or up to 35% of option classes
by ADV; (iii) $17,000 for Market Maker Assignments in up to 100 option
classes or up to 50% of option classes by ADV; and (iv) $22,000 for
Market Maker Assignments in over 100 option classes or over 50% of
option classes by ADV up to all option classes listed on MIAX Emerald.
---------------------------------------------------------------------------
\18\ The MEI is a connection to the MIAX Emerald System that
enables Market Makers to submit simple and complex electronic quotes
to MIAX Emerald. The Exchange offers Full Service MEI Ports, which
provide Market Makers with the ability to send Market Maker simple
and complex quotes, eQuotes, and quote purge messages to the MIAX
Emerald System. Full Service MEI Ports are also capable of receiving
administrative information. Market Makers are limited to two Full
Service MEI Ports per Matching Engine. The Exchange also offers
Limited Service MEI Ports, which provide Market Makers with the
ability to send simple and complex eQuotes and quote purge messages
only, but not Market Maker Quotes, to the MIAX Emerald System.
Limited Service MEI Ports are also capable of receiving
administrative information. Market Makers initially receive two
Limited Service MEI Ports per Matching Engine. See the Definitions
Section of the Fee Schedule.
---------------------------------------------------------------------------
The Exchange also proposes to adopt an alternative lower Trading
Permit fee for Market Makers who fall within the following Trading
Permit fee levels, which represent the 3rd and 4th levels of the Market
Maker Trading Permit fee table: (i) Market Maker Assignments in up to
100 option classes or up to 50% of option classes by volume; and (ii)
Market Maker Assignments in over 100 option classes or over 50% of
option classes by volume up to all option classes listed on MIAX
Emerald. Specifically, the Exchange proposes to adopt footnote
``[squf]'' following the Market Maker Trading Permit fee table for
these Monthly Trading Permit tier levels, if the Market Maker's total
monthly executed volume during the relevant month is less than 0.025%
of the total monthly executed volume reported by OCC in the customer
account type for MIAX Emerald-listed option classes for that month,
then the fee will be $15,500 instead of the fee otherwise applicable to
such level.
Below is the proposed table showing the Trading Permit fees for
Market Makers:
----------------------------------------------------------------------------------------------------------------
Market Maker assignments (the lesser of the applicable
Monthly MIAX measurements below)
Type of trading permit emerald -----------------------------------------------------------
trading permit Percent of national
fee Per class average daily volume
----------------------------------------------------------------------------------------------------------------
Market Maker (includes RMM, LMM, $7,000.00 Up to 10 Classes.................. Up to 20% of Classes
PLMM). by volume.
12,000.00 Up to 40 Classes.................. Up to 35% of Classes
by volume.
[squf] Up to 100 Classes................. Up to 50% of Classes
17,000.00 by volume.
[squf] Over 100 Classes.................. Over 50% of Classes by
22,000.00 volume up to all
Classes listed on
MIAX Emerald.
----------------------------------------------------------------------------------------------------------------
[squf] For these Monthly MIAX Emerald Trading Permit tier levels, if the Market Maker's total monthly executed
volume during the relevant month is less than 0.025% of the total monthly executed volume reported by OCC in
the customer account type for MIAX Emerald-listed option classes for that month, then the fee will be $15,500
instead of the fee otherwise applicable to such level.
For the calculation of the monthly Market Maker Trading Permit
fees, the number of classes is defined as the greatest number of
classes the Market Maker was assigned to quote in on any given day
within the calendar month and the class volume percentage is based on
the total national ADV in classes listed on MIAX Emerald in the prior
calendar quarter. Newly listed option classes are excluded from the
calculation of the monthly Market Maker Trading Permit fee until the
calendar quarter following their listing, at which time the newly
listed option classes will be included in both the per class count and
the percentage of total national average daily volume. The
[[Page 67066]]
Exchange proposes to assess MIAX Emerald Market Makers the monthly
Market Maker Trading Permit fee based on the greatest number of classes
listed on MIAX Emerald that the Market Maker was assigned to quote in
on any given day within a calendar month and the applicable fee rate
that is the lesser of either the per class basis or percentage of total
national ADV measurement. The purpose of the alternative lower fee
designated in proposed footnote ``[squf]'' is to provide a lower fixed
cost to those Market Makers who are willing to quote the entire
Exchange market (or substantial amount of the Exchange market), as
objectively measured by either number of classes assigned or national
ADV, but who do not otherwise execute a significant amount of volume on
the Exchange. The Exchange believes that, by offering lower fixed costs
to Market Makers that execute less volume, the Exchange will retain and
attract smaller-scale Market Makers, which are an integral component of
the option marketplace, but have been decreasing in number in recent
years, due to industry consolidation and lower market maker
profitability. Since these smaller-scale Market Makers utilize less
Exchange capacity due to lower overall volume executed, the Exchange
believes it is reasonable and equitable to offer such Market Makers a
lower fixed cost. The Exchange notes that the Exchange's affiliate,
MIAX, provides a similar alternative lower Trading Permit fee for
Market Makers who quote the entire MIAX market (or substantial amount
of the MIAX market), as objectively measured by either number of
classes assigned or national ADV, but who do not otherwise execute a
significant amount of volume on MIAX.\19\ The Exchange also notes that
other options exchanges assess certain of their membership fees at
different rates, based upon a member's participation on that
exchange,\20\ and, as such, this concept is not new or novel. The
proposed changes to the Trading Permit fees for Market Makers who fall
within the 3rd and 4th levels of the fee table are based upon a
business determination of current Market Maker assignments and trading
volume.
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\19\ See supra note 16.
\20\ See e.g., NYSE Arca Options Fees and Charges, p.1
(assessing market makers $6,000 for up to 175 option issues, an
additional $5,000 for up to 350 option issues, an additional $4,000
for up to 1,000 option issues, an additional $3,000 for all option
issues on the exchange, and an additional $1,000 for the fifth
trading permit and for each trading permit thereafter); NYSE
American Options Fee Schedule, p. 23 (assessing market makers $8,000
for up to 60 plus the bottom 45% of option issues, an additional
$6,000 for up to 150 plus the bottom 45% of option issues, an
additional $5,000 for up to 500 plus the bottom 45% of option
issues, and additional $4,000 for up to 1,100 plus the bottom 45% of
option issues, an additional $3,000 for all issues traded on the
exchange, and an additional $2,000 for 6th to 9th ATPs; plus an
addition fee for premium products). See also Cboe BZX Options
Exchange (``BZX Options'') assesses the Participant Fee, which is a
membership fee, according to a member's ADV. See Cboe BZX Options
Exchange Fee Schedule under ``Membership Fees''. The Participant Fee
is $500 if the member ADV is less than 5,000 contracts and $1,000 if
the member ADV is equal to or greater than 5,000 contracts. Id.
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Applicability to and Impact on Participants
The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \21\
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\21\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than approximately 16%
market share.\22\ Therefore, no exchange possesses significant pricing
power. More specifically, for the month of August 2020, the Exchange
had an approximately 3.24% market share of executed volume of multiply-
listed equity options.\23\
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\22\ The Options Clearing Corporation (``OCC'') publishes
options and futures volume in a variety of formats, including daily
and monthly volume by exchange, available here: https://www.theocc.com/market-data/volume/default.jsp.
\23\ See id.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
discontinue or reduce use of certain categories of products, or shift
order flow, in response to non-transaction and transaction fee changes.
For example, on February 28, 2019, the Exchange's affiliate, MIAX
PEARL, LLC (``MIAX PEARL'') filed with the Commission a proposal to
increase Taker fees in certain Tiers for options transactions in
certain Penny classes for Priority Customers and decrease Maker rebates
in certain Tiers for options transactions in Penny classes for Priority
Customers (which fee was to be effective March 1, 2019).\24\ MIAX PEARL
experienced a decrease in total market share for the month of March
2019, after the proposal went into effect. Accordingly, the Exchange
believes that the MIAX PEARL March 1, 2019 fee change, to increase
certain transaction fees and decrease certain transaction rebates, may
have contributed to the decrease in MIAX PEARL's market share and, as
such, the Exchange believes competitive forces constrain the
Exchange's, and other options exchanges, ability to set transaction
fees and market participants can shift order flow based on fee changes
instituted by the exchanges.
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\24\ See Securities Exchange Act Release No. 85304 (March 13,
2019), 84 FR 10144 (March 19, 2019) (SR-PEARL-2019-07).
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The proposed adoption of a one-time membership application fee and
monthly Trading Permit fees applicable to EEMs and Market Markers would
be applied uniformly to each of these market participants. Further, as
there are currently 16 registered options exchanges competing for order
flow with no single exchange accounting for more than approximately 16%
of market share, the Exchange cannot predict with certainty whether any
participant is planning to become a Member and thus would be subject to
the proposed fees.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \25\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \26\ in
particular, in that it is an equitable allocation of reasonable dues,
fees and other charges among its members and issuers and other persons
using its facilities. The Exchange also believes the proposal furthers
the objectives of Section 6(b)(5) of the Act in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest and is not designed to permit unfair discrimination between
customers, issuers, brokers and dealers.
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\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that the proposal to adopt a one-time
membership application fee and Trading Permit fees applicable to EEMs
and Market Markers, as described above, is reasonable in several
respects. First, the Exchange is subject to significant competitive
forces in the market for options transaction and non-transaction
services that constrain its pricing
[[Page 67067]]
determinations in that market. The Commission has repeatedly expressed
its preference for competition over regulatory intervention in
determining prices, products, and services in the securities markets.
In Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \27\
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\27\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options transaction services. The Exchange is one of several options
venues to which market participants may direct their order flow, and it
represents a small percentage of the overall market. Within this
environment, market participants can freely and often do shift their
order flow among the Exchange and competing venues in response to
changes in their respective pricing schedules. There are currently 16
registered options exchanges competing for order flow. Based on
publicly-available information, and excluding index-based options, no
single exchange has more than approximately 16% of the market share of
executed volume of multiply-listed equity and ETF options.\28\
Therefore, no exchange possesses significant pricing power. More
specifically, for the month of August 2020, the Exchange had an
approximately 3.24% market share of executed volume of multiply-listed
equity options.\29\
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\28\ See supra note 22.
\29\ See id.
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The Exchange also believes that the ever-shifting market share
among the exchanges from month to month demonstrates that market
participants can discontinue or reduce use of certain categories of
products, or shift order flow, in response to non-transaction and
transaction fee changes. For example, on February 28, 2019, the
Exchange's affiliate, MIAX PEARL, filed with the Commission a proposal
to increase Taker fees in certain Tiers for options transactions in
certain Penny classes for Priority Customers and decrease Maker rebates
in certain Tiers for options transactions in Penny classes for Priority
Customers (which fee was to be effective March 1, 2019).\30\ MIAX PEARL
experienced a decrease in total market share for the month of March
2019, after the proposal went into effect. Accordingly, the Exchange
believes that the MIAX PEARL March 1, 2019 fee change, to increase
certain transaction fees and decrease certain transaction rebates, may
have contributed to the decrease in MIAX PEARL's market share and, as
such, the Exchange believes competitive forces constrain the
Exchange's, and other options exchanges, ability to set transaction
fees and market participants can shift order flow based on fee changes
instituted by the exchanges.
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\30\ See supra note 24.
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Further, the Exchange no longer believes it is necessary to waive
these fees to attract market participants to the MIAX Emerald market
since this market is now established and MIAX Emerald no longer needs
to rely on such waivers to attract market participants. The Exchange
believes that the proposal is equitable and not unfairly discriminatory
because the elimination of the fee waiver for one-time membership
application fees and monthly Trading Permit fees will uniformly apply
to all EEMs and Market Makers seeking to become Members of the
Exchange. Additionally, the Exchange believes its proposal for a one-
time membership application fees applicable to EEMs and Market Markers
is reasonable and well within the range of fees assessed among other
exchanges, including the Exchange's affiliate, MIAX.\31\ The Exchange
also notes that the Exchange's affiliate, MIAX, charges a similar,
fixed trading permit fee to its EEMs, and a similar, varying trading
permit fee to its Market Makers, based upon the number of assignments
of option classes or the percentage of volume in option classes.\32\
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\31\ See supra notes 13, 14 and 15.
\32\ See supra note 16.
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The Exchange believes its one-time membership application fees are
reasonable, equitable and not unfairly discriminatory. As described
above, the one-time application fees are similar to the application
fees in place at other options exchanges,\33\ and are associated with
the time and resources of processing of such applications. The Exchange
believes that it is reasonable, equitable, and not unfairly
discriminatory that Market Maker applicants are charged slightly more
than EEM applicants because of the additional review and resources
involved in processing a Market Maker's application, as Market Makers
have greater and more complex obligations with respect to doing
business on the Exchange.\34\
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\33\ See supra notes 14 and 15.
\34\ See supra note 12.
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The Exchange believes that the proposed monthly Trading Permit fees
are reasonable, equitable and not unfairly discriminatory because they
are within the range of comparable fees at other competing options
exchanges.\35\ As such, the proposal is reasonably designed to continue
to compete with other options exchange by incentivizing market
participants to register as Market Makers on the Exchange in a manner
that enables the Exchange to improve its overall competitiveness and
strengthen its market quality for all market participants. The proposed
fees are fair and equitable and not unreasonably discriminatory because
they apply equally to all Market Makers regardless of type and access
to the Exchange is offered on terms that are not unfairly
discriminatory. The Exchange designed the fee rates in order to provide
objective criteria for Market Makers of different sizes and business
models to be assessed a Trading Permit Fee that best matches their
quoting activity on the Exchange. The Exchange notes that trading
volume and quoting activity in the options market tends to be
concentrated in the top ranked options classes; with the vast majority
of options classes being thinly quoted and traded. The Exchange
believes that the proposed fee rates and criteria provide an objective
and flexible framework that will encourage Market Makers to be assigned
and quote in option classes with lower total national average daily
volume while also equitably allocating the fees in a reasonable manner
amongst Market Maker assignments to account for quoting and trading
activity.
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\35\ See supra note 20.
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Finally, 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 for services and products, in addition to order flow, to
remain competitive with other exchanges. The Exchange believes that the
proposed changes reflect this competitive environment.
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.
[[Page 67068]]
Intra-Market Competition
The Exchange does not believe that the proposed rule change would
place certain market participants at the Exchange at a relative
disadvantage compared to other market participants or affect the
ability of such market participants to compete. Unilateral action by
MIAX Emerald in the assessment of certain non-transaction fees for
services provided to its Members and others using its facilities will
not have an impact on competition. As a more recent entrant in the
already highly competitive environment for equity options trading, MIAX
Emerald does not have the market power necessary to set prices for
services that are unreasonable or unfairly discriminatory in violation
of the Act. MIAX Emerald's proposed one-time membership application
fees and monthly Trading Permit fees, as described herein, are
comparable to fees charged by other options exchanges for the same or
similar services, including those fees assessed by the Exchange's
affiliate, MIAX.\36\
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\36\ See supra notes 13, 14 and 15.
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The Exchange believes that the proposed one-time membership
application fees and monthly Trading Permit fees do not place certain
market participants at a relative disadvantage to other market
participants because the pricing is associated with the Exchange's time
and resources to process such applications. The proposed one-time
membership application fees do not apply unequally to different size
market participants, but instead would allow the Exchange to charge for
reviewing and processing Market Maker and EEM membership applications.
Accordingly, the proposed one-time membership application fees do not
favor certain categories of market participants in a manner that would
impose a burden on competition.
Further, the Exchange believes that the proposed rule change will
promote transparency by making it clear to EEMs and Market Makers the
fees that MIAX Emerald will assess for Membership application to MIAX
Emerald. This will permit EEMs and Market Makers to more accurately
anticipate and account for the costs of one-time membership application
in order to become Members of the Exchange, which promotes consistency.
The Exchange believes that the proposal increases intra-market
competition by enabling Market Makers to qualify for lower Trading
Permit fee rates on the Exchange in a manner that is designed to
provide objective criteria for Market Makers of different sizes and
business models to be assessed a Trading Permit fee that best matches
their quoting activity on the Exchange yet still be in the range of
comparable fees on other exchanges. The Exchange believes that the
proposal will increase competition amongst Market Makers of different
sizes and business models by encouraging Market Makers to be assigned
and quote in option classes with lower total national average daily
volume.
Inter-Market Competition
The Exchange believes the proposed one-time membership application
fees and monthly Trading Permit fees do not place an undue burden on
competition on other SROs that is not necessary or appropriate. The
Exchange operates in a highly competitive market in which market
participants can readily favor one of the 16 competing options venues
if they deem fee levels at a particular venue to be excessive. Based on
publicly-available information, and excluding index-based options, no
single exchange has more than 16% market share. Therefore, no exchange
possesses significant pricing power in the execution of multiply-listed
equity and ETF options order flow. For the month of August 2020, the
Exchange had an approximately 3.24% market share of executed volume of
multiply-listed equity options,\37\ and the Exchange believes that the
ever-shifting market share among exchanges from month to month
demonstrates that market participants can discontinue or reduce use of
certain categories of products, or shift order flow, in response to fee
changes. In such an environment, the Exchange must continually adjust
its fees and fee waivers to remain competitive with other exchanges and
to attract order flow to the Exchange. The Exchange believes that the
proposal reflects this competitive environment because it modify the
Exchange's fees in a manner that continues to encourage market
participants to register as Market Makers on the Exchange, to provide
liquidity, and to attract order flow. To the extent that this purpose
is achieved, all the Exchange's market participants should benefit from
the improved market liquidity.
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\37\ See supra note 22.
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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,\38\ and Rule 19b-4(f)(2) \39\ 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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\38\ 15 U.S.C. 78s(b)(3)(A)(ii).
\39\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-EMERALD-2020-11 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-EMERALD-2020-11. 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
[[Page 67069]]
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-
EMERALD-2020-11 and should be submitted on or before November 12, 2020.
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\40\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-23256 Filed 10-20-20; 8:45 am]
BILLING CODE 8011-01-P
